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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2020

Commission file number: 1-7945

DLX-20201231_G1.JPG  

DELUXE CORPORATION
(Exact name of registrant as specified in its charter)
 
MN 41-0216800
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3680 Victoria St. N. Shoreview MN 55126-2966
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code: (651) 483-7111
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, par value $1.00 per share DLX NYSE

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. Yes     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. Yes     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. Yes     No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No
The aggregate market value of the voting stock held by non-affiliates of the registrant is $978,925,599 based on the last sales price of the registrant's common stock on the New York Stock Exchange on June 30, 2020. The number of outstanding shares of the registrant's common stock as of February 10, 2021 was 42,029,373.
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, 2020

TABLE OF CONTENTS
Item Page
3


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PART I

ITEM 1. BUSINESS

OUR BACKGROUND

Over 105 years ago, Deluxe Corporation began providing payment solutions. Our longevity is a testament to our innovation, our ability to evolve with our customers and the trust they place in us. We have transformed from a check printing company to a Trusted Business TechnologyTM company that champions business so communities thrive. We support millions of small businesses, thousands of vital financial institutions and hundreds of the world's largest consumer brands, while processing more than $2.8 trillion in annual payment volume. We operate primarily in the U.S., but we also sell our products and services in Canada, Australia and portions of Europe and South America.

OUR BUSINESS SEGMENTS, PRODUCTS AND SERVICES

Effective January 1, 2020, we transitioned from a "company of companies" to a "company of products," reorganizing our management and reporting structure by product type. In conjunction with our reorganization, we began reporting operating results for 4 business segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments provide the following products and services:
Business Segment Category Percentage of 2020 revenue Description
Payments Treasury management solutions 12.6  % Lockbox, remote deposit capture, integrated receivables, payment acceptance
Other payment solutions 4.2  % Payroll, disbursements, Medical Payment Exchange, Deluxe Payment Exchange, eChecks, fraud and security services
Cloud Solutions Web and hosted solutions 7.5  % Web hosting and design, digital engagement, logo design, financial institution profitability reporting, business incorporation services
Data-driven marketing solutions 6.7  % Solutions for marketing business-to-business and business-to-consumer
Promotional Solutions Forms and other products 17.7  % Business forms, accessories, strategic sourcing services
Marketing and promotional solutions 11.9  % Advertising specialties, promotional apparel, retail packaging
Checks Checks 39.4  % Printed personal and business checks

OUR "ONE DELUXE" STRATEGY

Our vision is to be a Trusted Business Technology leader in payments and data. Payments encompasses all of the products and services that help our customers pay and get paid. Data includes our project and platform data businesses. To accomplish this, we are focused on the following key enablers:

Our customers – Our products and services can be utilized by customers of all sizes and maturities. While we serve customers across all industries, we will focus our efforts on key verticals, including financial institutions, health care, real estate/construction and insurance. In addition, we continue to benefit from a long heritage of offering trusted service to our check customers, which in turn, fuels meaningful cash flow that is redeployed to invest in other areas of the company.

World class payments and data products and platforms – We will continue investments to build market-leading payments and data products and platforms that are proprietary to Deluxe, so that our customers will build their businesses upon our platforms for the long-term.

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Scale – We believe our volumes in many of our service offerings enable us to offer per-unit costs and reliability superior to our competitors. We plan to continue to focus on scaling our product management capabilities and creating a product innovation center.

Recurring and reoccurring revenue – Our focus will continue to be on offering products and integrated platforms that generate recurring and reoccurring revenue streams.

Sales and distribution channels – We have extensive market reach, with millions of small business and consumer customers and thousands of financial institution clients. We plan to deploy our resources, including our sales force and our various strategic partnerships, to cost-effectively reach customers.

In support of our strategy, we continue to invest significant resources to build out our technology platforms. We completed the implementation of a human capital management system in January 2020. We also completed the first implementation phase of sales technology that enables a single view of our customers, thereby providing for deeper cross-sell opportunities, and we continue to invest in enhancing sales technology for continued optimization. In addition, we are investing in our financial tools, including an enterprise resource planning system. Strategically, we believe these enhancements will allow us to better assess and manage our business at the total company level and will make it easier for us to quickly integrate any future acquisitions. While we reduced certain expenditures in the early stages of the COVID-19 pandemic, we have since resumed our investments in these initiatives and we plan to continue with important system implementations.

We expect to continue our efforts to simplify processes, eliminate duplicative processes and lower costs. During 2020, we continued to review our real estate footprint and announced plans to lower future operating expenses through further site consolidation. We closed 24 facilities during 2020, and we anticipate closing additional facilities in 2021. Additionally, we plan to continue to develop our post-COVID-19 operating model to match expected customer needs and anticipated volumes, as well as to gain efficiencies.

IMPACT OF THE COVID-19 PANDEMIC

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic. The COVID-19 pandemic is having widespread, rapidly-evolving and unpredictable impacts on global society, economies, financial markets and business practices. Federal, state and foreign governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, working from home, supply chain logistical changes, and restrictions on certain non-essential businesses. To protect the health and well-being of our employees, suppliers and customers, we have made substantial modifications to employee travel policies, implemented office closures as employees are advised to work from home, and cancelled or shifted conferences and other sales and marketing events to virtual events. The COVID-19 pandemic has impacted, and will continue to impact, our business operations, including our employees, customers, partners and communities, and there is substantial uncertainty as to the nature and degree of its continued effects over time. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7 of this report for further discussion regarding the impact of COVID-19 on our 2020 financial results.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the severity and duration of the pandemic; governmental, business and individuals' actions in response to the pandemic; the timing and effectiveness of vaccines; and the resulting impact on economic activity and the financial markets. Please refer to the Risk Factors discussion appearing in Part I, Item 1A of this report for a discussion of these factors and other risks affecting our business, financial position, results of operations and prospects.
4


OUR SALES AND MARKETING STRATEGY

We continue to make progress in becoming a sales-driven revenue growth company. Everyone sells at Deluxe. We employ a comprehensive "One Deluxe" go-to-market approach, deploying a unified sales team with a complete view of our customer relationships, with the goal of bringing the best of Deluxe to every customer. Our customers rely on our solutions and platforms at all stages of their lifecycle, from start-up to maturity (as illustrated below), allowing our business segments to help each other deliver greater value for our customers and enabling our customers to build their businesses upon our platforms for the long-term.

DLX-20201231_G2.JPG Note: Illustration is not indicative of our full set of products and services.

Our sales and marketing strategy employs a multi-channel, demand-generation approach. This includes our enterprise account model, under which our sales force sells directly to financial institutions and major global brands. We also sell our products and services through scalable partnerships, enabling us to cost-effectively reach customers, specifically leveraging our financial Institution partnerships, our e-commerce assets and other strategic partnerships. In addition, millions of in-bound customer contacts buying or re-ordering our products and services provide extensive cross-sell opportunities. In July 2020, we launched our free small business advisory service, providing our expertise to help businesses improve their marketing efforts, reach new customers, find inventive ways to save time and money, navigate how to grow or evolve their business, or start a new business. Excluding the impact of the COVID-19 pandemic, we believe that we delivered sales-driven quarterly revenue growth throughout 2020, giving us confidence in our go-to-market approach.

INDUSTRY TRENDS AND OUR COMPETITION

Payments, including Checks

The payments industry continues to expand and evolve, with digital payment vehicles and transaction volumes growing around the world. The challenge for payment providers is to modernize their infrastructure to support new service offerings and to identify new revenue streams, as well as to invest in cloud computing and other digital technologies to more rapidly address evolving customer preferences. This pace of change puts pressure on payment providers to transform and adapt in order to remain competitive.

Competition in the payments industry is intense. We are competing against numerous financial technology (Fintech) companies, as well as financial institution in-house capabilities. Volume is the key to staying cost-competitive, and breadth of services is critical to staying relevant to customers. We believe our competitive advantages are: our scalable platform, our extensive distribution channels, frictionless payments (i.e., non-disruptive for payer, and payment choices for payee), our automated receivables management and our strong brand. We also believe there is great opportunity to convert paper checks to digital payments, which we are addressing with our Medical Payments Exchange (MPX) and Deluxe Payments Exchange platforms.
5



Our Checks business remains an important part of our strategy. We believe there will continue to be demand for personal and business checks for the foreseeable future, although the total number of checks written in the U.S. has been in decline since the mid-1990s. The cash flow generated by our Checks business partially self-funds our growth investments. Our check programs are also an important source of lead generation for the cost-effective cross-selling of our products and services. Although we saw some decrease in our check volumes resulting from the impact of the COVID-19 pandemic, we do not believe that the pandemic resulted in a significant shift from checks to digital payment solutions, and we have seen some recovery in business checks as a result of new small business formations.

Our Checks business faces 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, from check printing software vendors and from certain significant retailers. Pricing continues to be competitive in our financial institution sales channel, as financial institutions seek to maintain their previous levels of profitability, even as check usage declines. We believe our competitive advantages come from our design and customization options, our quality and service, the trust our customers have in us and our strong financial position.

Cloud Solutions

Data-driven marketing – With increased competition among businesses to target and engage new and existing customers, the use of data-driven marketing has continued to increase and evolve. Competition in this industry is intense, with a wide variety of companies in the data solutions space, including advertising agencies, marketing technology firms, data aggregators and brokers, and source data providers. Adapting to new technology is a key challenge in this industry, along with hiring and retaining the right people. We saw a decrease in data-driven marketing revenue as a result of the COVID-19 pandemic, as customers suspended their marketing campaigns because of the resulting economic uncertainty. We are not able to predict the rate at which this business will recover, but we are adapting to the changing needs of our customers and expanding our offerings to provide a greater breadth of services.

We believe we have significant growth opportunity in this market. We intend to simplify and integrate our separate businesses operating in this market, monetize the significant amount of data we process across the company, invest in technologies such as artificial intelligence and machine learning, and consolidate our data infrastructure to reduce costs. We also believe that our pay-for-performance offerings provide us a competitive advantage.

Web and hosted solutions – The market for web hosting services is highly competitive and commoditized. As such, significant spending on product development and customer acquisition is required to compete in this space, and value-added services differentiate the competition. The markets for our hosted software-as-a-service (SaaS) solutions, including search, social and email marketing, logo design and business incorporation services, are also large, dynamic and highly competitive, with dominant integrated players, as well as niche providers. We believe that it is easy to find our service offerings online, that they are simple to use and that they are competitively priced. We also believe that we will better compete in these markets as we optimize our suite of solutions to deliver more integrated offerings.

Promotional Solutions

The market for business forms and certain accessories has been declining for several years, as continual technological improvements have provided businesses with alternative means to execute and record business transactions. Greater acceptance of electronic signatures also has contributed to the overall decline in printed products. Demand for promotional products was significantly impacted in 2020 by the COVID-19 pandemic, as companies reduced their advertising and marketing spending in response to the overall economic decline and their customers' and governmental responses to the pandemic. We anticipate that demand for promotional products will improve as the overall economy recovers.

The markets for business forms and promotional products are intensely competitive and highly fragmented. Current and potential competitors include traditional storefront printing companies, office superstores, wholesale printers, online printing companies, small business product resellers and providers of custom apparel and gifts. We believe that our competitive advantages include our multi-channel experience, ease of use, our deep sources of supply and our branded merchandise. We also believe that, by expanding our product set and driving integration of physical and digital solutions, we will transition this segment to a technology-driven business that can respond quickly to market opportunities and differentiate us from our competitors.

OUR OPERATIONS / SUSTAINABLE PRACTICES

We continue to focus on improving the customer experience by providing excellent service and quality, while increasing our productivity and reducing our costs. We accomplish this by embedding lean operating principles into our processes, while emphasizing a culture of continuous improvement. We have a shared services approach, which allows our businesses to leverage shared facilities to optimize capacity utilization and to enhance operational excellence. We continue to reduce costs by utilizing our assets and technologies more efficiently and by enabling employees to better leverage their capabilities and talents.
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We continue to sponsor sustainability initiatives that encompass environmentally-friendly practices. We have aligned with suppliers that promote sustainable business practices and we seek opportunities to eliminate wasted material, reduce cycle times, use more environmentally-friendly materials and reduce solid waste sent to landfills. More than 90% of our check and forms paper is purchased from Forest Stewardship Council certified supplier mills, certain of our check designs are made from recycled paper and we use environmentally-friendly janitorial supplies in the majority of our locations. In 2019, we introduced our environmentally-responsible Smart Check by Deluxe® check configuration, which utilizes eco-friendly materials and plant-based ink. In addition, our sustainability initiatives over the past several years have focused on reducing our consumption of water, electricity and natural gas and improving our transportation efficiency.

CYBERSECURITY

The secure and uninterrupted operation of our networks and systems, as well as the processing, maintenance and confidentiality of the sensitive information that resides on our systems, is critical to our business operations and strategy. Each year, we process hundreds of millions of records containing data related to individuals and businesses. In addition, many of our products are hosted solutions, and the amount of data we store for our customers on our servers, including personal, important business and other potentially sensitive information, has been increasing. Technology-based organizations such as ours are vulnerable to targeted attacks aimed at exploiting network and system applications or weaknesses. A successful cyber attack could result in the disclosure or misuse of sensitive business and personal information and data, cause interruptions in our operations, damage our reputation and deter clients and consumers from ordering our products and services. It could also result in litigation, the termination of client contracts, government inquiries and/or enforcement actions.

We have a risk-based information/cybersecurity program dedicated to protecting our data and solutions. We employ a defensive in-depth strategy, utilizing the concept of security layers and the CIA (confidential, integrity and availability) triad model. Our information security program is led by our Chief Information Security Officer and the Information Security department, which establishes the policies, standards and strategies to manage security risk.

We have an Enterprise Risk Management Steering Committee led by our Assurance and Risk Advisory Services group, our Chief Financial Officer and our Chief Administrative Officer, with participation from our executive leadership team and senior-level staff, including our Chief Information Officer, our Chief Strategy Officer, our Chief Compliance Officer, our Chief Information Security Officer and the Division Presidents. This committee assesses and monitors our top enterprise risks, including cybersecurity, and provides quarterly updates to our board of directors. Our Chief Information Security Officer also provides periodic updates to our board of directors.

In the event a cybersecurity incident is identified, we have a Cyber Security Incident Response team and an Incident and Crisis Response Program to ensure communication to our executive leadership team and to coordinate the response to any incident. Our Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Information Security Officer and Chief Compliance Officer are responsible for assessing such incidents for materiality, ensuring that any required notification or communication occurs and determining whether any prohibition on the trading of our common stock by insiders should be imposed prior to the disclosure of information about a material cybersecurity event.

For more information on risks related to data security, see Item 1A, "Operational Risks – Security breaches, computer malware or other cyber attacks involving the confidential information of our customers, employees or business partners could substantially damage our reputation, subject us to litigation and enforcement actions, and substantially harm our business and results of operations."

OUR MATERIALS, SUPPLIES AND SERVICE PROVIDERS

The principal materials used in producing our main products are paper, plastics, ink, corrugated packaging and printing plate material, which we purchase from various sources. We also purchase stock business forms and promotional apparel 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 delivery services and information technology services, including telecommunications, network server and transaction processing services. We also rely upon third parties to provide a portion of the data used to maintain our proprietary and non-proprietary databases, including credit and non-credit data from the national credit bureaus and other data brokers. We believe we would be able to obtain an alternative source of supply if one or more of our service providers failed to perform.


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OUR HUMAN CAPITAL

Our most valuable asset is our employee-owners. As of December 31, 2020, we had 6,185 employees. Approximately 98% of our team is full-time employees, with 65% representing non-exempt roles working in production, processing or call center functions. We employ 5,487 employees in the United States, 586 employees in Canada and 112 employees in Australia and Europe. We are proud of our strong history of positive, productive employee relations. None of our employees are currently represented by labor unions.

The foundation of our continuing success as a Trusted Business TechnologyTM company is our ability to attract and retain diverse, exceptional and motivated talent. We accomplish this by providing a culture of inclusion, diversity, equity, development, opportunity and empowerment.

Results-Driven, Community-Focused, Collaborative Culture

We focus on creating an environment where our employee-owners, also known as Deluxers, feel respected and valued, and where they can contribute to their full potential. To this end, an important component of our One Deluxe strategy is that all North American employees own company stock. The heritage of the company also reflects deep-seated roots in community support and volunteerism, which is reflected in our purpose statement: “Champions for business so communities thrive.” Additionally, our values focus on delivering results:

We put customers first.
We earn trust.
We create what’s next.
We deliver for shareholders.
We are a get-it-done team.

In an effort to continue to improve our culture and and engagement, we provide learning and development at all levels of the organization on a variety of topics, including inclusion, diversity and equity (ID&E), leadership development and mentoring. We also strive to ensure that we are consistently receiving real-time feedback and that we continue to focus on transparent communication channels through change pulse checks, surveys, senior leadership forums and employee resource groups. During 2020, we received certification as a Great Place to Work from The Great Place to Work Institute.

Inclusion, Diversity and Equity

We embrace ID&E in our workforce, customers, partners and shareholders, valuing their unique backgrounds, experiences, thoughts and talents. Our mission is to empower all employees to bring their full authentic selves to work as One Deluxe and to foster an environment that reflects the diverse communities we serve. We strive to cultivate a culture and vision that supports and enhances our ability to recruit, develop and retain diverse talent at every level. We provide our customers, partners, and shareholders information about our ID&E program and our activities supporting social justice within the communities we serve. In addition, we are focused on furthering our ID&E initiatives throughout our business and have, among other things, created an ID&E council that is sponsored by our Chief Communications and Human Resources Officer and our Chief Revenue Officer. This council is comprised of employee-owners across multiple functions and business segments. Its top priorities for the next two years include implementing a comprehensive ID&E learning and development plan to build awareness and drive inclusive behaviors, further developing our diversity pipeline through hiring, mentoring and coaching, and establishing goals and metrics to ensure progress.

As of December 31, 2020, our total workforce was approximately 55% female and 43% male. Our team members located in the United States were comprised of approximately 58% white, 14% Black or African American, 10% Asian American and 10% Hispanic or Latino.

Health, Wellness and Safety

Creating a culture where all employee-owners feel supported and valued is paramount to our One Deluxe strategy. The ongoing COVID-19 pandemic has led to unique challenges, and we continue to evolve our programs to support Deluxers’ health, safety and general well-being.

In response to the COVID-19 pandemic, we implemented significant changes to our operating environment to help our employee-owners remain productive and safe. Among other things, nearly half of our employee-owners continue to work from home, and we have implemented additional safety measures for employees continuing essential on-site work. We also reconfigured our factory floors and other personnel areas to ensure sufficient distancing in high density areas of our facilities, and we installed Plexiglas shields, implemented modified training programs to comply with distancing requirements, substantially limited visitor entry, increased virtual meetings and adjusted shifts to aid in physical distancing. Finally, we continue to provide a competitive benefits package focused on fostering work/life integration.

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Community Engagement

Our employee-owners believe in the power of connection, of activity and of giving back to the communities we serve. That is why we have created multiple initiatives that focus on supporting our communities, both financially and with time and talent. It is essential to be invested and involved to attract and retain employees of the highest caliber.

SEASONALITY

Historically, we have experienced seasonal trends with some of our products and services. For example, holiday card and retail packaging sales and revenues from search and email marketing services are typically stronger in the fourth quarter of the year due to the holiday season. Sales of tax forms are stronger in the first and fourth quarters of the year, and direct-to-consumer check sales have historically been stronger in the first quarter of the year. In addition, we may experience some fluctuations in revenue driven by our customers' marketing campaign cycles.

GOVERNMENT REGULATION

We are subject to numerous international, federal, state and local laws and regulations that affect our business activities in several areas, including, but not limited to, labor, advertising, taxation, data privacy and security, digital content, consumer reports, consumer protection, online payment services, real estate, e-commerce, intellectual property, health care, environmental matters, and workplace health and safety. In response to the COVID-19 pandemic, local, state, national and international governments and health authorities have established myriad new laws, rules, regulations and orders. These emergency enactments evolve rapidly, and sometimes become effective within a 24-hour period. The complexity of complying with existing and new laws and regulations is significant, and regulators may adopt new laws or regulations at any time.

We believe that our business is operated in substantial compliance with all applicable laws and regulations. For more specific information about the effects of government regulation on our business, see Item 1A, "Legal and Compliance Risks – Governmental regulation is continuously evolving and could limit or harm our business." We believe that the impact on our capital expenditures and earnings of complying with government regulations will not be materially different in the upcoming year than it was in 2020.

AVAILABLE INFORMATION

We make available through our investor relations website, www.deluxe.com/investor-relations, 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 Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after these items are electronically filed with or furnished to the SEC. These reports can also be accessed via the SEC website, sec.gov.

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 www.deluxe.com, facebook.com/deluxecorp and twitter.com/deluxe.

OUR CODE OF ETHICS AND CORPORATE GOVERNANCE GUIDELINES

We have adopted a Code of Business Ethics that applies to all of our employees and our board of directors. The Code of Business Ethics is available on our investor relations website, www.deluxe.com/investor-relations, 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 Business Ethics 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, www.deluxe.com/investor-relations/corporate-governance, or upon written request.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS

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
Barry McCarthy 57 President and Chief Executive Officer 2018
Keith Bush 50 Senior Vice President, Chief Financial Officer 2017
Garry Capers, Jr. 44 Senior Vice President, Division President, Cloud Solutions 2019
Jeffrey Cotter 53
Senior Vice President, Chief Administrative Officer and General Counsel
2018
Jane Elliott 54 Senior Vice President, Chief Communications and Human Resources Officer 2019
Tracey Engelhardt 56 Senior Vice President, Division President, Checks 2012
Pete Godich 56 Senior Vice President, Chief of Operations 2008
Michael Mathews 48 Senior Vice President, Chief Information Officer 2013
Amanda Parrilli 42 Senior Vice President, Strategy, Transformation and Business Development 2019
Michael Reed 49 Senior Vice President, Division President, Payments 2019
Thomas Riccio 47 Senior Vice President, Division President, Promotional Solutions 2019
Christopher Thomas 52 Senior Vice President, Chief Revenue Officer 2019

Barry McCarthy joined us in November 2018 as President and Chief Executive Officer. Prior to joining us, Mr. McCarthy served in various senior executive positions, most recently, from November 2014 to November 2018, as Executive Vice President and Head of Network and Security Solutions, a segment of publicly traded First Data Corporation, a financial services company.

Keith Bush joined us in March 2017 as Senior Vice President, Chief Financial Officer. Prior to joining us, Mr. Bush was self-employed as a consultant from July 2016 to March 2017. From June 2009 through July 2016, Mr. Bush served as Senior Vice President, Finance for American Airlines.

Garry Capers, Jr. joined us in September 2019 as Senior Vice President, Division President, Cloud Solutions. Prior to joining us, Mr. Capers was employed by Automatic Data Processing, Inc., a provider of human resources management software and services, from January 2017 to September 2019, most recently as Senior Vice President, General Manager, National Account Services Comprehensive Outsourcing Services and Operations. Prior to this, Mr. Capers held several positions at Equifax Inc., a global data, analytics and technology company, including General Manager, NACS Marketing Services from January 2014 to January 2017.

Jeffrey Cotter was named Chief Administrative Officer in January 2019. Mr. Cotter joined us in June 2018 as Senior Vice President, General Counsel. Prior to joining us, Mr. Cotter served as Senior Vice President and General Counsel for Tennant Company, a provider of cleaning products and solutions, from September 2017 to June 2018. From June 2008 to April 2017, Mr. Cotter served as Vice President, General Counsel for G&K Services, Inc., a provider of branded uniform and facility services programs.

Jane Elliott joined us in April 2019 as Senior Vice President, Chief Human Resources Officer, and in June 2020, was named Chief Communications and Human Resources Officer. Prior to joining us, Ms. Elliott was employed by Global Payments Inc., a financial technology services provider, where she served as Executive Vice President and Chief Administrative Officer from January 2016 to March 2018 and Executive Vice President and Chief of Staff from November 2013 to January 2016.

Tracey Engelhardt was named Senior Vice President, Division President, Checks in October 2019. From March 2017 to October 2019, Ms. Engelhardt served as Senior Vice President, Direct-to-Consumer, and from July 2012 to March 2017, she served as Vice President, Direct-to-Consumer.

Pete Godich was named Senior Vice President, Chief of Operations in October 2019. From January 2019 to October 2019, Mr. Godich served as Senior Vice President, Financial Services, and from March 2011 to January 2019, he served as Senior Vice President, Fulfillment.

Michael Mathews was named Senior Vice President, Chief Information Officer in March 2017. Mr. Mathews joined us in May 2013 as Vice President, Chief Information Officer.
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Amanda Parrilli was named Senior Vice President, New Business Development and Strategy in October 2019, and in June 2020, she added Transformation to her responsibilities. Ms. Parrilli joined us in February 2019 as Vice President, Strategy. Prior to joining us, Ms. Parrilli held several positions at The Home Depot, Inc. from July 2014 to February 2019, including Senior Director, Services Lead Generation; Director, Home Decorators Strategy; and Director, Strategic Business Development.

Michael Reed joined us in November 2019 as Senior Vice President, Division President, Payments. Prior to joining us, Mr. Reed served as Managing Director, Global Payments and Product for Barclays Bank Plc in London from September 2018 to November 2019. From January 2015 to August 2018, Mr. Reed served as Managing Director at BofA Merrill Lynch Merchant Services (Europe) Limited, the European subsidiary of Banc of America Merchant Services, LLC.

Thomas Riccio joined us in September 2019 as Senior Vice President, Division President, Promotional Solutions. Prior to joining us, Mr. Riccio was employed by Office Depot, Inc., a provider of business services and supplies, serving as Senior Vice President, Business Solutions Division from July 2017 to July 2019 and as Vice President, Sales and Strategic Initiatives, Business Solutions Division from December 2013 to July 2017.

Christopher Thomas joined us in July 2019 as Senior Vice President, Chief Revenue Officer. Prior to joining us, Mr. Thomas served as Senior Vice President, Solutioning and Commercial Functions for DXC Technology Company, an information technology solutions provider, from April 2017 to July 2019. From September 2014 to April 2017, Mr. Thomas served as Senior Vice President, Solutioning and Sales Support for HP Inc., a global technology company.


ITEM 1A. RISK FACTORS

Our businesses routinely encounter and address risks, many of which could cause our future results to be materially different than we currently anticipate. 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 currently known material risks. We are also subject to general risks and uncertainties that affect many other companies, including overall economic, industry and market conditions. Additional risks not presently known to us, or that we currently believe are immaterial, may also adversely affect us. You should carefully consider all of these risks and uncertainties before investing in our common stock.

RISKS RELATED TO THE COVID-19 PANDEMIC

The impact of the COVID-19 pandemic has adversely affected, and is expected to continue to adversely affect, our business, financial condition and results of operations.

The COVID-19 pandemic began to impact our operations late in the first quarter of 2020. The impact of lost revenue primarily affected our Promotional Solutions, Checks and Cloud Solutions segments, and late in the year, our Payments segment experienced delays in new client implementations because of the impacts of the pandemic. The sweeping nature of the pandemic makes it extremely difficult to predict how our business and operations will be affected in the longer term. Consistent with various state and federal orders, we were able to designate portions of our business as "essential." As such, many of our facilities remained open during government-mandated shut-downs. We successfully activated our business continuity plan to ensure uninterrupted operations and services, while keeping our facilities safe for our employees, customers and communities. Under this plan, employees who have the ability to work from home continue to do so, which poses additional cybersecurity and data security risk. Certain of our facilities remain closed. We may close additional facilities, as necessary, to protect the health of our employees, as a result of disruptions in the operation of our supply chain or in response to a prolonged decrease in demand for our products and services. If it becomes necessary to close additional facilities to protect the health of our employees, we have the ability to move work between our various facilities.

As the current economic environment is significantly impacting small businesses, we are closely monitoring the breadth and depth of small business closures and bankruptcies, changes in the level of small business optimism, lending to small and mid-sized businesses and the general functioning of the credit markets, adoption of government stimulus and other economic programs, consumer unemployment levels and changes in consumer spending patterns. We cannot predict the pace at which these factors will improve or the impact a prolonged downturn in the economy will have on our business, financial condition and/or results of operations.

We also incurred, and may continue to incur, additional costs as we respond to the pandemic, including, but not limited to, costs incurred to implement operational changes allowing social distancing, costs related to employees who are not working during the pandemic, a Hero Pay premium provided to employees working on-site, overtime pay as required and costs associated with additional cleaning and disinfecting of our facilities. In addition, in response to the pandemic, local, state, national and international governments and health authorities have established myriad new laws, rules, regulations and orders. These
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emergency enactments evolve rapidly, and sometimes become effective within a 24-hour period. The complexity of complying with COVID-19 specific regulations is significant.

All of these circumstances negatively impact our liquidity. To bolster our liquidity at the beginning of the pandemic, we drew an additional $238.0 million on our $1.15 billion revolving credit facility in March 2020. We subsequently repaid $300.0 million of the amount drawn on the credit facility. In addition, we suspended our share repurchase program and we took additional steps to reduce discretionary spending and other expenditures in line with revenue declines. These steps included temporary salary reductions for all salaried employees, including our leadership team and board of directors, project delays, furloughs and other actions. We also delayed U.S. federal payroll tax payments as permitted by the Coronavirus Aid, Relief and Economic Security (CARES) Act. We continue to monitor the situation closely, including impacts on our operations, suppliers, customers, industry and workforce. If conditions deteriorate, we may implement further measures to provide additional financial flexibility and to improve our cash position and liquidity, including additional borrowings under our revolving credit facility.

If demand for our products and services further deteriorates or does not return to normal levels in the longer term, we may be required to take further actions to improve our cash position, including but not limited to, implementing further employee furloughs and/or workforce reductions, or foregoing capital expenditures and other discretionary expenses. In addition, dividends are approved by our board of directors each quarter and thus, are subject to change.

The situation surrounding COVID-19 remains fluid and the potential for a material impact on our results of operations, financial condition and/or liquidity increases the longer the virus impacts activity levels in the U.S. and the other countries in which we operate. For this reason, we cannot reasonably estimate with any degree of certainty the future impact the pandemic may have on our results of operations, financial position and/or liquidity. The extent to which the COVID-19 pandemic impacts our business depends on future developments, many of which are beyond our control, such as: the severity and duration of the
pandemic, governmental, business and individuals' actions in response to the pandemic; the timing and effectiveness of vaccines; and the resulting impact on economic activity and the financial markets. We may not have yet experienced the full impact of the pandemic or its resulting impact on our customers. Our revenue may not immediately recover with an improvement in macroeconomic conditions and may require new business formations and/or the expansion of sales to our existing customers.

In completing asset impairment analyses during 2020, we were required to make assumptions using the best information available at the time, including the performance of our reporting units before and subsequent to the declaration of a pandemic and available economic forecasts. To the extent our assumptions differ materially and negatively from actual events, we may be required to record additional asset impairment charges.

Other cascading effects of the COVID-19 pandemic that are not currently foreseeable could materially increase our costs, negatively impact our revenue and adversely impact our results of operations and liquidity, possibly to a significant degree. We cannot predict the severity or duration of any such impacts. The COVID-19 pandemic could have the effect of heightening many of the other risks described below, including, without limitation, those related to the success of our strategy, our ability to attract and retain customers, competition, the rate of decline for checks and business forms, our ability to reduce costs, risks of cybersecurity breaches, interruptions to our website operations or information technology systems, the ability of third-party providers to perform, and potential litigation. COVID-19-related impacts on the preparation of our consolidated financial statements are addressed under the caption: "Note 20: Risks and Uncertainties" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

STRATEGIC RISKS

If our long-term growth strategy is not successful, our business and financial results would be adversely impacted.

Our vision is to be a Trusted Business Technology leader in payments and data. Further information about our strategy and its related key enablers can be found in the discussion of our "One Deluxe" strategy appearing in Part I, Item 1 of this report. We may not achieve our long-term objectives, and investments in our business may fail to impact our financial results as anticipated. Our strategic plan could fall short of our expectations for many reasons, including, among others:

our failure to transform to a sales-driven organization;
our failure to generate profitable revenue growth;
our inability to acquire new customers, retain our current customers and sell more products and services to current and new customers;
our failure to fully implement sales technology that enables a single view of our customers;
our inability to implement improvements to our technology infrastructure, our digital services offerings and other key assets to increase efficiency, enhance our competitive advantage and scale our operations;
our failure to develop new products and services;
our failure to effectively manage the growth, expanding complexity and pace of change of our business and operations;
our inability to effectively operate, integrate or leverage businesses we acquire;
the failure of our digital services and products to achieve widespread customer acceptance;
our inability to promote, strengthen and protect our brand;
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our failure to attract and retain skilled talent to execute our strategy and sustain our growth;
unanticipated changes in our business, markets, industry or the competitive landscape; and
general economic conditions.

We can provide no assurance that our strategy will be successful, either in the short term or in the long term, that it will generate a positive return on our investment or that it will not materially reduce our earnings before interest, taxes, depreciation and amortization (EBITDA) margins. If our strategy is not successful, or if there is market perception that our strategy is not successful, our reputation and brand may be damaged.

If we are unable to attract and retain customers in a cost-effective manner or effectively operate a multichannel customer experience, our business and results of operations would be adversely affected.

Our success depends on our ability to attract new and returning customers in a cost-effective manner. We use a variety of methods to promote our products and services, including a direct sales force, partner referrals, email marketing, purchased search results from online search engines, direct mail advertising, broadcast media, advertising banners, social media and other online links. Certain of these methods may become less effective or more expensive. For example, our response rates for direct mail advertising have been decreasing for some time, internet search engines could modify their algorithms or increase prices for purchased search results or certain partner referrals could decline. We continually evaluate and modify our marketing and sales efforts to achieve the most effective mix of promotional methods. Competitive pressure may inhibit our ability to reflect increased costs in the prices of our products and services and/or new marketing strategies may not be successful. Either of these occurrences would have an adverse impact on our ability to compete and our results of operations would be adversely affected. In addition, when our check supply contracts expire, customers have the ability to renegotiate their contracts with us or to consider changing suppliers. Failure to achieve favorable contract renewals and/or to obtain new check supply customers would result in decreased revenue.

Additionally, we believe we must maintain a relevant, multichannel experience in order to attract and retain customers. Customers expect to have the ability to choose their method of ordering, whether via the mail, computer, phone or mobile device. Although we are constantly making investments to update our technology, we cannot predict the success of these investments. Multichannel marketing is rapidly evolving and we must keep pace with the changing expectations of our customers and new developments by our competitors. If we are unable to implement improvements to our customer-facing technology in a timely manner, or if our customer-facing technology does not function as designed, we could find it increasingly difficult to attract new and returning visitors, which would result in decreased revenue.

We face intense competition from other business enterprises, and we expect that competition will continue to increase.

Competition in the payments industry is intense. We are competing against numerous financial technology (Fintech) companies, as well as financial institution in-house capabilities. Volume is the key to staying cost-competitive, and breadth of services is critical to stay relevant to customers. In addition, although we are a leading check printer in the U.S., we face considerable competition in the check printing portion of the payments industry. In addition to competition from the digitization of payments, 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, from check printing software vendors and from certain significant retailers. Pricing continues to be competitive in our financial institution sales channel, as financial institutions seek to maintain their previous levels of profitability, even as check usage declines.

Within our Cloud Solutions segment, the market for web hosting services is highly competitive and commoditized. As such, significant spending on product development and customer acquisition is required to compete in this space, and value-added services differentiate the competition. The markets for our hosted software-as-a-service (SaaS) solutions, including search, social and email marketing and logo design and business incorporation services, are also large, dynamic and highly competitive, with dominant integrated players, as well as niche providers. Competition for our data-driven marketing services is also intense, with a wide variety of companies in the data solutions space, including advertising agencies, marketing technology firms, data aggregators and brokers, and source data providers. Adapting to new technology is a key challenge in this business, along with hiring and retaining the right people.

Within our Promotional Solutions segment, the markets for business forms and promotional products are intensely competitive and highly fragmented. Current and potential competitors include traditional storefront printing companies, office superstores, wholesale printers, online printing companies, small business product resellers and providers of custom apparel and gifts. The competitive landscape for online suppliers continues to be challenging as new internet businesses are introduced.

We can provide no assurance that we will be able to compete effectively against current and future competitors. Our competitors may develop better products or technologies and may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. Continued competition could result in price reductions, reduced profit margins and/or loss of customers, all of which would have an adverse effect on our results of operations and cash flows.

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If we do not adapt to changes in technology in a timely and cost-effective manner, our ability to sustain and grow our business could be adversely affected.

The markets for many of the products and services we provide are characterized by constant change and innovation. The introduction of competing products and services using new technologies, the evolution of industry standards or the introduction of more attractive products or services, including the digitization of payments, could make some or all of our products and services less desirable, or even obsolete. These potential changes are magnified by the intense competition we face. To be successful, our technology-based products and services must keep pace with technological developments and evolving industry standards, address the ever-changing and increasingly sophisticated needs of our customers, and achieve market acceptance. Additionally, we must differentiate our service offerings from those of our competitors and from the in-house capabilities of our customers. We could lose current and potential customers if we are unable to develop products and services that meet changing demands in a timely manner. Additionally, we must continue to develop our skills, tools and capabilities to capitalize on existing and emerging technologies, and this requires us to incur substantial costs. Any of the foregoing risks could result in harm to our business and results of operations.

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

We completed many acquisitions during the past several years. The details of our more recent acquisitions can be found under the caption “Note 6: Acquisitions” of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These acquisitions extended our range of products and services, including treasury management and web services. In addition, we purchased the operations of several small business distributors with the intention of growing revenue in our enterprise accounts and dealer channels. The integration of any acquisition involves numerous risks, including, among others:

difficulties and/or delays in assimilating operations, products and services, including effectively scaling revenue and ensuring that a strong system of information security and controls is in place;
failure to realize expected synergies and savings or to achieve projected profitability levels on a sustained basis;
diversion of management's attention from other business concerns and risks of managing an increasingly diverse set of products and services across expanded and new industries;
unanticipated integration costs;
difficulty in maintaining controls, procedures and policies, especially when the acquired business was a non-public company and may not have employed the same rigor in these areas as required for a publicly traded company;
decisions by our customers or the customers of the acquired business to temporarily or permanently seek alternate suppliers;
difficulty in assimilating the acquired business into our corporate culture;
increased compliance and other complexity;
unidentified issues not discovered during our due diligence process, including product or service quality issues, intellectual property issues and tax or legal contingencies;
failure to address legacy distributor account protection rights; and
loss of key employees.

One or more of these factors could impact our ability to successfully operate, integrate or leverage an acquisition and could negatively affect our results of operations.

We have indicated that we plan to supplement sales-driven revenue growth with strategically targeted acquisitions over time. The time and expense associated with finding suitable businesses, technologies or services to acquire can be disruptive to our ongoing business and may divert management’s attention. We cannot predict whether suitable acquisition candidates can be identified or acquired on acceptable terms or whether any acquired products, technologies or businesses will contribute to our revenue or earnings to any material extent. We may need to seek financing for larger acquisitions, which would increase our debt obligations and may not be available on terms that are favorable to us. Additionally, acquisitions may result in additional contingent liabilities, additional amortization expense and/or future non-cash asset impairment charges related to acquired intangible assets and goodwill, and thus, could adversely affect our business, results of operations and financial condition.

The use of checks and forms is declining and we may be unable to offset the decline with profitable revenue growth.

Checks continue to be a significant portion of our business, accounting for 39.4% of our consolidated revenue in 2020. We sell checks for personal and business use and believe that there will continue to be demand for personal and business checks for the foreseeable future, although the total number of checks written in the U.S. has been in decline since the mid-1990s. According to the most recent information released by the Federal Reserve in October 2020, the total number of checks written declined an average of 8.4% each year between 2015 and 2018, compared to an average decline of 3.4% each year between 2012 and 2015. We expect that the number of checks written will continue to decline due to the digitization of payments, including debit cards, credit cards, direct deposit, wire transfers, and other payment solutions, such as PayPal®, Apple Pay®, Square®, Zelle® and Venmo®. In addition, the RTP® system run by The Clearing House Payments Company, LLC is a real-time payments system that currently reaches over 50% of U.S. bank accounts. In August 2019, the U.S. Federal Reserve announced that it plans to develop its own real-time payments system, FedNowSM, with an expected launch in 2023 or 2024.
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The rate and the extent to which digital payments will replace checks, whether as a result of legislative developments, changing payment systems, personal preference or otherwise, cannot be predicted with certainty. Increased use of alternative payment methods, or our inability to successfully offset the secular decline in check usage with other sources of revenue, would have an adverse effect on our business, cash flows and results of operations.

The use of business forms has also been declining. Continual technological improvements, including the lower price and higher performance capabilities of personal computers, printers and mobile devices, have provided small business customers with alternative means to execute and record business transactions. Additionally, electronic transaction systems, off-the-shelf business software applications, web-based solutions and mobile applications have been designed to replace preprinted business forms. Greater acceptance of electronic signatures also has contributed to the overall secular decline in printed products. It is difficult to predict the pace at which these alternative products and services will replace standardized business forms. If small business preferences change rapidly and we are unable to develop new products and services with comparable operating margins, our results of operations would be adversely affected.

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

The success of our businesses depends on our ability to attract new and returning customers. For this reason, the promotion and strengthening of the Deluxe brand plays a key role in the execution of our strategy. We believe that the importance of brand recognition is particularly essential for the success of our various 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, depends largely on the success of our marketing efforts and our ability to provide a consistent, high-quality customer experience. In the past, we had many brands associated with our products and services as a result of previous acquisitions. Unifying our brands to operate as one Deluxe is an essential part of our One Deluxe strategy. In February 2020, we unveiled our new Deluxe brand. We can provide no assurance that our branding strategy will be successful or will result in a positive return on our investment.

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 these efforts will be successful or that our revenue will increase at a level commensurate with our marketing expenditures. There is also the risk that adverse publicity, whether or not justified, could adversely affect our business. We currently have an agreement with television personality Ty Pennington, who appears in our online series, Small Business Revolution. If Mr. Pennington, other business partners or key employees are the subject of adverse news reports or negative publicity, our reputation may be tarnished and our results of operations could be adversely affected.

A component of our brand promotion strategy is building on our 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. Our brand value also depends on our ability to protect and use our customers' data in a manner that meets expectations. A security incident that results in unauthorized disclosure of our customers' sensitive data could materially harm our reputation. The failure of our brand promotion activities to meet our expectations or our failure to provide a high-quality customer experience for any reason could adversely affect our ability to attract new customers and maintain customer relationships, which would adversely harm our business and results of operations.

Our cost reduction initiatives may not be successful.

Intense competition, secular declines in the use of checks and business forms and the commoditization of web services compel us to continually improve our operating efficiency in order to maintain or improve profitability. 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, further enhancing our strategic supplier sourcing arrangements, 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, negatively impacting efforts to grow our business or reducing the effectiveness of our sustainability practices. As a result, we may choose to delay or forgo certain cost reductions as business conditions require. Failure to continue to improve our operating efficiency and to generate adequate savings to fund necessary investments could adversely affect our business if we are unable to remain competitive.

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OPERATIONAL RISKS

Security breaches, computer malware or other cyber attacks involving the confidential information of our customers, employees or business partners could substantially damage our reputation, subject us to litigation and enforcement actions, and substantially harm our business and results of operations.

Information security risks have increased in recent years, in part because of the proliferation of new technologies and increased use of the internet and cloud-based activities, as well as the increased sophistication and activities of hackers, terrorists and activists. In addition, our own information security risks have increased due to the acquisition of companies with their own internally-developed technologies. We use internet-based channels that collect customers’ financial account and payment information, as well as other sensitive information, including proprietary business information and personally identifiable information of our customers, employees, contractors, suppliers and business partners. Each year, we process hundreds of millions of records containing data related to individuals and businesses. We also provide services that are instrumental in supporting our customers and their businesses, such as website and email hosting. Cybersecurity is one of the top risks identified by our Enterprise Risk Management Steering Committee, as technology-based organizations such as ours are vulnerable to targeted attacks aimed at exploiting network and system application weaknesses.

The secure and uninterrupted operation of our networks and systems, as well as the processing, maintenance and confidentiality of the sensitive information that resides on our systems, is critical to our business operations and strategy. We have a risk-based information/cybersecurity program dedicated to protecting our data and solutions. We employ a defensive in-depth strategy, utilizing the concept of security layers and the CIA (confidential, integrity and availability) triad model. 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 information, including consumers' personally identifiable information or, in some cases, the protected health information of certain individuals. Our security measures could be breached by third-party action, computer viruses, accidents, employee or contractor error, or malfeasance by rogue employees. In addition, we depend on a number of third parties, including vendors, developers and partners, that are critical to our business and to which we may grant access to our customer or employee data. While we conduct due diligence on these third parties with respect to their security and business controls, we rely on them to effectively monitor and oversee these control measures. Individuals or third parties may be able to circumvent controls and/or exploit vulnerabilities that may exist, resulting in the disclosure or misuse of sensitive business and personal customer or employee information and data.

Because techniques used to obtain unauthorized access, disable or degrade service, or sabotage computer systems change frequently, may be difficult to detect immediately, and generally are not recognized until they are launched against a target, we may be unable to implement adequate preventive measures. Unauthorized parties may also attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities, fraud, trickery or other means of deceiving employees and contractors. We have experienced external internet-based attacks by threat actors aimed at disrupting internet traffic and/or attempting to place illegal or abusive content on our or our customers’ websites. Additionally, our customers and employees have been and will continue to be targeted by threat actors using social engineering techniques to obtain confidential information or using fraudulent "phishing" emails to introduce malware into the environment. To-date, these various threats have not materially impacted our customers, our business or our financial results. However, our technologies, systems and networks are likely to be the target of future attacks due to the increasing threat landscape for all technology businesses, and we can provide no assurance that future incidents will not be material.

Despite our significant cybersecurity efforts, a party that is able to circumvent our security measures could misappropriate our or our customers' personal and proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation, all of which could deter clients and consumers from ordering our products and services and result in the termination of client contracts. Additionally, it is possible that there could be vulnerabilities that impact large segments of mobile, computer or server architecture. Any of these events would adversely affect our business, financial condition and results of operations.

In addition, if we were to experience a material information security breach, we may be required to expend significant amounts of management time and financial resources to remedy, protect against or mitigate the effects of the breach, and we may not be able to remedy the situation in a timely manner, or at all. Furthermore, under payment card association rules and our contracts with debit and credit card processors, if there is a breach of payment card information that we store or that is stored by third parties with which we do business, we could be liable to the payment card issuing banks for their cost of issuing new cards and other related expenses. We could also lose our ability to accept credit and debit card payments from our customers, which would likely result in the loss of customers and the inability to attract new customers. We could also be exposed to time-consuming and expensive litigation, government inquiries and/or enforcement actions. If we are unsuccessful in defending a claim regarding information security breaches, we may be forced to pay damages, penalties and fines, and our insurance coverage may not be adequate to compensate us fully for any losses that may occur. Contractual provisions with third parties, including cloud service providers, may limit our ability to recover losses resulting from the security breach of a business partner.

There are international, federal and state laws and regulations requiring companies to notify individuals of information security breaches involving their personal data, the cost of which would negatively affect our financial results. These mandatory
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disclosures regarding an information 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 information security measures. Likewise, general publicity regarding information 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, negatively affect our financial results and limit future business opportunities.

Interruptions to our website operations or information technology systems, or failure to maintain our information technology platforms, 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, service technologies, printing production facilities or customer service operations for a variety of reasons, including, among others, human error, software errors or design faults, security breaches, power loss, telecommunications failures, equipment failures, electrical disruptions, labor issues, vandalism, fire, flood, extreme weather, terrorism and other events beyond our control.

One of the cornerstones of our growth strategy is investment in our information technology infrastructure. We are investing significant resources to build out our technology platforms. We implemented a human capital management system in January 2020. We also completed the first implementation phase of sales technology that enables a single view of our customers, and we are investing in our financial tools, including an enterprise resource planning system. System implementations are complex. Any disruptions, delays or deficiencies in the design, implementation or operation of these systems, particularly any disruptions, delays or deficiencies that impact our operations, could adversely affect our ability to effectively run and manage our business. In addition, our continued development and implementation of new generation software solutions and information technology infrastructure may take longer than originally expected and may require the acquisition of additional personnel and other resources, which may adversely affect our business, results of operations and financial condition. Any inability to deploy new generation information technology throughout our organization would result in operating multiple platforms, which would increase costs.

In recent years, we shifted a substantial portion of our applications to a cloud-based environment. While we maintain redundant systems and backup databases and applications software to ensure continuous access to cloud services, it is possible that access to our software capabilities could be interrupted and our disaster recovery planning may not account for all eventualities. The failure of our systems could interfere with the delivery of products and services to our customers, impede our customers' ability to do business and result in the loss or corruption of critical data. In addition to the potential loss of customers, we may be required to incur additional development costs and divert technical and other resources, and we may be the subject of negative publicity and/or liability claims.

If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our results of operations would be adversely affected, and our business interruption insurance coverage may not be adequate to compensate us fully for any losses that may occur.

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, cloud computing and transaction processing services. In addition, we have agreements with companies to provide services such as online payment solutions. A service provider's ability to provide services could be disrupted for a variety of reasons, including, among others, human error, software errors or design faults, security breaches, power loss, telecommunications failures, equipment failures, electrical disruptions, labor issues, vandalism, fire, flood, extreme weather, terrorism and other events beyond their control. 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 reasonable 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 material disruption in our business while we obtain an alternative service provider. The use of substitute third-party providers could also result in increased expense.

If we are unable to attract and retain key personnel and other qualified employees, our business and results of operations could be adversely impacted.

For us to successfully grow and compete, we must recruit, retain and develop the key personnel necessary to execute our growth strategy. Our success depends on the contributions and abilities of key employees, especially in our digital services businesses and specifically in sales, marketing, product management and development, data analytics and information technology. If we are unable to retain our existing employees and/or attract qualified personnel, we may not be able to grow and
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manage our business effectively. Although we have implemented various "Great Place to Work" initiatives, including employee wellness initiatives, the introduction of employee resource groups and a revised performance management process, we can provide no assurance that we will be successful in attracting and retaining key personnel.

The cost and availability of materials, delivery and other third-party services could adversely affect our operating results.

We are subject to risks associated with the cost and availability of paper, plastics, ink, retail packaging supplies, promotional materials and other raw materials. Paper costs represent a significant portion of our materials expense. Paper is a commodity and its price has been subject to volatility due to supply and demand in the marketplace, as well as volatility in the raw material and other costs incurred by paper suppliers. There are also relatively few paper suppliers and these suppliers are under financial pressure as paper use declines. As such, when our suppliers increase paper prices, we may not be able to obtain better pricing from alternative suppliers. 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.

We depend upon third-party providers for delivery services and for other outsourced products and services. Events resulting in the inability of these service providers to perform their obligations, such as work slowdowns or extended labor strikes, could adversely impact our results of operations by requiring us to secure alternate providers at higher costs. Postal rates are dependent on the operating efficiency of the U.S. Postal Service (USPS) and on legislative mandates imposed upon the USPS. Postal rates have increased in recent years and the USPS has incurred significant financial losses. This may result in continued changes to the breadth and/or frequency of USPS mail delivery services. In addition, fuel costs have fluctuated over the past several years. Increased fuel costs increase the costs we incur to deliver products to our customers, as well as the price we pay for outsourced products. We also rely on third-party providers for certain technology, processing and support functions. If we are unable to renew our existing contracts with our most significant providers, we may be forced to obtain alternative suppliers at higher costs. Competitive pressures and/or contractual arrangements may inhibit our ability to reflect increased costs in the price of our products and services. Any of the foregoing risks could result in harm to our business and results of operations.

We are subject to customer payment-related risks, which could adversely affect our business and financial results.

We may be liable for fraudulent transactions conducted on our websites, such as the use of stolen credit card numbers. While we do have safeguards in place, we cannot prevent all fraudulent transactions. To date, we have not incurred significant losses from payment-related fraud. However, such transactions negatively impact our results of operations and could subject us to penalties from payment card associations for inadequate fraud protection.

LEGAL AND COMPLIANCE RISKS

Governmental regulation is continuously evolving and could limit or harm our business.

We are subject to numerous international, federal, state and local laws and regulations that affect our business activities in several areas, including, but not limited to, labor, advertising, taxation, data privacy and security, digital content, consumer reports, consumer protection, online payment services, real estate, e-commerce, intellectual property, health care, environmental matters, and workplace health and safety. In response to the COVID-19 pandemic, local, state, national and international governments and health authorities have established myriad new laws, rules, regulations and orders. These emergency enactments evolve rapidly and sometimes become effective within a 24-hour period. The complexity of complying with existing and new laws and regulations is significant, and regulators may adopt new laws or regulations at any time.

The various regulatory requirements to which we are subject could impose significant limitations on our business activities, require changes to our business, restrict our use or storage of personal information, or cause changes in our customers' purchasing behavior, which may make our business more costly and/or less efficient and may require us to modify our current or future products, services, systems or processes. We cannot quantify or predict with any certainty the likely impact of such changes on our business, prospects, financial condition or results of operations.

Portions of our business operate within highly regulated industries and our business results could be significantly affected by the laws and regulations to which we are subject. For example, international, federal and state laws and regulations regarding the protection of certain consumer information require us to develop, implement and maintain policies and procedures to protect the security and confidentiality of consumers' nonpublic personal information. Portions of our business are subject to regulations affecting payment processing, including ACH, remote deposit capture and lockbox services. These laws and regulations require us to develop, implement, and maintain certain policies and procedures related to payment processing. We are also subject to additional requirements in certain of our contracts with financial institution clients and communications service providers, which are often more restrictive than the regulations, as well as confidentiality clauses in certain of our contracts related to small businesses’ customer information. These regulations and agreements typically limit our ability to use or disclose nonpublic personal information for other than the purposes originally intended, which could limit business opportunities. Proposed privacy and cyber security regulations may also increase the cost of compliance for the protection of collected data. The complexity of
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compliance with these various regulations may increase our cost of doing business and may affect our clients, reducing their discretionary spending and thus, reducing their capacity to purchase our products and services.

Due to our increasing use of the internet for sales and marketing, laws specifically governing digital commerce, the internet, mobile applications, search engine optimization, behavioral advertising, privacy and email marketing may have an impact on our business. Existing and future laws governing issues such as digital and social marketing, privacy, consumer protection or commercial email may limit our ability to market and provide our products and services. Changing data protection regulations may increase the cost of compliance in servicing domestic and international markets for our wholesale and retail business services channels. More restrictive legislation, such as new privacy laws, search engine marketing restrictions, “anti-spam” regulations or email privacy rules, could decrease marketing opportunities, decrease traffic to our websites and/or increase the cost of obtaining new customers.

Because of additional regulatory costs, financial institutions may continue to 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, some financial institutions do not permit offers of add-on services, such as bundled products, 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 the majority of our financial institution clients. Additionally, as our product and service offerings become more technologically focused, and with expanded regulatory expectations for supervision of third-party service providers, additional portions of our business could become subject to direct federal regulation and/or examination. This would increase our cost of doing business and could slow our ability to introduce new products and services and otherwise adapt to a rapidly changing business environment.
   
Third-party claims could result in costly and distracting litigation and, in the event of an unfavorable outcome, could have an adverse effect on our business, financial condition and results of operations.

From time to time, we are involved in claims, litigation and other proceedings relating to the conduct of our business, including purported class action litigation. Such legal proceedings may include claims related to our employment practices; claims alleging breach of contractual obligations; claims asserting deceptive, unfair or illegal business practices; claims alleging violations of consumer protection-oriented laws; claims related to legacy distributor account protection rights; or claims related to environmental matters. In addition, third parties may assert patent and other intellectual property infringement claims against us and/or our clients, which could include aggressive and opportunistic enforcement of patents by non-practicing entities. Any such claims could result in litigation against us and could also result in proceedings being brought against us by various federal and state agencies that regulate our businesses. The number and significance of these claims and proceedings has increased as our businesses have evolved and expanded in scope. These claims, whether successful or not, could divert management's attention, result in costly and time-consuming litigation, or both. Accruals for identified claims or lawsuits are established based on our best estimates of the probable liability. However, we cannot accurately predict the ultimate outcome of any such proceedings due to the inherent uncertainties of litigation and other dispute resolution mechanisms. Any unfavorable outcome of a material claim or material litigation could require the payment of monetary damages or fines, attorneys' fees or costly and undesirable changes to our products, features or business practices, which would result in a material adverse effect on our business, financial condition and results of operations.

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 or services that do not infringe on our intellectual property rights. Policing unauthorized use of our intellectual property is difficult. 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.

Activities of our customers or the content of their websites could damage our reputation and/or adversely affect our financial results.

As a provider of domain name registration, web hosting services and customized business products, we may be subject to potential liability for the activities of our customers on or in connection with their domain names or websites, for the data they store on our servers, including information accessible through the "dark web," or for images or content that we produce on their behalf. Customers may also launch distributed denial of service attacks or malicious executables, such as viruses, worms or trojan horses, from our servers. Although our agreements with our customers prohibit illegal use of our products and services and permit us to take appropriate action for such use, customers may nonetheless engage in prohibited activities or upload or store content with us in violation of applicable law. Our reputation may be negatively impacted by the actions of customers that are deemed to be hostile, offensive or inappropriate, or that infringe the copyright or trademark of another party. The safeguards we have established may not be sufficient to avoid harm to our reputation, especially if the inappropriate activities are high profile.
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Laws relating to the liability of online services companies for information, such as online content disseminated through their services, are subject to frequent challenges. In spite of settled law in the U.S., claims are made against online services companies by parties who disagree with the content. Where the online content is accessed on the internet outside of the U.S., challenges may be brought under foreign laws that do not provide the same protections for online services companies as in the U.S. These challenges in either U.S. or foreign jurisdictions may give rise to legal claims alleging defamation, libel, invasion of privacy, negligence or copyright or trademark infringement, based on the nature and content of the materials disseminated through our services. Certain of our products and services include content generated by users of our online services. Although this content is not generated by us, claims of defamation or other injury may be made against us for that content. If such claims are successful, our financial results would be adversely affected. Even if the claims do not result in litigation or are resolved in our favor, the time and resources necessary to resolve them could divert management’s attention and adversely affect our business and financial results.

FINANCIAL RISKS

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

Goodwill represented 39% of our total assets as of December 31, 2020. On at least an annual basis, we assess whether the carrying value of goodwill is impaired. This analysis considers several factors, including economic, market and industry conditions. Circumstances that could indicate a decline in the fair value of one or more of our reporting units include, but are not limited to, the following:

a downturn in economic conditions that negatively affects our actual and forecasted operating results;
changes in our business strategy, structure and/or the allocation of resources;
the failure of our growth strategy;
the inability of our acquisitions to achieve expected operating results;
changes in market conditions, including increased competition;
the loss of significant customers;
a decline in our stock price for a sustained period; or
a material acceleration of order volume declines for checks and business forms.

Such situations may require us to record an impairment charge for a portion of goodwill. We are also required to assess the carrying value of other long-lived assets, including intangible assets and assets held for sale. Information regarding our 2020 impairment analyses can be found under the caption "Note 8: Fair value measurements" of the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. We have, in the past, and may again in the future, be required to write-down the value of some of our assets, and these write-downs have been, and could in the future be, material to our results of operations. If we are required to record additional asset impairment charges for any reason, our consolidated results of operations would be adversely affected.

Economic conditions, including impacts of the COVID-19 pandemic, may adversely affect trends in business and consumer spending, which may adversely impact demand for our products and services.

Economic conditions have affected, and will continue to affect, our results of operations and financial position. Current and future economic conditions that affect business and consumer spending, including levels of business and consumer confidence, unemployment levels, consumer spending and the availability of credit, as well as uncertainty or volatility in our customers' businesses, may adversely affect our business and results of operations. A challenging economic environment could cause existing and potential customers to not purchase or to delay purchasing our products and services, thereby negatively impacting our revenue and results of operations.

A significant portion of our business relies on small business spending. We believe that small businesses are more likely to be significantly affected by economic conditions than larger, more established companies. During a sluggish economy, it may be more difficult for small businesses to obtain credit and they may choose to spend their limited funds on items other than our products and services. As such, the level of small business confidence, the rate of small business formations and closures, and the availability of credit to small businesses all impact our business.

A significant portion of our business also relies upon the health of the financial services industry. As a result of global economic conditions in past years, a number of financial institutions sought additional capital, merged with other financial institutions and, in some cases, failed. 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 prepaid product discount 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.

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There may also be an increase in financial institution mergers and acquisitions during periods of economic uncertainty or as a result of other factors affecting the financial services industry. 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 and business services contracts. This results in 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 combined entity. Although we devote considerable effort toward the development of a competitively-priced, high-quality selection 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 COVID-19 pandemic and the actions taken in response to it have significantly increased economic uncertainty. The pandemic has caused a global recession and increased unemployment and we cannot predict the extent to which our customers will be able to survive such a downturn. Given the ongoing and dynamic nature of the COVID-19 pandemic, we cannot predict the impact on our business, financial position or results of operations, and there is no guarantee that our efforts to address the ongoing adverse impact of the pandemic will be successful.

Our variable-rate indebtedness exposes us to interest rate risk.

The majority of the borrowings under our revolving credit facility are subject to variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our interest expense would increase, negatively affecting earnings and reducing cash flows available for working capital, capital expenditures and other investments.


ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


ITEM 2. PROPERTIES

As of December 31, 2020, we occupied 38 facilities throughout the U.S., 5 facilities in Canada, 2 facilities in Europe and 1 facility in Australia, where we conduct printing and fulfillment, call center, data center and administrative functions. Because of our shared services approach to most of our business functions, many of our facilities are utilized for the benefit of more than one of our business segments. Approximately 25% of our facilities are owned, while the remaining 75% are leased. Our facilities have a combined floor space of approximately 2.5 million square feet. None of our owned properties are mortgaged or held subject to any significant encumbrance. We believe that existing leases will be renegotiated as they expire or that suitable alternative properties will be leased on acceptable terms. We also believe that our properties are sufficiently maintained and are adequate and suitable for our business needs as presently conducted. We continue to assess our real estate footprint as we continue to develop our post-COVID-19 operating model to match expected future volumes and to gain efficiencies. As a result of this assessment, we closed 24 facilities during 2020, and we anticipate closing additional facilities during 2021. A majority of the impacted employees have transitioned to a work-from-home environment. Additionally, during 2020, we entered into leases on new facilities in Minnesota and Georgia, which will house our corporate headquarters and our technology innovation center, respectively. We expect to occupy these facilities by the third quarter of 2021.


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 will materially affect our financial position, results of operations or liquidity upon resolution. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, it may cause a material adverse impact on our financial position, results of operations or liquidity in the period in which the ruling occurs or in future periods.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.
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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 quarterly basis, and therefore, are subject to change. As of December 31, 2020, the number of shareholders of record was 5,499, excluding shareholders whose shares are held in the name of various dealers, clearing agencies, banks, brokers and other fiduciaries.

In October 2018, our board of directors authorized the repurchase of up to $500.0 million of our common stock. This authorization has no expiration date. We did not repurchase any shares during the fourth quarter of 2020 and $287.5 million remained available for repurchase as of December 31, 2020.

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 2020, we withheld 32,947 shares in conjunction with the vesting and exercise of equity-based awards.

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.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
DECEMBER 2020
DLX-20201231_G3.JPG
The graph assumes that $100 was invested on December 31, 2015 in each of Deluxe common stock, the S&P MidCap 400 Index and the DJUSIS Index, and that all dividends were reinvested.
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ITEM 6. SELECTED FINANCIAL DATA

The following table shows certain selected financial data for the five years ended December 31, 2020. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II, Item 7 of this report and our consolidated financial statements appearing in Part II, Item 8 of this report. These items include discussion of various factors that affect the comparability of the selected financial data, including asset impairment charges, business combinations, the Tax Cuts and Jobs Act of 2017 and the adoption of new accounting pronouncements. Historical results are not necessarily indicative of future results.

(dollars in thousands, except per share amounts) 2020 2019 2018 2017 2016
Statement of Income (Loss) Data:
Total revenue $ 1,790,781  $ 2,008,715  $ 1,998,025  $ 1,965,556  $ 1,849,062 
As a percentage of total revenue:
Gross profit 59.2  % 59.5  % 60.4  % 62.2  % 63.9  %
Selling, general and administrative expense 47.0  % 44.4  % 42.7  % 42.2  % 43.7  %
Operating income (loss) 2.5  % (7.9  %) 11.6  % 16.7  % 19.8  %
Operating income (loss) $ 44,505  $ (158,141) $ 231,221  $ 329,176  $ 366,887 
Net income (loss) attributable to Deluxe 8,808  (199,897) 149,630  230,155  222,382 
Per share - basic 0.21  (4.65) 3.18  4.75  4.68 
Per share - diluted 0.19  (4.65) 3.16  4.72  4.65 
Balance Sheet Data:
Cash and cash equivalents $ 123,122  $ 73,620  $ 59,740  $ 59,240  $ 76,574 
Return on average assets(1)
0.5  % (9.4  %) 6.6  % 10.5  % 11.4  %
Total assets $ 1,874,863  $ 1,943,311  $ 2,305,096  $ 2,208,827  $ 2,184,338 
Long-term obligations(2)
880,532  931,319  911,864  709,300  758,648 
Statement of Cash Flows Data:
Net cash provided by operating activities
$ 217,553  $ 286,653  $ 339,315  $ 338,431  $ 319,312 
Net cash used by investing activities(3)
(56,093) (72,397) (253,059) (170,738) (277,977)
Net cash (used) provided by financing activities(3)
(110,555) (190,148) (62,180) (193,109) 4,464 
Purchases of capital assets (62,638) (66,595) (62,238) (47,450) (46,614)
Payments for acquisitions, net of cash acquired(3)
—  (8,251) (191,903) (129,070) (238,130)
Payments for common shares repurchased (14,000) (118,547) (200,000) (65,000) (55,224)
Other Data:
Cash dividends per share $ 1.20  $ 1.20  $ 1.20  $ 1.20  $ 1.20 
Number of employees 6,185  6,352  6,701  5,886  6,026 
Number of facilities 46  67  81  75  86 

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

(2) Long-term obligations include the current and long-term portions of our debt obligations and finance lease obligations, as well as the current and long-term portions of our operating lease obligations as of December 31, 2020 and December 31, 2019.

(3) As discussed under the caption "Note 1: Significant Accounting Policies" appearing in Part II, Item 8 of this report, we revised the statements of cash flows for prior periods to correct the presentation of holdback payments for acquisitions and asset purchases.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes the following sections:

Executive Overview that discusses what we do, our operating results at a high level and our financial outlook for the upcoming year;
Consolidated Results of Operations; Restructuring, Integration and Other Costs; CEO Transition Costs and Segment Results that includes a more detailed discussion of our revenue and expenses;
Cash Flows and Liquidity, Capital Resources and Other Financial Position Information that discusses key aspects of our cash flows, capital structure and financial position;
Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations that discusses our financial commitments; and
Critical Accounting Policies that discusses the policies we believe are most important to understanding the assumptions and judgments underlying our financial statements.

Please note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Part I, Item 1A of this report outlines known material risks and important information to consider when evaluating our 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. 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,” "forecast" or similar expressions in this Annual Report on Form 10-K, in future filings with the Securities and Exchange Commission, in our press releases, investor presentations and in oral statements made by our representatives, they indicate forward-looking statements within the meaning of the Reform Act.

This MD&A includes financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). In addition, we discuss free cash flow, net debt, liquidity, adjusted diluted earnings per share (EPS) and consolidated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), all of which are non-GAAP financial measures. We believe that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide useful information to assist investors in analyzing our current period operating performance and in assessing our future period operating performance. For this reason, our internal management reporting also includes these financial measures, which should be considered in addition to, and not as superior to or as a substitute for, GAAP financial measures. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and therefore, may not result in useful comparisons. The reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Consolidated Results of Operations.

EXECUTIVE OVERVIEW

Realignment – Effective January 1, 2020, we reorganized our reportable business segments to align with structural and management reporting changes in support of our growth strategy. We now operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments are generally organized by product type and reflect the way we currently manage the company. Further information regarding our segments and our product and service offerings can be found under the caption "Note 19: Business Segment Information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

COVID-19 impact on 2020 results – The COVID-19 pandemic began to impact our operations late in the first quarter of 2020. While we believe revenue in 2020 benefited from sales-driven growth, it was not sufficient to overcome the impact of the pandemic. Within Promotional Solutions, many of our business customers were significantly impacted by their customers' and governmental responses to the pandemic. Demand for promotional products declined, as our customers reduced or stopped their promotional activities when they were forced to close, and many of their operations are still limited. The decline in travel and event cancellations also reduced promotional spending. In our Checks segment, the volume of both business and personal checks declined as a result of the slowdown in the economy, while the impact in Cloud Solutions was primarily driven by a decline in data-driven marketing solutions, as clients suspended their marketing campaigns during this period of uncertainty. Within our Payments segment, the impact of the pandemic resulted in some reduction in payroll services revenue, as well as delays in new customer implementations. Partially offsetting these impacts was new revenue of $31.0 million during 2020 from sales of personal protective equipment (PPE) in our Promotional Solutions segment.

The impact of the COVID-19 pandemic on our revenue was most severe in April and began to improve throughout the remainder of the second quarter. The impact in the third and fourth quarters of the year remained relatively stable, with the fourth
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quarter benefiting from new business and some seasonality in Promotional Solutions. Despite the challenges of the pandemic, adjusted EBITDA margin was 20.4% for 2020, in line with our annual expectations prior to the pandemic. To bolster our liquidity at the beginning of the pandemic, we drew an additional $238.0 million on our $1.15 billion revolving credit facility in March 2020 and we suspended share repurchases for the remainder of 2020. We also took steps to reduce discretionary spending and other expenditures in line with the revenue decline. These steps included temporary salary reductions for all salaried employees, including our leadership team and board of directors, project delays, furloughs and other actions. We also delayed U.S. federal payroll tax payments under the Coronavirus Aid, Relief and Economic Security (CARES) Act. As a result of these actions and our stronger than expected performance, free cash flow for 2020 was $154.9 million and net debt as of December 31, 2020 was the lowest since June 30, 2018. As a result of our strong cash flow, we were able to end the temporary salary reductions, effective July 1, 2020. Also, during the second half of 2020, we repaid $300.0 million of the amount drawn on our revolving credit facility, reducing our outstanding debt by $43.5 million from December 31, 2019. Our priority is to maintain our financial strength, while simultaneously continuing our business transformation. While we reduced some expenditures during the first half of 2020, we subsequently decided to resume certain capital projects and to continue important systems implementation work, including our enterprise resource planning and sales technology implementations. In addition, we paid our regular quarterly dividend of $0.30 per share during each quarter of 2020.

We continue to monitor the impact of COVID-19 on all aspects of our business, including our operations, suppliers, customers, industry and workforce. We are keeping 2 primary goals in mind: (1) protecting our employees and customers and (2) continuing to serve the customers who rely on us. The situation surrounding COVID-19 remains fluid, and the potential for additional negative impacts on our results of operations, financial condition and/or liquidity increases the longer the virus impacts activity levels in the U.S. and the other countries in which we operate. During the first quarter of 2020, we successfully activated our business continuity plan to ensure uninterrupted operations and services. We have not experienced any significant interruptions in our supply chain to-date, and we currently do not expect significant future interruptions. Many of our facilities remain open, employees who have the ability to work from home continue to do so, and the success of our work-from-home model allowed us to accelerate certain site closures.

2020 results vs. 2019 – Numerous factors drove the increase in net income for 2020, as compared to 2019. The primary factor was a decrease in asset impairment charges of $293.0 million, as compared to 2019. Other factors that increased net income included:

actions taken to reduce costs in line with reduced revenue and the continuing evaluation of our cost structure, including savings of approximately $33.0 million from the temporary salary reductions, suspension of the 401(k) plan employer matching contribution, discretionary spending reductions and furloughs;

revenue growth in certain of our business lines, including increased treasury management revenue, increases in certain data-driven marketing campaigns in the first quarter of 2020 prior to the commencement of the impact of the COVID-19 pandemic, and new revenue from sales of PPE in 2020;

a decrease in acquisition amortization of $14.9 million, driven in part by previous asset impairment charges;

a decrease in interest expense of $11.5 million, driven by our lower weighted-average interest rate;

a decrease in certain legal-related expenses of $8.6 million; and

the absence of non-recurring CEO transition costs in 2020, as compared to $9.4 million in 2019.

Partially offsetting these increases in net income were the following factors:

the loss of revenue resulting from the impact of the COVID-19 pandemic;

various investments of approximately $50.0 million, in the aggregate, to advance our One Deluxe strategy, including costs related to treasury management deals signed in the fourth quarter of 2019 and various information technology, sales, finance and human capital investments;

the continuing secular decline in checks and business forms, the loss of web hosting revenue in the third quarter of 2019 and the decision to exit certain product lines within Cloud Solutions;

incremental costs of approximately $8.0 million resulting from our response to the COVID-19 pandemic, including a Hero Pay premium provided to employees working on-site during the second quarter of 2020, costs related to enabling employees to work from home and additional facility cleaning costs; and

a $5.4 million increase in bad debt expense in 2020 related to notes receivable from our Promotional Solutions distributors.

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Diluted EPS of $0.19 for 2020, as compared to diluted loss per share of $4.65 for 2019, reflects the increase in net income described in the preceding paragraphs, as well as lower average shares outstanding in 2020. Adjusted diluted EPS for 2020 was $5.08, compared to $6.82 for 2019, and excludes the impact of non-cash items or items that we believe are not indicative of ongoing operations. The decrease in adjusted EPS for 2020, as compared to 2019, was driven, in large part, by the impact of the COVID-19 pandemic, as well as investments in our One Deluxe strategy and the continuing secular decline in checks and business forms. These decreases were partially offset by various cost savings initiatives and growth in treasury management revenue. A reconciliation of diluted earnings (loss) per share to adjusted diluted EPS can be found in Consolidated Results of Operations.

Asset impairment charges – Net income for 2020 included asset impairment charges of $98.0 million, or $1.45 per share. The impairment charges related primarily to the goodwill of our Promotional Solutions and Cloud Solutions Web Hosting reporting units, as well as certain intangibles in our Cloud Solutions Web Hosting reporting unit. Net loss for 2019 included asset impairment charges of $391.0 million, or $7.94 per share. These impairment charges related to the goodwill of our former Small Business Services Web Services and Financial Services Data-Driven Marketing reporting units, as well as certain intangibles, primarily in our former Small Business Services Web Services reporting unit. Further information regarding these impairment charges can be found under the caption "Note 8: Fair Value Measurements" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report and in Critical Accounting Policies.

"One Deluxe" Strategy

A detailed discussion of our strategy can be found in Part I, Item 1 of this report. We are encouraged by the success to-date of our One Deluxe strategy. We believe revenue in 2020 benefited from sales-driven growth, although this growth was not large enough to overcome the impact of the COVID-19 pandemic. We signed new customers and expanded many of our relationships. We retained our strong client base and we signed numerous deals during 2020. New initiatives in our tele-sales centers led to increased cross-sell opportunities that improved average order value. During 2020, we upgraded our talent pool throughout product and business development and innovation, as we seek to drive differentiation in the market across all of our businesses. We also added new services such as Medical Payment Exchange (MPX) and Deluxe Payment Exchange, along with improved customer experiences. We took advantage of the new reality of working remotely in 2020 to accelerate our efforts to reduce our real estate footprint, closing 24 additional sites in 2020. We also expect to achieve future operating savings and significant capital avoidance by relocating both our Minnesota headquarters and our Atlanta technology facilities to more efficient spaces. Despite the pressures of the pandemic, we continued to execute on our technology infrastructure upgrades and renewals with a focus on optimization, gaining efficiencies and building scale for future growth. We remain optimistic about our transformation initiatives as we move into 2021.

Outlook for 2021

During 2021, we plan continued focus on growth in Payments and Cloud Solutions, specifically scaling and leveraging distribution and optimizing product offerings and solutions to drive new recurring revenue streams. In Promotional Solutions, we will remain focused on improving profitability and driving recurring revenue streams. Within Checks, we plan to continue managing profitability, while continuing to increase market share. We may also consider potential acquisitions within the payments and data spaces, focused on driving scale and/or adding technology that would provide additional value-added services to our customers.

While the overall economic recovery in 2021 remains uncertain, we believe that, by building on our 2020 actions, we will generate sales-driven revenue growth during 2021 in the range of 0% to 2%, primarily due to the combination of our sales performance and expected steady macroeconomic recovery from the COVID-19 pandemic. We expect that our first quarter financial performance will be similar to fourth quarter 2020 results, as we begin to lap the onset of the pandemic in March 2020. We are positioned for recovery to begin in the second quarter, enabling us to exit the year with revenue growth in the mid-single digits, and we expect that adjusted EBITDA margin for the full year will be between 20% and 21%, at the lower end of our long-term target range. We anticipate that our annual effective income tax rate for 2021 will be approximately 25%.

As of December 31, 2020, we held cash and cash equivalents of $123.1 million and $302.3 million was available for borrowing under our revolving credit facility. Our credit facility includes an accordion feature allowing us, subject to lender consent, to expand the facility from $1.150 billion to $1.425 billion. We anticipate that capital expenditures will be approximately $90.0 million in 2021, as we continue with important transformation work, innovation investments and building future scale across our product categories. We also expect that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change. We anticipate that net cash generated by operations, along with cash and cash equivalents on hand and availability under our credit facility, will be sufficient to support our operations for the next 12 months. We were in compliance with our debt covenants as of December 31, 2020, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.

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CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenue $ 1,790,781  $ 2,008,715  $ 1,998,025  (10.8%) 0.5%
The decrease in total revenue for 2020, as compared to 2019, was driven primarily by volume declines resulting from the impact of the COVID-19 pandemic, primarily in our Promotional Solutions, Checks and Cloud Solutions segments, as discussed in Executive Overview. In addition, revenue continued to be impacted by the secular decline in order volume for checks and business forms. Cloud Solutions web and hosted solutions revenue also declined, due to our decision in the third quarter of 2019 to exit certain customer contracts, the loss of certain large customers in the third quarter of 2019 as they elected to in-source some of the services we provide, and more recent decisions to exit certain product lines. These decreases in revenue were partially offset by growth of 16.8% in treasury management revenue within our Payments segment, driven primarily by lockbox processing outsourcing deals signed in the fourth quarter of 2019 and new client wins. We also generated new revenue of $31.0 million from sales of PPE in our Promotional Solutions segment in 2020. In addition, revenue benefited from new data-driven marketing campaigns and growth in pay-for-performance marketing campaigns in our Cloud Solutions segment prior to the commencement of the COVID-19 pandemic.

The increase in total revenue for 2019, as compared to 2018, was driven primarily by incremental revenue of approximately $65.1 million from businesses acquired, price increases in certain of our Checks sales channels and an increase in Cloud Solutions data-driven marketing volume. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. These increases in revenue were partially offset by the continuing decline in order volume for both personal and business checks, as well as business forms and accessories sold by our Promotional Solutions segment. In addition, web and hosted solutions and marketing and promotional solutions volume, excluding incremental revenue from businesses acquired, declined approximately $14.7 million and $10.0 million, respectively. Revenue was also negatively impacted during 2019 by continued check pricing pressure within our financial institution sales channel.

Service revenue represented 31.3% of total revenue in 2020, 29.8% in 2019 and 27.3% in 2018. We do not manage our business based on product versus service revenue. Instead, we analyze our revenue based on the product and service offerings shown under the caption "Note 19: Business Segment Information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. Our revenue mix by business segment was follows:
2020 2019 2018
Payments 16.9  % 13.4  % 11.2  %
Cloud Solutions 14.1  % 15.9  % 15.4  %
Promotional Solutions 29.6  % 31.9  % 33.0  %
Checks 39.4  % 38.8  % 40.4  %
Total revenue
100.0  % 100.0  % 100.0  %

Consolidated Cost of Revenue
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total cost of revenue $ 730,771  $ 812,935  $ 791,748  (10.1%) 2.7%
Total cost of revenue as a percentage of total revenue 40.8  % 40.5  % 39.6  % 0.3 pt. 0.9 pt.

Cost of revenue consists primarily of raw materials used to manufacture our products, shipping and handling costs, third-party costs for outsourced products and services, payroll and related expenses, information technology costs, depreciation and amortization of assets used in the production process and in support of digital service offerings, and related overhead.

The decrease in total cost of revenue for 2020, as compared to 2019, was primarily attributable to the decrease in revenue volume resulting from the COVID-19 impact. In addition, cost of revenue decreased as a result of the continued secular decline in checks and business forms, as well as the decline in web and hosted solutions revenue driven by the events of the third quarter of 2019 outlined in our discussion of consolidated revenue. Benefits from cost reductions and efficiencies in our
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fulfillment area, unrelated to our response to the COVID-19 pandemic, reduced cost of revenue approximately $7.5 million in 2020, while actions taken to reduce costs in response to COVID-19 reduced cost of revenue approximately $6.0 million in 2020. Partially offsetting these decreases in cost of revenue were costs related to the new revenue from PPE sales in 2020, costs related to treasury management deals signed in the fourth quarter of 2019, incremental costs driven by our response to the COVID-19 pandemic of approximately $6.0 million, and a $4.9 million increase in obsolete inventory expense in 2020, primarily in Promotional Solutions. Total cost of revenue as a percentage of total revenue increased slightly, as compared to 2019, as costs related to the new treasury management clients were partially offset by the loss of lower margin revenue driven by the impacts of COVID-19, as well as the benefits of our cost reduction initiatives.

The increase in total cost of revenue for 2019, as compared to 2018, was primarily attributable to incremental costs of businesses acquired of approximately $32.9 million, as well as increased shipping and material rates and an increase in medical costs of approximately $5.0 million in 2019. Partially offsetting these increases in total cost of revenue was the impact of the lower order volume for both personal and business checks, as well as business forms and some accessories. In addition, manufacturing efficiencies and other benefits resulting from our continued cost reduction initiatives resulted in a reduction in total cost of revenue of approximately $10.0 million in 2019. Total cost of revenue as a percentage of total revenue increased as compared to 2018, due in large part to the increase in service revenue, including the impact of acquisitions, as well as the increase in shipping, materials and medical costs, partially offset by price increases in certain of our Checks sales channels.

Consolidated Selling, General & Administrative (SG&A) Expense
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
SG&A expense $ 841,658  $ 891,693  $ 854,000  (5.6%) 4.4%
SG&A expense as a percentage of total revenue 47.0  % 44.4  % 42.7  % 2.6 pt. 1.7 pt.

The decrease in SG&A expense for 2020, as compared to 2019, was driven by lower commissions on the lower order volume resulting from the impacts of the COVID-19 pandemic, as well as the benefit of organizational actions taken in response to COVID-19, including the temporary salary reductions and the suspension of the 401(k) plan employer matching contribution. These actions lowered SG&A expense approximately $27.0 million in 2020. Also lowering SG&A expense were various cost reduction actions that were unrelated to our response to the COVID-19 pandemic, including advertising expense reductions and other efficiencies in sales, marketing and our corporate support functions. These decreases in SG&A expense were partially offset by investments of approximately $50.0 million in 2020 in support of our One Deluxe strategy. These costs related to treasury management outsourcing deals signed in the fourth quarter of 2019 and various other expenses related to initiatives such as transforming our brand and our website and expanding our sales capabilities, as well as ongoing new costs related to software-as-a-service solutions we are employing throughout the company. In addition, we incurred commission expense related to new revenue from the sales of PPE during 2020. We also recorded bad debt expense of $5.4 million in our Promotional Solutions segment related to notes receivable from our distributors, primarily one distributor that was underperforming prior to the commencement of the COVID-19 pandemic. Total SG&A expense as a percentage of revenue increased for 2020, as compared to 2019, as revenue declines and investments in our transformation more than offset the benefit of cost reductions.

The increase in SG&A expense for 2019, as compared to 2018, was driven by incremental costs of approximately $20.2 million from businesses acquired, excluding acquisition amortization, as well as investments in our One Deluxe transformation, increased commission rates on customer referrals, an increase of $7.0 million in share-based compensation expense, driven by an increase in the level of equity awards in 2019, a $6.5 million increase in medical costs and increased sales incentives in our data-driven marketing business. These increases in SG&A expense were partially offset by various expense reduction initiatives of approximately $40.0 million. Total SG&A expense as a percentage of revenue increased for 2019, as compared to 2018, as the investments in our transformation more than offset the impact of cost reductions.

In addition to the above factors, SG&A expense was also impacted by changes in the following items:
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Acquisition amortization (SG&A portion) $ 42,955  $ 59,108  $ 66,965  $ (16,153) $ (7,857)
Legal-related (benefit) costs (2,164) 6,420  10,502  (8,584) (4,082)
CEO transition costs (30) 9,390  7,210  (9,420) 2,180 
Loss (gain) from sales of businesses and customer lists(1)
1,846  124  (15,641) 1,722  15,765 

(1) Further information regarding the 2018 asset sales can be found under the caption "Note 3: Supplemental Balance Sheet and Cash Flow Information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

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Restructuring and Integration Expense
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Restructuring and integration expense $ 75,874  $ 71,248  $ 19,737  $ 4,626  $ 51,511 

We are currently pursuing several initiatives designed to focus our business behind our growth strategy and to increase our efficiency. Further information can be found under Restructuring, Integration and Other Costs.

Asset Impairment Charges
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Asset impairment charges $ 97,973  $ 390,980  $ 101,319  $ (293,007) $ 289,661 

Further information regarding our asset impairment charges can be found under the caption "Note 8: Fair Value Measurements" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report and in Critical Accounting Policies.

During 2020, we recorded asset impairment charges of $98.0 million, related primarily to the goodwill of our Promotional Solutions and Cloud Solutions Web Hosting reporting units and amortizable intangibles of our Cloud Solutions Web Hosting reporting unit.

During 2019, we recorded asset impairment charges of $391.0 million related primarily to the goodwill of our former Financial Services Data-Driven Marketing and Small Business Services Web Hosting reporting units, as well as certain amortizable intangible assets of the Small Business Services Web Hosting reporting unit.

During 2018, we recorded asset impairment charges of $101.3 million related primarily to the goodwill and indefinite-lived trade name of our former Small Business Services Indirect reporting unit.

Interest Expense
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Interest expense $ 23,140  $ 34,682  $ 27,112  (33.3%) 27.9%
Weighted-average debt outstanding(1)
1,016,896  925,715  796,667  9.8% 16.2%
Weighted-average interest rate(1)
2.12  % 3.54  % 3.21  % (1.42) pt. 0.33 pt.

(1) Amounts for 2018 include our obligations under finance leases, which were reported as debt in our consolidated balance sheets prior to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leasing, and related amendments on January 1, 2019.

The decrease in interest expense for 2020, as compared to 2019, was primarily driven by our lower weighted-average interest rate in 2020, partially offset by our higher weighted-average debt level in 2020, as we borrowed additional funds for a period of time at the outset of the COVID-19 pandemic to ensure liquidity. Those funds were subsequently repaid and our total debt outstanding was $840.0 million as of December 31, 2020, compared to $883.5 million as of December 31, 2019.

The increase in interest expense for 2019, as compared to 2018, was driven primarily by our higher weighted-average debt level that funded share repurchases throughout 2019 and 2018 and acquisitions throughout 2018, as well as our higher weighted-average interest rate during 2019.

Income Tax Provision
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Income tax provision $ 21,680  $ 14,267  $ 63,001  52.0% (77.4%)
Effective tax rate 70.9  % (7.7  %) 29.6  % 78.6 pt. (37.3) pt.

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Our effective income tax rates in 2020 and 2019 were significantly impacted by the asset impairment charges in both periods, coupled with their impact on the amount of pretax income (loss) and the nondeductible portion of the impairment charges. The non-deductible portion of goodwill impairment charges drove a 68.5 point increase in our tax rate in 2020 and the tax impact of share-based compensation resulted in an 8.5 point increase, as compared to 2019. In addition, during the third quarter of 2019, we placed a full valuation allowance of $8.4 million on the intangible-related deferred tax asset generated by the impairment of intangible assets located in Australia, resulting in a 4.5 point increase in our tax rate in 2020, as compared to 2019. Partially offsetting these increases in our effective tax rate was a 3.2 decrease in our state income tax rate. Further information regarding our effective tax rates for 2020 and 2019 can be found under the caption "Note 11: Income Tax Provision" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. We anticipate that our annual effective income tax rate for 2021 will be approximately 25%.

The decrease in our effective income tax rate for 2019, as compared to 2018, was driven primarily by the nondeductible portion of the goodwill impairment charges in each period, combined with the impact of the asset impairment charges on pretax (loss) income in each period. The larger non-deductible goodwill impairment charge in 2019 resulted in a decrease in our effective tax rate of 36.4 points, as compared to 2018. In addition, during the third quarter of 2019, we placed a full valuation allowance of $8.4 million on the intangible-related deferred tax asset generated by the impairment of intangible assets located in Australia, decreasing our tax rate 4.5 points. Partially offsetting these decreases in our effective income tax rate was an increase in our state income tax rate of 1.9 points, as compared to 2018. Further information regarding our effective tax rates for 2019 and 2018 can be found under the caption "Note 11: Income Tax Provision" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

Net Income (Loss) / Diluted Earnings (Loss) per Share
  Change
(in thousands, except per share amounts) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net income (loss) $ 8,899  $ (199,897) $ 149,630  104.5  % (233.6  %)
Diluted earnings (loss) per share 0.19  (4.65) 3.16  104.1  % (247.2  %)
Adjusted diluted EPS(1)
5.08  6.82  6.88  (25.5  %) (0.9  %)

(1) Information regarding the calculation of adjusted diluted EPS can be found in the following section, Reconciliation of Non-GAAP Financial Measures.

The change in net income and diluted EPS for 2020, as compared to 2019, was driven by the factors outlined in Executive Overview – 2020 results vs. 2019. The decrease in adjusted diluted EPS for 2020, as compared to 2019, was driven, in large part, by the impact of the COVID-19 pandemic, as well as investments in our One Deluxe strategy and the continuing secular decline in checks and business forms. These decreases were partially offset by various cost savings initiatives and growth in treasury management revenue.

We reported a net loss and diluted loss per share for 2019, compared to net income and diluted EPS for 2018. The primary factor contributing to the net loss in 2019 was a $289.7 million increase in asset impairment charges. Other factors that contributed to the net loss in 2019 included:

an increase in restructuring, integration and other costs of $58.3 million in support of our growth strategies and to increase our efficiency;

the continuing secular decline in check and forms usage;

investments in our One Deluxe transformation;

increased shipping and material rates, medical costs and interest expense;

organic declines in web and hosted solutions and marketing and promotional solutions revenue;

gains from sales of businesses and customer lists of $15.6 million in 2018;

increased share-based compensation expense, driven by an increase in the level of equity awards in 2019; and

an unfavorable effective income tax rate.

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Partially offsetting these increases in net loss and diluted loss per share were:

a benefit in 2019 of approximately $50.0 million from continuing initiatives to reduce our cost structure;

lower shares outstanding in 2019;

the benefit of price increases in certain of our Checks sales channels;

a $7.9 million decrease in acquisition amortization expense; and

incremental earnings from businesses acquired.

The decrease in adjusted diluted EPS for 2019, as compared to 2018, was driven primarily by the continuing decline in checks, business forms and some accessories, investments in our One Deluxe transformation, increased shipping and material rates, increased medical costs and interest expense, lower organic web and hosted solutions and marketing and promotional solutions revenue, increased referral costs and continued check pricing pressure within our financial institution sales channel. These decreases in adjusted diluted EPS were partially offset by benefits from our cost reduction initiatives, lower shares outstanding in 2019, the benefit of price increases in certain of our Checks sales channels and incremental earnings from businesses acquired.

Adjusted EBITDA
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Adjusted EBITDA $ 364,542  $ 480,866  $ 509,297  (24.2%) (5.6%)
Adjusted EBITDA margin 20.4  % 23.9  % 25.5  % (3.5) pt. (1.6) pt.

The decrease in adjusted EBITDA for 2020, as compared to 2019, was driven primarily by the impact of the COVID-19 pandemic. In addition, adjusted EBITDA was negatively impacted by mix changes resulting from the contraction of legacy products and services, primarily checks and business forms, and the loss of web and hosted solutions revenue driven by the events of the third quarter of 2019 outlined in our discussion of consolidated revenue. We also continued to advance our transformation in line with our One Deluxe strategy by investing in various activities such as transforming our brand and our website and expanding our sales capabilities, as well as incurring ongoing new costs related to software-as-a-service solutions we are employing throughout the company. We also incurred expenses related to treasury management deals signed in the fourth quarter of 2019, as well as investments in our client operations area that included human capital investments and other costs related to on-boarding new clients. Additionally, during 2020, we incurred incremental costs resulting from our response to the COVID-19 pandemic of approximately $8.0 million, and we recorded bad debt expense of $5.4 million related to notes receivable from our distributors. These decreases in adjusted EBITDA were partially offset by actions taken to reduce costs in line with the reduced revenue, including savings of approximately $33.0 million from the temporary salary reductions, suspension of the 401(k) plan employer matching contribution, furloughs and other actions. In addition, we realized the benefit of various cost reductions unrelated to our response to the COVID-19 pandemic, primarily in our sales, marketing and fulfillment organizations, as we continued to develop our post-COVID-19 operating model.

Adjusted EBITDA decreased for 2019, as compared to 2018, driven primarily by the continuing decline in checks, business forms and some accessories, investments in our One Deluxe transformation, increased shipping and material rates, increased medical costs and lower organic web and hosted solutions and marketing and promotional solutions revenue. In addition, referral costs increased and check pricing pressure within our financial institution sales channel continued. These decreases in adjusted EBITDA were partially offset by benefits from our cost reduction initiatives, price increases in certain of our Checks sales channels and incremental earnings from businesses acquired.

Reconciliation of Non-GAAP Financial Measures

We have not reconciled adjusted EBITDA outlook guidance for 2021 to the directly comparable GAAP financial measure because we do not provide outlook guidance for net income or the reconciling items between net income and adjusted EBITDA. Because of the substantial uncertainty and variability surrounding certain of these forward-looking reconciling items, including asset impairment charges, restructuring, integration and other costs, and certain legal-related expenses, a reconciliation of the non-GAAP financial measure outlook guidance to the corresponding GAAP measure is not available without unreasonable effort. The probable significance of certain of these reconciling items is high and, based on historical experience, could be material.

Free cash flow – We believe that free cash flow is an important indicator of cash available for debt service and for shareholders, after making capital investments to maintain or expand our asset base. Free cash flow is limited and not all of our free cash flow is available for discretionary spending, as we may have mandatory debt payments and other cash requirements
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that must be deducted from our cash available for future use. We believe that the measure of free cash flow provides an additional metric to compare cash generated by operations on a consistent basis and to provide insight into the cash flow available to fund items such as share repurchases, dividends, mandatory and discretionary debt reduction and acquisitions or other strategic investments.

Net cash provided by operating activities reconciles to free cash flow as follows:

Year Ended December 31,
(in thousands) 2020 2019 2018
Net cash provided by operating activities $ 217,553  $ 286,653  $ 339,315 
Purchases of capital assets (62,638) (66,595) (62,238)
Free cash flow $ 154,915  $ 220,058  $ 277,077 

Net debt – Management believes that net debt is an important measure to monitor leverage and to evaluate the balance sheet. In calculating net debt, cash and cash equivalents are subtracted from total debt because they could be used to reduce our debt obligations. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt and that there is less debt than the most comparable GAAP measure indicates.

Total debt reconciles to net debt as follows:
(in thousands) December 31,
2020
December 31,
2019
Total debt $ 840,000  $ 883,500 
Cash and cash equivalents (123,122) (73,620)
Net debt $ 716,878  $ 809,880 

Liquidity – We consider liquidity to be an important metric for demonstrating the amount of cash that is available or that could be readily available on short notice. This financial measure is not a substitute for GAAP liquidity measures. Instead, we believe that this measurement enhances investors’ understanding of the funds that are currently available.

(in thousands) December 31,
2020
Cash and cash equivalents $ 123,122 
Amount available for borrowing under revolving credit facility 302,342 
Liquidity $ 425,464 

Adjusted diluted EPS – By excluding the impact of non-cash items or items that we believe are not indicative of current period operating performance, we believe that adjusted diluted EPS provides useful comparable information to assist in analyzing our current period operating performance and in assessing our future operating performance. As such, adjusted diluted EPS is one of the key financial performance metrics we use to assess the operating results and performance of the business and to identify strategies to improve performance. It is reasonable to expect that one or more of the excluded items will occur in future periods, but the amounts recognized may vary significantly.

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Diluted earnings (loss) per share reconciles to adjusted diluted EPS as follows:
Year Ended December 31,
(in thousands, except per share amounts) 2020 2019 2018
Net income (loss) $ 8,899  $ (199,897) $ 149,630 
Net income attributable to non-controlling interest (91) —  — 
Net income (loss) attributable to Deluxe 8,808  (199,897) 149,630 
Asset impairment charges 97,973  390,980  101,319 
Acquisition amortization 55,867  70,720  78,577 
Restructuring, integration and other costs 80,665  79,511  21,203 
CEO transition costs(1)
(30) 9,390  7,210 
Share-based compensation expense 21,824  19,138  11,689 
Acquisition transaction costs 215  1,719 
Certain legal-related (benefit) expense (2,164) 6,420  10,502 
Loss (gain) on sales of businesses and customer lists 1,846  124  (15,641)
Loss on debt retirement —  —  453 
Adjustments, pre-tax 255,989  576,498  217,031 
Income tax provision impact of pre-tax adjustments(2)
(49,941) (81,868) (39,715)
Impact of federal tax reform —  —  (1,700)
Adjustments, net of tax 206,048  494,630  175,616 
Adjusted net income attributable to Deluxe 214,856  294,733  325,246 
Income allocated to participating securities (77) (414) (1,336)
Re-measurement of share-based awards classified as liabilities (803) 64  (471)
Adjusted income attributable to Deluxe available to common shareholders $ 213,976  $ 294,383  $ 323,439 
Weighted-average shares and potential common shares outstanding 42,142  43,029  46,991 
Adjustment(3)
(27) 158  (2)
Adjusted weighted-average shares and potential common shares outstanding 42,115  43,187  46,989 
GAAP diluted earnings (loss) per share $ 0.19  $ (4.65) $ 3.16 
Adjustments, net of tax 4.89  11.47  3.72 
Adjusted Diluted EPS $ 5.08  $ 6.82  $ 6.88 

(1) In 2019 and 2018, includes share-based compensation expense related to the modification of certain awards in conjunction with our CEO transition.

(2) The tax effect of the pretax adjustments considers the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). Generally, this results in a tax impact that approximates the U.S. effective tax rate for each adjustment. However, the tax impact of certain adjustments, such as asset impairment charges, share-based compensation expense and CEO transition costs, depends on whether the amounts are deductible in the respective tax jurisdictions and the applicable effective tax rate(s) in those jurisdictions.

(3) The total of weighted-average shares and potential common shares outstanding used in the calculation of adjusted diluted EPS differs from that used in the GAAP diluted EPS calculations because of the impact on the GAAP calculations of the net losses in certain of the periods in each year.

Adjusted EBITDA – We believe that adjusted EBITDA is useful in evaluating our operating performance, as the calculation eliminates the effect of interest expense, income taxes, the accounting effects of capital investments (i.e., depreciation and amortization) and certain items, as presented below, that may vary for companies for reasons unrelated to current period operating performance. In addition, management utilizes adjusted EBITDA to assess the operating results and performance of the business, to perform analytical comparisons and to identify strategies to improve performance. We also believe that an increasing adjusted EBITDA depicts an increase in the value of the company. We do not consider adjusted EBITDA to be a measure of cash flow, as it does not consider certain cash requirements such as interest, income taxes, debt service payments or capital investments.

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Net income (loss) reconciles to adjusted EBITDA as follows:
Year Ended December 31,
(in thousands) 2020 2019 2018
Net income (loss) $ 8,899  $ (199,897) $ 149,630 
Non-controlling interest (91) —  — 
Depreciation and amortization expense 110,792  126,036  131,100 
Interest expense 23,140  34,682  27,112 
Income tax provision 21,680  14,267  63,001 
Asset impairment charges 97,973  390,980  101,319 
Restructuring, integration and other costs 80,665  79,511  21,203 
CEO transition costs(1)
(30) 9,390  7,210 
Share-based compensation expense 21,824  19,138  11,689 
Acquisition transaction costs 215  1,719 
Certain legal-related (benefit) expense (2,164) 6,420  10,502 
Loss (gain) on sales of businesses and customer lists
1,846  124  (15,641)
Loss on debt retirement —  —  453 
Adjusted EBITDA $ 364,542  $ 480,866  $ 509,297 

(1) In 2019 and 2018, includes share-based compensation expense related to the modification of certain awards in conjunction with our CEO transition.


RESTRUCTURING, INTEGRATION AND OTHER COSTS

Restructuring and integration expense consists of costs related to the consolidation and migration of certain applications and processes, including our financial, sales and human resources management systems. It also includes costs related to the integration of acquired businesses into our systems and processes. These costs primarily consist of information technology consulting, project management services and internal labor, as well as other costs associated with our initiatives, such as training, travel and relocation and costs associated with facility closures. In addition, we recorded employee severance costs related to these initiatives, as well as our ongoing cost reduction initiatives across functional areas. Our restructuring and integration activities began to increase during the second half of 2019, as we began pursuing several initiatives designed to focus our business behind our growth strategy and to increase our efficiency. Further information regarding restructuring and integration expense can be found under the caption "Note 9: Restructuring and Integration Expense" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. In addition to restructuring and integration expense, we also recognized certain business transformation costs related to optimizing our business processes in line with our growth strategies. While we reduced certain expenditures during the first half of 2020 in response to the COVID-19 pandemic, we subsequently decided to resume certain capital projects and to continue important system implementation work.

The majority of the employee reductions included in our restructuring and integration accruals as of December 31, 2020 are expected to be completed in the first quarter of 2021, and we expect most of the related severance payments to be paid in the first half of 2021. As a result of our employee reductions, we realized cost savings of approximately $25.0 million in SG&A expense and $5.0 million in total cost of revenue in 2020, in comparison to our 2019 results of operations, which represents a portion of the total net cost reductions we realized in 2020. For those employee reductions included in our restructuring and integration accruals through December 31, 2020, we expect to realize cost savings of approximately $35.0 million in SG&A expense and $1.0 million in total cost of revenue in 2021, in comparison to our 2020 results of operations, which represents a portion of the total net cost reductions we expect to realize in 2021. In addition, we closed 24 facilities during 2020 and we expect to close additional facilities during 2021. These facilities primarily contain sales and administrative functions, and most of the impacted employees have converted to a work-from-home model. We anticipate annual savings of more than $10.0 million from these facility closures, once they are complete.


CEO TRANSITION COSTS

In April 2018, we announced the retirement of Lee Schram, our former CEO. Mr. Schram remained employed under the terms of a transition agreement through March 1, 2019. Under the terms of this agreement, we provided certain benefits to Mr. Schram, including a transition bonus in the amount of $2.0 million that was paid in March 2019. In addition, modifications were made to certain of his share-based payment awards. In conjunction with the CEO transition, we offered retention agreements to
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certain members of our management team under which each employee was entitled to receive a cash bonus equal to his or her annual base salary or up to 1.5 times his or her annual base salary if he or she remained employed during the retention period, generally from July 1, 2018 to December 31, 2019, and complied with certain covenants. In addition to these expenses, we incurred certain other costs related to the CEO transition process, including executive search, legal, travel and board of directors fees in 2018. During 2019, we incurred consulting fees related to the evaluation of our strategic plan and we expensed the majority of the current CEO's signing bonus. CEO transition costs are included in SG&A expense on the consolidated statements of income (loss) and were $9.4 million in 2019 and $7.2 million in 2018. Accruals for CEO transition costs were $4.4 million as of December 31, 2019 and were included in accrued liabilities on the consolidated balance sheet. All of these amounts were paid during 2020.


SEGMENT RESULTS

Effective January 1, 2020, we reorganized our reportable business segments to align with structural and management reporting changes in support of our growth strategy. We currently operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments are generally organized by product type and reflect the way we currently manage the company. The financial information presented below for our reportable business segments is consistent with that presented under the caption “Note 19: Business Segment Information” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report, where information regarding our product and service offerings can also be found.

Payments

Results for our Payments segment were as follows:
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenue $301,901  $269,573  $224,546  12.0% 20.1%
Adjusted EBITDA 68,117  74,384  59,016  (8.4%) 26.0%
Adjusted EBITDA margin 22.6  % 27.6  % 26.3  % (5.0) pt. 1.3 pt.

The increase in total revenue for 2020, as compared to 2019, was driven by an increase in treasury management revenue of 16.8%, related primarily to lockbox processing outsourcing deals signed in the fourth quarter of 2019 and other client wins. Partially offsetting this increase in revenue was a decline in payroll services revenue, primarily driven by the negative impact of the COVID-19 pandemic on our small business customers. Revenue for the fourth quarter of 2020 was impacted by customer implementation delays attributable to the COVID-19 pandemic.

The decrease in adjusted EBITDA for 2020, as compared to 2019, was primarily driven by increased costs in support of our One Deluxe strategy, including costs related to the lockbox processing outsourcing deals signed in the fourth quarter of 2019, as well as investments in our client operations area that included human capital investments and other costs related to on-boarding new clients. In addition, adjusted EBITDA was negatively impacted by the COVID-19 pandemic, as payroll revenue declined and we incurred incremental costs, including the Hero Pay premium we paid to employees working on-site during the second quarter of 2020. These impacts were partially offset by revenue from the lockbox processing outsourcing deals and actions taken to reduce costs in response to the COVID-19 pandemic. Adjusted EBITDA margin decreased for 2020, as compared to 2019, as a result of the investments we made in this business and expected COVID-19-related delays in new customer implementations. Throughout 2020, we expanded the number of financial institution partners that utilize our full suite of capabilities, and during 2021, we will continue to work with these partners to on-board these services and to expand the number of full-service clients.

The increase in total revenue for 2019, as compared to 2018, was driven by incremental treasury management revenue of approximately $49.1 million from businesses acquired. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. Partially offsetting this increase in revenue was a decrease in treasury management volume of $3.6 million due to a customer electing to bring its services in-house, as well as a reduction in software maintenance revenue.

The increases in adjusted EBITDA and adjusted EBITDA margin for 2019, as compared to 2018, were primarily driven by incremental earnings of the acquired businesses, as well as continuing cost reduction initiatives across functional areas. Partially offsetting these increases were investments in our One Deluxe strategy and increased medical costs in 2019.
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Cloud Solutions

Results for our Cloud Solutions segment were as follows:
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenue $252,773  $318,383  $307,589  (20.6%) 3.5%
Adjusted EBITDA 61,580  77,199  69,976  (20.2%) 10.3%
Adjusted EBITDA margin 24.4  % 24.2  % 22.7  % 0.2 pt. 1.5 pt.

The decrease in total revenue for 2020, as compared to 2019, was driven by the impact of the COVID-19 pandemic, primarily in data-driven marketing solutions as clients suspended their marketing campaigns, with some impact on web and hosted solutions as well. Data-driven marketing revenue for the fourth quarter of 2020 remained stable, as compared to the third quarter of 2020, as financial institutions slowly reactivated data-driven marketing analytics and campaigns in the second half of the year. Web and hosted solutions revenue declined, as compared to 2019, due to our decision in the third quarter of 2019 to exit certain customer contracts, the loss of certain large customers in the third quarter of 2019 as they elected to in-source some of the services we provide, and more recent decisions to exit certain product lines. Partially offsetting these decreases was a $7.0 million increase in data-driven marketing revenue in the first quarter of 2020, prior to the commencement of the COVID-19 pandemic, driven by new campaigns and growth in pay-for-performance marketing campaigns.

The decrease in adjusted EBITDA for 2020, as compared to 2019, was primarily due to the impact of the COVID-19 pandemic and increased information technology costs in support of our One Deluxe strategy, as well as the loss of web hosting revenue related to the events that occurred in the third quarter of 2019. Partially offsetting these declines in adjusted EBITDA were various cost reductions unrelated to our response to the COVID-19 pandemic, primarily sales and marketing costs, and the benefit of actions taken in response to the pandemic. Adjusted EBITDA also benefited from the increase in data-driven marketing revenue in the first quarter of 2020, prior to the commencement of the COVID-19 pandemic. Adjusted EBITDA margin increased slightly for 2020, as compared to 2019, as cost reductions outpaced the revenue decline and revenue mix was favorable in 2020. We expect that the loss of revenue associated with certain product exits in the fourth quarter of 2020 will continue to impact revenue in 2021, but we anticipate adjusted EBITDA margins to remain in the low-to-mid 20% range.

The increase in total revenue for 2019, as compared to 2018, was driven by incremental revenue from businesses acquired of approximately $14.6 million. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. In addition, data-driven marketing revenue increased $10.9 million, as compared to 2018, driven by new campaigns and growth in existing client spend. Partially offsetting these revenue increases was softness in web and hosted solutions driven primarily by the events that occurred in the third quarter of 2019.

The increase in adjusted EBITDA and adjusted EBITDA margin for 2019, as compared to 2018, was driven by growth in data-driven marketing revenue and the contribution of the acquired businesses, as well as cost saving initiatives designed to bring our cost structure in line with the level of web and hosted solutions revenue. In addition, adjusted EBITDA margin benefited from a more favorable product mix.

Promotional Solutions

Results for our Promotional Solutions segment were as follows:
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenue $529,649  $640,892  $658,357  (17.4%) (2.7%)
Adjusted EBITDA 66,620  101,293  105,586  (34.2%) (4.1%)
Adjusted EBITDA margin 12.6  % 15.8  % 16.0  % (3.2) pt. (0.2) pt.

The decrease in total revenue for 2020, as compared to 2019, was driven primarily by the impact of the COVID-19 pandemic, as our small business and enterprise customers reacted to the current economic environment and demand for marketing and promotional products declined sharply, as our customers stopped virtually all promotional activities in response to the pandemic. The continuing secular decline in business forms and some accessories also negatively impacted revenue. Partially offsetting these volume declines was new revenue of $31.0 million from sales of PPE during 2020. Revenue for the fourth quarter of 2020 increased 15.3% over the third quarter of 2020, primarily in marketing and promotional solutions, partially due to seasonality in certain of our products. We believe revenue will continue to improve in 2021, but we are not expecting a rapid recovery in this segment until COVID-19 impacts abate.

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The decrease in adjusted EBITDA for 2020, as compared to 2019, was primarily driven by the loss of revenue resulting from the COVID-19 pandemic, investments in support of our One Deluxe strategy, primarily information technology and sales force expenses, and the continuing secular decline in business forms and some accessories. In addition, we recorded bad debt expense of $5.4 million during 2020, related to notes receivable from our distributors, primarily one that was underperforming prior to the commencement of the COVID-19 pandemic, and expense for obsolete inventory was higher in 2020. These decreases in adjusted EBITDA were partially offset by the benefit of actions taken in response to COVID-19, various cost reductions unrelated to our response to the COVID-19 pandemic, primarily sales, marketing and fulfillment costs, and the sales of PPE in 2020. Adjusted EBITDA margin for 2020 decreased, as compared to 2019, as the revenue decline, investments in our transformation, and bad debt and obsolete inventory expense more than offset the benefit of actions taken in response to COVID-19 and the other cost savings realized. We are anticipating improved adjusted EBITDA margins in 2021, as a result of cost reduction actions taken in 2020, including changes in key distribution relationships that will continue in 2021.

The decrease in total revenue for 2019, as compared to 2018, was driven primarily by the continued secular decline in business forms and some accessories, the loss of a large customer and a decline in promotional products volume.

The decreases in adjusted EBITDA and adjusted EBITDA margin for 2019, as compared to 2018, were driven by the lower order volume, investments in our One Deluxe strategy, increased medical costs and higher materials and shipping rates. These decreases were partially offset by the benefits of our cost reductions initiatives, including efficiency initiatives and spending reductions.

Checks

Results for our Checks segment were as follows:
Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenue $706,458  $779,867  $807,533  (9.4%) (3.4%)
Adjusted EBITDA 341,705  402,662  415,221  (15.1%) (3.0%)
Adjusted EBITDA margin 48.4  % 51.6  % 51.4  % (3.2) pt. 0.2 pt.

The decrease in total revenue for 2020, as compared to 2019, was driven primarily by the impact of the COVID-19 pandemic, which resulted in a decline in business and personal check usage stemming from the slowdown in the economy. The continuing secular decline in checks also contributed to the revenue decline, partially offset by nominal price increases. Based on our client retention rate and new business that we won during 2020, we anticipate revenue declines in 2021 to return to mid-single digits.

The decrease in adjusted EBITDA for 2020, as compared to 2019, was driven by the loss of revenue resulting from the COVID-19 pandemic and the secular decline in checks, as well as referral costs and investments in support of our One Deluxe strategy, primarily information technology expenses. Partially offsetting these decreases in adjusted EBITDA were various cost reductions unrelated to our response to the COVID-19 pandemic, primarily sales, marketing and fulfillment costs, and the benefit of actions taken in response to COVID-19. We continue to focus on scaling our operating expenses to match anticipated check volumes, while we make strategic investments in this business.

The decrease in total revenue for 2019, as compared to 2018, was primarily due to the reduction in orders stemming from the continuing secular decline in check usage. This decrease in revenue was partially offset by the benefit of price increases in certain sales channels.

The decrease in adjusted EBITDA for 2019, as compared to 2018, was due primarily to the revenue decline, increased material and shipping rates, as well as increased referral and medical costs. These decreases were partially offset by benefits from our cost reduction initiatives, including lower advertising expense driven by advertising print reduction initiatives, efficiency initiatives and spending reductions. These cost reductions drove the increase in adjusted EBITDA margin for 2019, as compared to 2018.


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CASH FLOWS AND LIQUIDITY
As of December 31, 2020, we held cash and cash equivalents of $123.1 million and cash and cash equivalents included in funds held for customers of $106.3 million. The following table shows our cash flow activity for the past 3 years, and should be read in conjunction with the consolidated statements of cash flows appearing in Part II, Item 8 of this report.
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net cash provided by operating activities
$ 217,553  $ 286,653  $ 339,315  $ (69,100) $ (52,662)
Net cash used by investing activities
(56,093) (72,397) (253,059) 16,304  180,662 
Net cash used by financing activities
(110,555) (190,148) (62,180) 79,593  (127,968)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents
3,693  5,444  (7,636) (1,751) 13,080 
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents
$ 54,598  $ 29,552  $ 16,440  $ 25,046  $ 13,112 
Free cash flow(1)
$ 154,915  $ 220,058  $ 277,077  $ (65,143) $ (57,019)

(1) See the Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section, which illustrates how we calculate free cash flow.

To maintain liquidity at the onset of the COVID-19 pandemic, we took steps to reduce discretionary spending and other expenditures in line with revenue declines. These steps included temporary salary reductions for all salaried employees, including our leadership team and board of directors, project delays, furloughs and other actions. We also delayed U.S. federal payroll tax payments as permitted by the CARES Act. As a result of these actions and our stronger than expected performance, we generated operating cash flow of $217.6 million and free cash flow of $154.9 million in 2020. This allowed us to end the temporary salary reductions, effective July 1, 2020. In addition, during the second half of 2020, we repaid $300.0 million of the amount drawn on our revolving credit facility, and we ended 2020 with liquidity of $425.5 million, comprised of cash on hand and availability on our credit facility.

Net cash provided by operating activities decreased $69.1 million for 2020, as compared to 2019, driven primarily by the loss of revenue resulting from the COVID-19 pandemic, increased investments in support of our One Deluxe strategy, the continuing secular decline in checks and business forms, and changes in the timing of certain working capital items, such as inventory purchases and payments on accounts payable. These decreases in operating cash flow were partially offset by a $36.1 million reduction in income tax payments resulting from lower taxable income, actions taken in response to COVID-19, such as the temporary salary reductions and other actions, delays in U.S. federal payroll tax payments of $14.3 million allowed under the CARES Act, and a legal-related settlement of $12.5 million in 2019 that was accrued in the previous year.

The $52.7 million decrease in net cash provided by operating activities for 2019, as compared to 2018, was due primarily to increased restructuring and integration activities in support of our growth strategy and to increase efficiency, the continuing secular decline in check and forms usage, the payment of certain legal-related expenses, including $12.5 million accrued in the prior year and paid in the first quarter of 2019, an increase of $10.1 million in medical benefit payments and a $7.3 million increase in interest payments. These decreases in operating cash flow were partially offset by benefits of our cost reduction initiatives, a $27.5 million reduction in income tax payments in 2019, the timing of accounts receivable collections and annual billings in certain of our businesses, and Checks price increases in certain sales channels.

Included in net cash provided by operating activities were the following operating cash outflows:
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Medical benefit payments
$ 43,419  $ 41,714  $ 31,610  $ 1,705  $ 10,104 
Prepaid product discount payments 33,613  25,637  23,814  7,976  1,823 
Income tax payments 24,701  60,764  88,253  (36,063) (27,489)
Interest payments 22,853  33,227  25,910  (10,374) 7,317 
Performance-based compensation payments(1)
20,832  23,583  21,780  (2,751) 1,803 
Severance payments 14,289  10,585  6,971  3,704  3,614 

(1) Amounts reflect compensation based on total company performance.

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Net cash used by investing activities for 2020 was $16.3 million lower than 2019, driven primarily by proceeds from the sale of facilities of $9.7 million in 2020, an $8.3 million reduction in payments for acquisitions and a reduction in capital purchases of $4.0 million, partially offset by purchases of customer lists of $11.1 million in 2020.

Net cash used by investing activities for 2019 was $180.7 million lower than in 2018, driven primarily by a decrease of $183.7 million in payments for acquisitions. Our One Deluxe growth strategy focuses on profitable organic growth, supplemented by acquisitions, rather than being dependent on acquisitions for growth. As such, the amount paid for acquisitions in 2019 decreased significantly from 2018. Information about our acquisitions can be found under the caption “Note 6: Acquisitions” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

Net cash used by financing activities for 2020 was $79.6 million lower than 2019, due primarily to a decrease in common share repurchases of $104.5 million. To maintain liquidity during the COVID-19 pandemic, we did not repurchase any of our common shares during the last 3 quarters of the year. Partially offsetting this decrease in cash used by financing activities was a net increase in payments on long-term debt of $17.0 million and the net change in customer funds obligations in each period.

Net cash used by financing activities for 2019 was $128.0 million higher than in 2018, driven primarily by a net decrease in borrowings on long-term debt of $227.6 million, as our borrowings were higher in 2018 to fund acquisitions and share repurchases. This increase in cash used by financing activities was partially offset by a decrease in share repurchases of $81.5 million.

Significant cash transactions, excluding those related to operating activities, for each period were as follows:
  Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Purchases of capital assets $ (62,638) $ (66,595) $ (62,238) $ 3,957  $ (4,357)
Cash dividends paid to shareholders (50,746) (51,742) (56,669) 996  4,927 
Net change in debt
(43,500) (26,500) 201,147  (17,000) (227,647)
Payments for common shares repurchased (14,000) (118,547) (200,000) 104,547  81,453 
Purchases of customer lists (11,082) —  —  (11,082) — 
Payments for acquisitions, net of cash acquired —  (8,251) (191,903) 8,251  183,652 
Employee taxes paid for shares withheld (2,956) (3,935) (7,977) 979  4,042 
Net change in customer funds obligations
(168) 12,598  20,279  (12,766) (7,681)
Proceeds from sale of facilities 9,713  —  —  9,713  — 
Proceeds from issuing shares under employee plans 3,747  3,198  7,523  549  (4,325)

As of December 31, 2020, our foreign subsidiaries held cash and cash equivalents of $98.7 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 all of our foreign cash and cash equivalents into the U.S. at one time, we estimate we would incur a foreign withholding tax liability of approximately $5.0 million.

As of December 31, 2020, $302.3 million was available for borrowing under our $1.15 billion revolving credit facility. Our credit facility includes an accordion feature allowing us, subject to lender consent, to expand the facility to $1.425 billion. We anticipate that net cash generated by operating activities, along with cash and cash equivalents on hand and availability under our revolving credit facility, will be sufficient to support our operations for the next 12 months. We anticipate that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and thus, are subject to change.


CAPITAL RESOURCES

Our total debt was $840.0 million as of December 31, 2020, a decrease of $43.5 million from December 31, 2019. Further information concerning our outstanding debt can be found under the caption "Note 15: Debt” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. Information regarding our debt service obligations can be found under Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations.

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Our capital structure for each period was as follows:
  December 31, 2020 December 31, 2019  
(in thousands) Amount Period-end interest rate Amount Period-end interest rate Change
Fixed interest rate(1)
$ 200,000  3.3  % $ 200,000  3.2  % $ — 
Floating interest rate 640,000  1.6  % 683,500  3.0  % (43,500)
Total debt 840,000  2.0  % 883,500  3.0  % (43,500)
Shareholders’ equity 540,838    570,861    (30,023)
Total capital $ 1,380,838    $ 1,454,361    $ (73,523)

(1) The fixed interest rate amount represents the amount drawn under our revolving credit facility that is subject to an interest rate swap agreement. The related interest rate includes the fixed rate under the swap of 1.798% plus the credit facility spread due on all amounts outstanding under the credit facility agreement.

In October 2018, our board of directors authorized the repurchase of up to $500.0 million of our common stock. This authorization has no expiration date. To maintain liquidity during the COVID-19 pandemic, we did not repurchase any of our common shares during the last 3 quarters of 2020. During the first quarter of 2020, we repurchased 0.5 million shares for $14.0 million. As of December 31, 2020, $287.5 million remained available for repurchase under the authorization. Information regarding changes in shareholders' equity can be found in the consolidated statements of shareholders' equity appearing in Part II, Item 8 of this report.

As of December 31, 2020, the total availability under our revolving credit facility was $1.15 billion. The facility includes an accordion feature allowing us, subject to lender consent, to increase the credit commitment to an aggregate amount not exceeding $1.425 billion. The credit facility matures in March 2023. Our quarterly commitment fee ranges from 0.175% to 0.35%, based on our leverage ratio.

Borrowings under the credit facility agreement 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 requires us to maintain certain financial ratios, including a maximum leverage ratio of 3.5 and a minimum ratio of consolidated earnings before interest and taxes to consolidated interest expense, as defined in the credit agreement, of 3.0. Additionally, the agreement contains customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct in all material respects on the date of the borrowing, including representations as to no material adverse change in our business, assets, operations or financial condition. We were in compliance with all debt covenants as of December 31, 2020, and we anticipate that we will remain in compliance with our debt covenants throughout 2021.

As of December 31, 2020, amounts were available for borrowing under our revolving credit facility as follows:
(in thousands) Total available
Revolving credit facility commitment $ 1,150,000 
Amount drawn on revolving credit facility (840,000)
Outstanding letters of credit(1)
(7,658)
Net available for borrowing as of December 31, 2020 $ 302,342 

(1) We use standby letters of credit primarily to collateralize certain obligations related to our self-insured workers' compensation claims, as well as claims for environmental matters, as required by certain states. These letters of credit reduce the amount available for borrowing under our revolving credit facility.


OTHER FINANCIAL POSITION INFORMATION

Information concerning items comprising selected captions on our consolidated balance sheets can be found under the caption "Note 3: Supplemental Balance Sheet and Cash Flow Information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

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Prepaid product discounts – Other non-current assets include prepaid product discounts that are recorded upon contract execution and are generally amortized on the straight-line basis as reductions of revenue over the related contract term. Changes in prepaid product discounts during the past 3 years can be found under the caption "Note 3: Supplemental Balance Sheet and Cash Flow Information" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. Cash payments made for prepaid product discounts were $33.6 million for 2020, $25.6 million for 2019 and $23.8 million for 2018.

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 prepaid product discount payments and the amount of the payments has fluctuated from year to year. Although we anticipate that we will selectively continue to make these 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 prepaid product discounts are recorded upon contract execution. These obligations are monitored for each contract and are adjusted as payments are made. Prepaid product discounts due within the next year are included in accrued liabilities on our consolidated balance sheets. These accruals were $14.4 million as of December 31, 2020 and $14.7 million as of December 31, 2019. Accruals for prepaid product discounts included in other non-current liabilities on our consolidated balance sheets were $3.7 million as of December 31, 2019.


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 indemnification provisions generally encompass third-party claims arising from our products and services, including, without limitation, 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 matters 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 do not believe that any 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. These liabilities were not significant as of December 31, 2020 or December 31, 2019. Further information regarding our liabilities related to self-insurance and litigation can be found under the caption “Note 17: Other Commitments and Contingencies” in the Notes to Consolidated Financial Statements appearing in Part II, 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. We have not established any special purpose entities other than our agreement to form MedPay Exchange LLC (MPX), doing business as Medical Payment Exchange, which delivers payments to healthcare providers from insurance companies and other payers. This entity is a variable interest entity (VIE), as defined in Accounting Standards Codification Topic 810, Consolidation. Further information regarding our accounting for this entity can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. We have not entered into any material related party transactions during the past 3 years.

As of December 31, 2020, our contractual obligations were as follows:
(in thousands) Total 2021 2022 and 2023 2024 and 2025 2026 and thereafter
Long-term debt $ 840,000  $ —  $ 840,000  $ —  $ — 
Operating lease obligations 108,827  13,231  28,021  20,773  46,802 
Purchase obligations 107,440  55,179  38,129  11,778  2,354 
Other non-current liabilities 64,802  41,905  17,903  2,717  2,277 
Total contractual obligations $ 1,121,069  $ 110,315  $ 924,053  $ 35,268  $ 51,433 

Purchase obligations include amounts due under executed contracts with third-party service providers. These contracts are primarily for information technology services, including cloud computing and professional services contracts related to the
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build-out of the technology platforms discussed in Executive Overview. Purchase obligations also include direct mail advertising agreements and data 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, $36.1 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 $3.6 million as of December 31, 2020. Of the operating lease obligations included in the table above, $42.7 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 approximately $4.4 million as of December 31, 2020.

Other non-current liabilities on the consolidated balance sheet as of December 31, 2020 consisted primarily of amounts due under our deferred compensation and postretirement pension plans, the fair value of our interest rate swap agreement, the liability for federal payroll tax payments that we deferred under the CARES Act, and income tax liabilities related to uncertain tax positions and prior year tax returns. Of the $43.2 million reported as other non-current liabilities on the consolidated balance sheet as of December 31, 2020, $20.3 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:

Fair value of interest rate swap agreement – We have no plans, at this time, to terminate the interest rate swap agreement.

Income tax liabilities – 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.

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, $3.1 million of our deferred compensation liability as of December 31, 2020 is excluded from the obligations shown in the table above.

Other non-current liabilities that are not settled in cash, such as incentive compensation that will be settled by issuing shares of our common stock and deferred revenue.

The table of contractual obligations does not include the following:

Benefit payments under our postretirement medical benefit plan – 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 the benefits due during 2021. Our postretirement benefit plan was overfunded by $71.2 million as of December 31, 2020.

Income tax payments, which are dependent upon our taxable income.


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.

Our MD&A discussion is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Our accounting policies are discussed under the caption “Note 1: Significant Accounting Policies” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. We review the accounting policies used in reporting our financial results on a regular basis. The preparation of our 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. In some instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results may differ from our estimates. Significant 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.

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The full impact of the COVID-19 pandemic continues to evolve. As such, we are uncertain of the full impact the pandemic will have on our financial condition, liquidity and/or results of operations. This uncertainty affected several of the assumptions made and estimates used in the preparation of our 2020 consolidated financial statements. Further information can be found under the caption “Note 20: Risks and Uncertainties” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report, as well as in Part I, Item 1A of this report.

Goodwill Impairment

As of December 31, 2020, goodwill totaled $736.8 million, which represented 39.3% of our total assets. Goodwill is tested for impairment on an annual basis as of July 31, or more frequently if events occur or circumstances change that would indicate a possible impairment. To analyze goodwill for impairment, we must assign our goodwill to individual reporting units. Identification of reporting units includes an analysis of the components that comprise each of our operating segments, which considers, among other things, the manner in which we operate our business and the availability of discrete financial information. Components of an operating segment are aggregated to form a reporting unit if the components have similar economic characteristics. We periodically review our reporting units to ensure that they continue to reflect the manner in which we operate our business.

When performing a quantitative analysis of goodwill, we first compare the carrying value of the reporting unit, including goodwill, to its estimated fair value. Carrying value is based on the assets and liabilities associated with the operations of the reporting unit, which often requires the allocation of shared and corporate items among reporting units. We utilize a discounted cash flow model to calculate the estimated fair value of a reporting unit. This 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 and 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 market-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 revenue growth rates, terminal growth rates, direct costs, the discount rate and the allocation of shared and corporate items. When completing a quantitative analysis for all of our reporting units, the summation of our reporting units' fair values is compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.

Evaluations of asset impairment require 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 vary from our assumptions. For example, if our stock price were to further decline over a sustained period, if a further downturn in economic conditions were to negatively affect our actual and forecasted operating results, if we were to change our business strategies and/or the allocation of resources, if we were to lose significant customers, if competition were to materially increase, or if order volume declines for checks and business forms were to materially 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 additional impairment charges for a portion of goodwill or other assets.

First quarter 2020 goodwill impairment analyses – Effective January 1, 2020, we reorganized our reportable business segments to align with structural and management reporting changes in support of our growth strategy. As a result, we reassessed our previously determined reporting units and concluded that a realignment of our reporting units was required. We analyzed goodwill for impairment immediately prior to this realignment by performing a qualitative analysis for the reporting units that changed, with the exception of our Direct-to-Consumer reporting unit, which is part of our new Checks reportable business segment. The 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 last quantitative analyses we completed. In completing these assessments, we noted no changes in events or circumstances that indicated that it was more likely than not that the fair value of any reporting unit was less than its carrying amount. The quantitative analysis of our Direct-to-Consumer reporting unit indicated that its fair value exceeded its carrying value by approximately $35.0 million, or 26%.

In completing the realignment of our reporting units, we reallocated the carrying value of goodwill to our new reporting units based on their relative fair values. Immediately subsequent to the realignment, we completed a quantitative analysis for the reporting units that changed as a result of the realignment. This quantitative analysis, as of January 1, 2020, indicated that the estimated fair values of our reporting units exceeded their carrying values by approximate amounts between $37.0 million and $954.0 million, or by amounts between 121% and 189% above the carrying values of their net assets.

On January 30, 2020, the World Health Organization (WHO) announced a global health emergency due to an outbreak of COVID-19 originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. Following the pandemic designation, we observed a decline in the market valuation of our common shares and we determined that the global response to the pandemic negatively impacted our estimates of expected future cash flows. After our consideration of economic, market and industry conditions, cost factors, the overall financial performance of our reporting units and the last quantitative analyses we completed, we concluded that a triggering event had occurred for 2 of our reporting units.
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As such, we completed quantitative goodwill impairment analyses for our Promotional Solutions and Cloud Solutions Web Hosting reporting units as of March 31, 2020. Our analyses indicated that the goodwill of our Promotional Solutions reporting unit was partially impaired and the goodwill of our Cloud Solutions Web Hosting reporting unit was fully impaired. As such, we recorded goodwill impairment charges of $63.4 million and $4.3 million, respectively. The impairment charges were measured as the amount by which the reporting units' carrying values exceeded their estimated fair values, limited to the carrying amount of goodwill. After the impairment charges, $62.8 million of goodwill remained in the Promotional Solutions reporting unit as of the measurement date.

Our impairment analyses were based on assumptions made using the best information available at the time, including the performance of our reporting units subsequent to the WHO declaration of a pandemic and available economic forecasts. These assumptions anticipated a sharp decline in gross domestic product and a material decline in the number of small businesses. We may have not yet experienced the full impact of the pandemic or its resulting impact on our small business customers and thus, actual events may differ from our assumptions. The sweeping nature of the pandemic makes it extremely difficult to predict how our business and operations will be affected in the longer term. To the extent our assumptions differ from actual events, we may be required to record additional asset impairment charges.

Our impairment assessments are sensitive to changes in forecasted revenues and expenses, as well as our selected discount rate. For the March 31, 2020 assessment of our Promotional Solutions reporting unit, holding all other assumptions constant, if we assumed revenue in each year was 10% higher than we estimated, our goodwill impairment charge would have been approximately $18.0 million less, and if we assumed revenue in each year was 10% lower than we estimated, our goodwill impairment charge would have been approximately $18.0 million more. If we assumed our expenses, as a percentage of revenue, were 100 basis points lower in each year, our goodwill impairment charge would have been approximately $39.0 million less, and if we assumed our expenses, as a percentage of revenue, were 100 basis points higher in each year, our goodwill impairment charge would have been approximately $39.0 million more. If we assumed our selected discount rate of 12% was 100 basis points lower, our goodwill impairment charge would have been approximately $21.0 million less, and if we assumed the discount rate was 100 basis points higher, our goodwill impairment charge would have been approximately $17.0 million more.

2020 annual impairment analysis – In completing the 2020 annual impairment analysis of goodwill, we elected to perform qualitative analyses for 2 of our reporting units: Payments and Checks. 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 most recent quantitative analyses we completed, which indicated that the estimated fair values of these reporting units exceeded their carrying values by approximately $490.0 million and $954.0 million, or by 189% and 180% above the carrying values of their net assets. In completing these assessments, we noted no changes in events or circumstances that indicated that it was more likely than not that the fair value of either reporting unit was less than its carrying amount.

We elected to perform quantitative analyses for our other 2 reporting units: Cloud Data Analytics and Promotional Solutions. These quantitative analyses indicated that the estimated fair values of these reporting units exceeded their carrying values by approximately $100.0 million and $210.0 million, or by 63% and 132% above the carrying values of their net assets. As such, no goodwill impairment charges were recorded as a result of our annual impairment analysis. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate of 11%. Changes in the reporting units' forecast assumptions and estimates could materially affect the estimation of the fair value of these reporting units.

Information regarding our 2019 and 2018 impairment analyses can be found under the caption "Note 8: Fair Value Measurements" in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.

Business Combinations

We allocate the purchase price of acquired businesses to the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition. The calculations used to determine the fair value of the long-lived assets acquired, primarily intangible assets, can be complex and require significant judgment. We weigh many factors when completing these estimates, including, but not limited to, the nature of the acquired company’s business; its competitive position, strengths, and challenges; its historical financial position and performance; estimated customer retention rates; discount rates; and future plans for the combined entity. We may also engage independent valuation specialists, when necessary, to assist in the fair value calculations for significant acquired long-lived assets.

We generally estimate the fair value of acquired customer lists using the multi-period excess earnings method. This valuation model estimates revenues and cash flows derived from the asset and then deducts portions of the cash flow that can be attributed to supporting assets, such as a trade name or fixed assets, that contributed to the generation of the cash flows. The resulting cash flow, which is attributable solely to the customer list asset, is then discounted at a rate of return commensurate with the risk of the asset to calculate a present value. The fair value of acquired customer lists may also be estimated by discounting the estimated cash flows expected to be generated by the assets. Key assumptions used in these calculations include same-customer revenue growth rates, estimated earnings, estimated customer retention rates based on the acquirees' historical information and the discount rate.
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The fair value of acquired trade names and technology is estimated, at times, using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets. Assumed royalty rates are applied to projected revenue for the estimated remaining useful lives of the assets to estimate the royalty savings. Royalty rates are selected based on the attributes of the asset, including its recognition and reputation in the industry, and in the case of trade names, with consideration of the specific profitability of the products sold under a trade name and supporting assets. The fair value of acquired technology may also be estimated using the cost of reproduction method under which the primary components of the technology are identified and the estimated cost to reproduce the technology is calculated based on historical data provided by the acquiree.

The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. Goodwill is not amortized, but is subject to impairment testing on at least an annual basis.

We are also required to estimate the useful lives of the acquired intangible assets, which determines the amount of acquisition-related amortization expense we will record in future periods. Each reporting period, we evaluate the remaining useful lives of our amortizable intangibles to determine whether events or circumstances warrant a revision to the remaining period of amortization.

While we use our best estimates and assumptions, our fair value estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to 1 year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Any adjustments required after the measurement period are recorded in the consolidated statements of income (loss).

The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income. For example, different classes of assets will have different useful lives. Consequently, to the extent a longer-lived asset is ascribed greater value than a shorter-lived asset, net income in a given period may be higher. Additionally, assigning a lower value to amortizable intangibles would result in a higher amount assigned to goodwill. As goodwill is not amortized, this would benefit net income in a given period, although goodwill is subject to annual impairment analysis.

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 expense based on expected taxable income, statutory tax rates, tax credits allowed in the various jurisdictions in which we operate, and risks associated with uncertain tax positions, together with assessing temporary and permanent differences resulting from the differing treatment of certain items between income tax return and financial reporting requirements. 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 the estimated amount of annual pretax income could impact our estimated effective tax rate for interim periods. The actual effective income tax rate is calculated at the end of the year.

We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis of assets and liabilities and their respective tax reporting bases, using the enacted tax rates and laws that will be in effect when we expect the temporary differences to reverse. 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. 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. As of December 31, 2020, we had net deferred tax liabilities of $5.2 million, including valuation allowances of $11.5 million.

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 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. As of December 31, 2020, our liability for uncertain tax positions, including accrued interest and penalties, was $3.9 million, excluding tax benefits of deductible interest and the federal benefit of deductible state income tax. Further information regarding our unrecognized tax benefits can be found under the caption “Note 11: Income Tax Provision” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report. The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of a 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.

A one-percentage-point change in our effective income tax rate would have resulted in a $0.3 million change in income tax expense for 2020. The determination of our provision for income taxes, deferred income taxes and unrecognized tax
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positions requires 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 would be affected.

Revenue Recognition

Product revenue is recognized when control of the goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. In most cases, control is transferred when products are shipped. We recognize the vast majority of our service revenue as the services are provided. The majority of our contracts are for the shipment of tangible products or the delivery of services that have a single performance obligation or include multiple performance obligations where control is transferred at the same time. Many of our financial institution contracts require prepaid product discounts in the form of cash payments we make to our financial institution clients. These prepaid product discounts are included in other non-current assets on our consolidated balance sheets and are generally amortized as reductions of revenue on the straight-line basis over the contract term. Sales tax collected concurrent with revenue-producing activities is excluded from revenue. Amounts billed to customers for shipping and handling are included in revenue, while the related costs incurred for shipping and handling are reflected in cost of products and are accrued when the related revenue is recognized.

When another party is involved in providing goods or services to a customer, we must determine whether our obligation is to provide the specified good or service itself (i.e., we are the principal in the transaction) or to arrange for that good or service to be provided by the other party (i.e., we are an agent in the transaction). When we are responsible for satisfying a performance obligation, based on our ability to control the product or service provided, we are considered the principal and revenue is recognized for the gross amount of consideration. When the other party is primarily responsible for satisfying a performance obligation, we are considered the agent and revenue is recognized in the amount of any fee or commission to which we are entitled. We sell certain products and services through a network of distributors. We have determined that we are the principal in these transactions, and revenue is recorded for the gross amount of consideration.

Certain costs incurred to obtain customer contracts are required to be recognized as assets and amortized consistent with the transfer of goods or services to the customer. As such, we defer sales commissions related to obtaining check supply and treasury management solution contracts. These amounts, which totaled $9.2 million as of December 31, 2020, are included in other non-current assets and are amortized on the straight-line basis as SG&A expense. Amortization of these amounts on the straight-line basis approximates the timing of the transfer of goods or services to the customer. Generally, these amounts are being amortized over periods of 3 to 5 years. We expense sales commissions as incurred when the amortization period would have been 1 year or less.

Accounting for customer contracts can be complex and may involve the use of various techniques to estimate total contract revenue. Estimates related to variable consideration are based on various assumptions to project the outcome of future events. We review and update our contract-related estimates regularly, and we do not anticipate that revisions to our estimates would have a material effect on our results of operations, financial position or cash flows.

New Accounting Pronouncements

Information regarding the accounting pronouncements adopted during 2020 and those not yet adopted can be found under the caption “Note 2: New Accounting Pronouncements” in the Notes to Consolidated Financial Statements appearing in Part II, Item 8 of this report.


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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, 2020, our total debt was comprised of $840.0 million drawn under our revolving credit facility at a weighted-average interest rate of 2.0%. The interest rate on the majority of the amount drawn under our revolving credit facility is variable and reflects current market rates. As such, the related carrying amount reported on the consolidated balance sheets approximates fair value. Our revolving credit facility matures in March 2023.

As part of our interest rate risk management strategy, in July 2019, we entered into an interest rate swap, which we designated as a cash flow hedge, to mitigate variability in interest payments on a portion of the amount drawn under our revolving credit facility. The interest rate swap, which terminates in March 2023 when our revolving credit facility matures, effectively converts $200.0 million of variable rate debt to a fixed rate of 1.798%. Changes in the fair value of the interest rate swap are recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified into interest expense as interest payments are made on the variable-rate debt. The fair value of the interest rate swap was $7.2 million as of December 31, 2020 and was included in other non-current liabilities on the consolidated balance sheet.

Based on the daily average amount of outstanding variable rate debt in our portfolio, a one-percentage-point change in our weighted-average interest rates would have resulted in an $8.2 million change in interest expense for 2020.

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 Canadian and Australian dollars. 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 hedges against changes in foreign currency exchange rates.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Deluxe Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Deluxe Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss), of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 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, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for cloud computing arrangements in 2020 and the manner in which it accounts for leases in 2019.
Basis for Opinions

The Company's management is responsible for these consolidated 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 Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting

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.
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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment – Promotional Solutions Reporting Unit

As described in Notes 1, 3 and 8 to the consolidated financial statements, the Company’s consolidated goodwill balance was $736.8 million as of December 31, 2020 and the goodwill associated with the Promotional Solutions reporting unit was $62.9 million. Management evaluates the carrying value of goodwill as of July 31 of each year and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. In March 2020 as a result of the COVID-19 pandemic, management observed a decline in the market valuation of their common shares and management determined that the global response to the outbreak negatively impacted their estimates of expected future cash flows. After management’s consideration of economic, market and industry conditions, cost factors, the overall financial performance of the reporting unit and the last quantitative analysis they completed, management concluded that a triggering event had occurred for the Promotional Solutions reporting unit. As such, management completed a quantitative goodwill impairment analysis for the Promotional Solutions reporting unit as of March 31, 2020. Based on the results of the quantitative goodwill impairment analysis, management concluded that the goodwill of the Promotional Solutions reporting unit was partially impaired and recorded a goodwill impairment charge of $63.4 million in the first quarter of 2020. In completing the annual impairment analysis of goodwill, management elected to perform a quantitative analysis for the Promotional Solutions reporting unit. No goodwill impairment charges were recorded as a result of the annual impairment analysis. When performing a quantitative analysis of goodwill, management calculates the estimated fair value of the reporting unit and compares this amount to the carrying amount of the reporting unit's net assets, including goodwill. Management utilizes a discounted cash flow model to calculate the estimated fair value of a reporting unit. This approach is a valuation technique under which management estimates future cash flows using the reporting unit's financial forecast from the perspective of an unrelated market participant. In determining the estimated fair values of the Company’s reporting unit, management is required to estimate a number of factors, including revenue growth rates, terminal growth rate, direct costs, the discount rate, and the allocation of shared and corporate items.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Promotional Solutions reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rates, terminal growth rate, direct costs and the discount rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Promotional Solutions reporting unit and development of the assumptions related to the revenue growth rates, terminal growth rate, direct costs and the discount rate. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate of the Promotional Solutions reporting unit, (ii) evaluating the appropriateness of the discounted cash flow model, (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model, and (iv) evaluating the significant assumptions used by management related to the revenue growth rates, terminal growth rate, direct costs and the discount rate. Evaluating management’s assumptions related to the revenue growth rates, terminal growth rate, and direct costs involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Evaluating management’s assumption related to the discount rate involved considering the cost of capital of comparable businesses, Company specific factors and other industry factors. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the terminal growth rate and the discount rate assumptions.
   

/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 19, 2021

We have served as the Company’s auditor since 2001.
49


DELUXE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share par value) December 31,
2020
December 31,
2019
ASSETS    
Current assets:    
Cash and cash equivalents, including securities carried at fair value of $9,713 as of December 31, 2019
$ 123,122  $ 73,620 
Trade accounts receivable, net of allowances for uncollectible accounts 161,959  163,421 
Inventories and supplies, net of reserve 40,130  39,921 
Funds held for customers, including securities carried at fair value of $28,462 and $34,450, respectively
119,749  117,641 
Revenue in excess of billings 17,617  32,790 
Other current assets 44,054  44,818 
Total current assets 506,631  472,211 
Deferred income taxes 5,444  3,907 
Long-term investments
45,919  44,995 
Property, plant and equipment, net of accumulated depreciation 88,680  96,467 
Operating lease assets 35,906  44,372 
Intangibles, net of accumulated amortization 246,760  276,122 
Goodwill 736,844  804,487 
Other non-current assets 208,679  200,750 
Total assets $ 1,874,863  $ 1,943,311 
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 116,990  $ 112,198 
Funds held for customers 117,647  116,411 
Accrued liabilities 177,183  179,338 
Total current liabilities 411,820  407,947 
Long-term debt 840,000  883,500 
Operating lease liabilities 28,344  33,585 
Deferred income taxes 10,643  14,898 
Other non-current liabilities 43,218  32,520 
Commitments and contingencies (Notes 11, 16, 17 and 20)
Shareholders’ equity:    
Common shares $1 par value (authorized: 500,000 shares; outstanding: December 31, 2020 – 41,973; December 31, 2019 – 42,126)
41,973  42,126 
Additional paid-in capital 17,558  4,086 
Retained earnings 522,599  572,596 
Accumulated other comprehensive loss (41,433) (47,947)
Non-controlling interest 141  — 
Total shareholders’ equity 540,838  570,861 
Total liabilities and shareholders’ equity $ 1,874,863  $ 1,943,311 

See Notes to Consolidated Financial Statements
50


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Year Ended December 31,
(in thousands, except per share amounts) 2020 2019 2018
Product revenue $ 1,230,638  $ 1,409,155  $ 1,451,833 
Service revenue 560,143  599,560  546,192 
Total revenue 1,790,781  2,008,715  1,998,025 
Cost of products (458,637) (531,307) (547,640)
Cost of services (272,134) (281,628) (244,108)
Total cost of revenue (730,771) (812,935) (791,748)
Gross profit 1,060,010  1,195,780  1,206,277 
Selling, general and administrative expense (841,658) (891,693) (854,000)
Restructuring and integration expense (75,874) (71,248) (19,737)
Asset impairment charges (97,973) (390,980) (101,319)
Operating income (loss) 44,505  (158,141) 231,221 
Interest expense (23,140) (34,682) (27,112)
Other income 9,214  7,193  8,522 
Income (loss) before income taxes 30,579  (185,630) 212,631 
Income tax provision (21,680) (14,267) (63,001)
Net income (loss) 8,899  (199,897) 149,630 
Net income attributable to non-controlling interest (91) —  — 
Net income (loss) attributable to Deluxe $ 8,808  $ (199,897) $ 149,630 
Basic earnings (loss) per share $ 0.21  $ (4.65) $ 3.18 
Diluted earnings (loss) per share 0.19  (4.65) 3.16 

See Notes to Consolidated Financial Statements

51


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
(in thousands) 2020 2019 2018
Net income (loss) $ 8,899  $ (199,897) $ 149,630 
Other comprehensive income (loss), net of tax:
Postretirement benefit plans:
Net actuarial gain (loss) arising during the year 5,616  6,594  (3,805)
Less reclassification of amounts from other comprehensive income (loss) to net income (loss):
Amortization of prior service credit (1,055) (1,054) (853)
Amortization of net actuarial loss 1,889  2,583  1,825 
Postretirement benefit plans 6,450  8,123  (2,833)
Interest rate swap:
Unrealized loss arising during the year
(4,973) (1,040) — 
Reclassification of realized loss (gain) from other comprehensive income (loss) to net income (loss)
719  (57) — 
Interest rate swap
(4,254) (1,097) — 
Debt securities:
Unrealized holding gain (loss) arising during the year
338  48  (1)
Reclassification of realized gain from other comprehensive income (loss) to net income (loss) (153) —  — 
Debt securities 185  48  (1)
Unrealized foreign currency translation adjustment 4,133  1,558  (9,281)
Other comprehensive income (loss) 6,514  8,632  (12,115)
Comprehensive income (loss) 15,413  (191,265) 137,515 
Comprehensive income attributable to non-controlling interest (91) —  — 
Comprehensive income (loss) attributable to Deluxe $ 15,322  $ (191,265) $ 137,515 
Income tax (expense) benefit of other comprehensive income (loss) included in above amounts:
Postretirement benefit plans:
Net actuarial gain (loss) arising during the year
$ (1,948) $ (2,321) $ 1,339 
Less reclassification of amounts from other comprehensive income (loss) to net income (loss):
Amortization of prior service credit
366  367  568 
Amortization of net actuarial loss
(412) (640) (1,059)
Postretirement benefit plans
(1,994) (2,594) 848 
Interest rate swap:
Unrealized loss arising during the year
1,725  364  — 
Reclassification of realized loss (gain) from other comprehensive income (loss) to net income (loss)
(249) 20  — 
Interest rate swap
1,476  384  — 
Debt securities:
Unrealized holding gain (loss) arising during the year
(117) (17) — 
Reclassification of realized gain from other comprehensive income (loss) to net income (loss) 53  —  — 
Debt securities (64) (17) — 
Total net tax (expense) benefit included in other comprehensive income (loss)
$ (582) $ (2,227) $ 848 

See Notes to Consolidated Financial Statements
52


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands) Common shares
Common shares par value
Additional paid-in capital Retained earnings Accumulated other comprehensive loss Non-controlling interest Total
Balance, December 31, 2017 47,953  $ 47,953  $ —  $ 1,004,657  $ (37,597) $ —  $ 1,015,013 
Net income —  —  —  149,630  —  —  149,630 
Cash dividends ($1.20 per share)
—  —  —  (56,743) —