UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
[X]☒Quarterly Report Pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2017
[ ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________________ to ________________________

For the quarterly period ended March 31, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  __________ to ___________

Commission file number: 1-7945

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DELUXE CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
MN
41-0216800
(State or other jurisdiction of incorporation or organization)
41-0216800
(I.R.S. Employer Identification No.)
3680 Victoria St. N.,
Shoreview Minnesota
MN55126-2966
(Address of principal executive offices)
55126-2966
(Zip Code)

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

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. [X]☒ Yes    [ ]☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).☒ Yes   ☐ No
[X] 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”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒Accelerated Filer☐
Non-accelerated Filer☐Smaller Reporting Company☐
Large accelerated filer [X]Emerging Growth CompanyAccelerated filer [ ]
Non-accelerated filer [ ] ☐(Do not check if a smaller reporting company)
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]☐ Yes   [X] ☒ No

The number of shares outstanding of registrant’s common stock par value $1.00 per share, as of October 18, 2017April 28, 2021 was 48,121,582.42,201,575.
1

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.
Item 1. FINANCIAL STATEMENTS

DELUXE CORPORATION
DELUXE CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share par value)
(in thousands, except share par value)March 31,
2021		December 31,
2020
ASSETS  
Current assets:  
Cash and cash equivalents$125,440 $123,122 
Trade accounts receivable, net of allowances for uncollectible accounts139,547 161,959 
Inventories and supplies37,119 40,130 
Funds held for customers, including securities carried at fair value of $25,391 and $28,462, respectively122,466 119,749 
Revenue in excess of billings27,655 17,617 
Other current assets52,269 44,054 
Total current assets504,496 506,631 
Deferred income taxes4,636 5,444 
Long-term investments46,147 45,919 
Property, plant and equipment, net of accumulated depreciation of $365,187 and $360,907, respectively87,836 88,680 
Operating lease assets41,288 35,906 
Intangibles, net of accumulated amortization of $610,707 and $587,273, respectively254,152 246,760 
Goodwill736,862 736,844 
Other non-current assets217,835 208,679 
Total assets$1,893,252 $1,874,863 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$109,064 $116,990 
Funds held for customers120,581 117,647 
Accrued liabilities174,923 177,183 
Total current liabilities404,568 411,820 
Long-term debt840,000 840,000 
Operating lease liabilities34,288 28,344 
Deferred income taxes15,265 10,643 
Other non-current liabilities40,312 43,218 
Commitments and contingencies (Notes 12 and 15)00
Shareholders' equity:  
Common shares $1 par value (authorized: 500,000 shares; outstanding: March 31, 2021 – 42,104; December 31, 2020 – 41,973)42,104 41,973 
Additional paid-in capital22,306 17,558 
Retained earnings534,059 522,599 
Accumulated other comprehensive loss(39,824)(41,433)
Non-controlling interest174 141 
Total shareholders’ equity558,819 540,838 
Total liabilities and shareholders’ equity$1,893,252 $1,874,863 
(Unaudited)
  September 30,
2017		 December 31,
2016
ASSETS    
Current assets:    
Cash and cash equivalents $53,410
 $76,574
Trade accounts receivable (net of allowances for uncollectible accounts of $2,808 and $2,828, respectively) 136,262
 152,649
Inventories and supplies 40,929
 40,182
Funds held for customers 78,447
 87,823
Other current assets 63,471
 41,002
Total current assets 372,519
 398,230
Deferred income taxes 2,839
 1,605
Long-term investments (including $1,729 and $1,877 of investments at fair value, respectively) 42,178
 42,240
Property, plant and equipment (net of accumulated depreciation of $355,254 and $349,249, respectively) 83,253
 86,896
Assets held for sale 8,689
 14,568
Intangibles (net of accumulated amortization of $481,667 and $435,756, respectively) 392,523
 409,781
Goodwill 1,126,086
 1,105,956
Other non-current assets 151,893
 125,062
Total assets $2,179,980
 $2,184,338
     
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
Current liabilities:  
  
Accounts payable $103,577
 $106,793
Accrued liabilities 255,542
 273,049
Long-term debt due within one year 41,966
 35,842
Total current liabilities 401,085
 415,684
Long-term debt 714,432
 722,806
Deferred income taxes 65,226
 85,172
Other non-current liabilities 48,692
 79,706
Commitments and contingencies (Notes 11 and 12) 


 


Shareholders' equity:  
  
Common shares $1 par value (authorized: 500,000 shares; outstanding: September 30, 2017 – 48,120; December 31, 2016 – 48,546) 48,120
 48,546
Retained earnings 947,261
 882,795
Accumulated other comprehensive loss (44,836) (50,371)
Total shareholders’ equity 950,545
 880,970
Total liabilities and shareholders’ equity $2,179,980
 $2,184,338

See Condensed Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)

2
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Product revenue $361,963
 $364,680
 $1,097,777
 $1,090,686
Service revenue 135,706
 94,240
 372,889
 278,174
Total revenue 497,669
 458,920
 1,470,666
 1,368,860
Cost of products (129,055) (133,628) (392,040) (391,161)
Cost of services (63,862) (32,642) (159,250) (99,246)
Total cost of revenue (192,917) (166,270) (551,290) (490,407)
Gross profit 304,752
 292,650
 919,376
 878,453
Selling, general and administrative expense (202,999) (198,365) (628,100) (598,563)
Net restructuring charges (1,267) (1,993) (3,708) (4,007)
Asset impairment charges (46,630) —
 (54,880) —
Operating income 53,856

92,292
 232,688
 275,883
Interest expense (5,708) (4,855) (15,795) (15,281)
Other income 799
 742
 2,104
 1,335
Income before income taxes 48,947
 88,179
 218,997
 261,937
Income tax provision (20,146) (29,516) (73,551) (86,783)
Net income $28,801
 $58,663
 $145,446
 $175,154
Comprehensive income $31,543
 $57,824
 $150,981
 $180,298
Basic earnings per share 0.60
 1.20
 3.00
 3.57
Diluted earnings per share 0.59
 1.19
 2.98
 3.55
Cash dividends per share 0.30
 0.30
 0.90
 0.90

DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
Quarter Ended
March 31,
(in thousands, except per share amounts)20212020
Product revenue$299,053 $330,687 
Service revenue142,211 155,736 
Total revenue441,264 486,423 
Cost of products(107,325)(121,587)
Cost of services(71,184)(80,462)
Total cost of revenue(178,509)(202,049)
Gross profit262,755 284,374 
Selling, general and administrative expense(212,436)(237,204)
Restructuring and integration expense(14,313)(17,654)
Asset impairment charges0 (90,330)
Operating income (loss)36,006 (60,814)
Interest expense(4,524)(6,999)
Other income2,033 4,472 
Income (loss) before income taxes33,515 (63,341)
Income tax (provision) benefit(9,190)3,210 
Net income (loss)24,325 (60,131)
Net income attributable to non-controlling interest(33)0 
Net income (loss) attributable to Deluxe$24,292 $(60,131)
Total comprehensive income (loss)$25,934 $(72,138)
Comprehensive income (loss) attributable to Deluxe25,901 (72,138)
Basic earnings (loss) per share0.58 (1.43)
Diluted earnings (loss) per share0.57 (1.45)


See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)

3
  Common shares 
Common shares
par value
 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total
Balance, December 31, 2016 48,546
 $48,546
 $—
 $882,795
 $(50,371) $880,970
Net income —
 —
 —
 145,446
 —
 145,446
Cash dividends —
 —
 —
 (43,672) —
 (43,672)
Common shares issued 435
 435
 12,906
 —
 —
 13,341
Common shares repurchased (709) (709) (12,053) (37,308) —
 (50,070)
Other common shares retired (152) (152) (11,148) —
 —
 (11,300)
Fair value of share-based compensation —
 —
 10,295
 —
 —
 10,295
Other comprehensive income —
 —
 —
 —
 5,535
 5,535
Balance, September 30, 2017 48,120
 $48,120
 $—
 $947,261
 $(44,836) $950,545


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)Common sharesCommon shares
par value		Additional paid-in capitalRetained earningsAccumulated other comprehensive lossNon-controlling interestTotal
Balance, December 31, 202041,973 $41,973 $17,558 $522,599 $(41,433)$141 $540,838 
Net income— — — 24,292 — 33 24,325 
Cash dividends ($0.30 per share)— — — (12,832)— — (12,832)
Common shares issued194 194 847 — — — 1,041 
Common shares retired(63)(63)(2,298)— — — (2,361)
Employee share-based compensation— — 6,199 — — — 6,199 
Other comprehensive income— — — — 1,609 — 1,609 
Balance, March 31, 202142,104 $42,104 $22,306 $534,059 $(39,824)$174 $558,819 


(in thousands)Common sharesCommon shares
par value		Additional paid-in capitalRetained earningsAccumulated other comprehensive lossTotal
Balance, December 31, 201942,126 $42,126 $4,086 $572,596 $(47,947)$570,861 
Net loss— — — (60,131)— (60,131)
Cash dividends ($0.30 per share)— — — (12,861)— (12,861)
Common shares issued81 81 1,801 — — 1,882 
Common shares repurchased(499)(499)(9,767)(3,734)— (14,000)
Other common shares retired(17)(17)(779)— — (796)
Employee share-based compensation— — 4,659 — — 4,659 
Adoption of Accounting Standards Update No. 2016-13
— — — (3,640)— (3,640)
Other comprehensive loss— — — — (12,007)(12,007)
Balance, March 31, 202041,691 $41,691 $0 $492,230 $(59,954)$473,967 



See Condensed Notes to Unaudited Consolidated Financial Statements


DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
4
  Nine Months Ended
September 30,
  2017 2016
Cash flows from operating activities:    
Net income $145,446
 $175,154
Adjustments to reconcile net income to net cash provided by operating activities:  
  
Depreciation 12,013
 11,347
Amortization of intangibles 79,284
 56,364
Asset impairment charges 54,880
 —
Amortization of contract acquisition costs 14,685
 14,700
Deferred income taxes (20,587) (1,477)
Employee share-based compensation expense 11,149
 9,264
Other non-cash items, net (2,492) 3,128
Changes in assets and liabilities, net of effect of acquisitions:  
  
Trade accounts receivable 19,140
 5,320
Inventories and supplies 800
 176
Other current assets (16,692) (2,379)
Non-current assets (3,748) (3,351)
Accounts payable (6,750) (1,619)
Contract acquisition payments (20,003) (17,190)
Other accrued and non-current liabilities (41,229) (41,316)
Net cash provided by operating activities 225,896
 208,121
Cash flows from investing activities:  
  
Purchases of capital assets (34,351) (32,215)
Payments for acquisitions, net of cash acquired (125,417) (64,637)
Proceeds from sales of marketable securities 3,500
 1,635
Proceeds from company-owned life insurance policies 1,293
 4,123
Other 873
 695
Net cash used by investing activities (154,102) (90,399)
Cash flows from financing activities:  
  
Proceeds from issuing long-term debt 333,000
 169,000
Payments on long-term debt (336,590) (185,873)
Proceeds from issuing shares under employee plans 8,218
 6,861
Employee taxes paid for shares withheld (6,816) (2,333)
Payments for common shares repurchased (50,070) (44,944)
Cash dividends paid to shareholders (43,672) (44,127)
Other (1,281) (1,634)
Net cash used by financing activities (97,211) (103,050)
Effect of exchange rate change on cash 2,253
 2,966
Net change in cash and cash equivalents (23,164) 17,638
Cash and cash equivalents, beginning of year 76,574
 62,427
Cash and cash equivalents, end of period $53,410
 $80,065

DELUXE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Quarter Ended March 31,
(in thousands)20212020
Cash flows from operating activities:  
Net income (loss)$24,325 $(60,131)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
Depreciation4,516 4,919 
Amortization of intangibles23,264 23,511 
Operating lease expense4,576 3,933 
Asset impairment charges0 90,330 
Amortization of prepaid product discounts7,440 7,077 
Deferred income taxes5,245 (9,129)
Employee share-based compensation expense6,742 3,618 
Other non-cash items, net2,418 8,439 
Changes in assets and liabilities:  
Trade accounts receivable23,122 3,575 
Inventories and supplies1,042 (3,165)
Other current assets(19,711)(7,403)
Non-current assets(9,868)(917)
Accounts payable(3,543)(10,145)
Prepaid product discount payments(9,590)(7,321)
Other accrued and non-current liabilities(20,397)(20,723)
Net cash provided by operating activities39,581 26,468 
Cash flows from investing activities:  
Purchases of capital assets(21,670)(14,269)
Purchases of customer funds marketable securities(29)(34)
Proceeds from customer funds marketable securities29 34 
Other(180)354 
Net cash used by investing activities(21,850)(13,915)
Cash flows from financing activities:  
Proceeds from issuing long-term debt5,000 309,000 
Payments on long-term debt(5,000)(52,500)
Net change in customer funds obligations1,659 (19,407)
Proceeds from issuing shares under employee plans673 1,736 
Employee taxes paid for shares withheld(2,360)(757)
Payments for common shares repurchased0 (14,000)
Cash dividends paid to shareholders(12,932)(12,714)
Other(1,271)(202)
Net cash (used) provided by financing activities(14,231)211,156 
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents1,606 (12,717)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents5,106 210,992 
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year229,409 174,811 
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period (Note 3)$234,515 $385,803 


See Condensed Notes to Unaudited Consolidated Financial Statements
DELUXE CORPORATION5
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 1: Consolidated financial statements

NOTE 1: CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of September 30, 2017,March 31, 2021, the consolidated statements of comprehensive income (loss) for the quarters ended March 31, 2021 and nine months ended September 30, 2017 and 2016,2020, the consolidated statementstatements of shareholders’ equity for the nine monthsquarters ended September 30, 2017,March 31, 2021 and 2020 and the consolidated statements of cash flows for the nine monthsquarters ended September 30, 2017March 31, 2021 and 20162020 are unaudited. The consolidated balance sheet as of December 31, 20162020 was derived from audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (GAAP) in the United States of America.. In the opinion of management, all adjustments necessary for a fair statement of the consolidated financial statements are included. Adjustments consist only of normal recurring items, except for any discussed in the notes below. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q and do not contain certain information included in our annual consolidated financial statements and notes. The consolidated financial statements and notes appearing in this report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 20162020 (the 2020 Form 10-K).

The preparation of our consolidated financial statements requires us to make certain estimates and assumptions affecting the amounts reported in the consolidated financial statements and related notes. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, including the estimated impact of extraordinary events, such as the novel coronavirus (COVID-19) pandemic, the results of which form the basis for making judgments about the carrying values of our assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. Actual results may differ significantly from our estimates and assumptions, including our estimates of the severity and duration of the COVID-19 pandemic. Further information can be found in Note 15.

Comparability (the “2016 Form 10-K”).

Amounts within– During the second quarter of 2020, we identified certain misstatements in our consolidated statement of cash flows for the quarter ended March 31, 2020. Within cash flows from financing activities, proceeds from issuing long-term debt and payments on long-term debt did not properly reflect the borrowing and payment activity that occurred during the quarter. Additionally, we identified a misstatement related to the presentation of unpaid capital expenditures, which impacted the amount reported for the change in accounts payable within cash provided by operating activities and the amount reported for purchases of capital assets within investing activities sectionactivities.

We assessed the materiality of these misstatements on prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements. We concluded that the misstatements were not material to any prior interim period and therefore, amendments of previously filed reports were not required. In accordance with ASC 250, we have corrected the misstatements by revising the consolidated financial statements appearing herein. The revisions had no impact on total assets, total liabilities, shareholders' equity or net income.

The impact of the revisions on the consolidated statement of cash flows for the nine monthsquarter ended September 30, 2016 have been modified to conform to the current year presentation. This change presents proceeds from sales of marketable securities separately. In the previous year, this itemMarch 31, 2020 was included within the other caption.as follows:


(in thousands)Previously reportedAdjustmentRevised
Accounts payable$(18,059)$7,914 $(10,145)
Net cash provided by operating activities18,554 7,914 26,468 
Purchases of capital assets(6,355)(7,914)(14,269)
Net cash used by investing activities(6,001)(7,914)(13,915)
Proceeds from issuing long-term debt1,011,000 (702,000)309,000 
Payments on long-term debt(754,500)702,000 (52,500)
Net cash provided by financing activities211,156 0 211,156 
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents$210,992 $0 $210,992 


6
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 2: New accounting pronouncements

NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting pronouncements
– In January 2017,December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04,2019-12, Simplifying the TestAccounting for Goodwill ImpairmentIncome Taxes. TheThis standard removes Step 2addressed several specific areas of the goodwill impairment test, which requires a company to perform procedures to determine the fair value of a reporting unit's assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, a goodwill impairment charge will now be measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.accounting for income taxes. We elected to early adoptadopted this standard on January 1, 20172021. Portions of the standard were adopted prospectively and applied this guidance when calculating the goodwill impairment charge discussed in Note 7: Fair value measurements.

Accounting pronouncements not yetcertain aspects were required to be adopted – In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard provides revenue recognition guidance for any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other accounting standards. The standard also expands the required financial statement disclosures regarding revenue recognition. In addition, in March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), in April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients. These standards are intended to clarify aspects of ASU No. 2014-09 and are effective for us upon adoption of ASU No. 2014-09. The new guidance is effective for us on January 1, 2018. We are currently in the process of analyzing each of our revenue streams in accordance with the new guidance. We have completed the evaluation of our checks, forms and accessories revenue streams and we do not expect the application of these standards to those revenue streams to have a material impact on our results of operations or financial position. We continue to make progress in the evaluation of our various marketing solutions and other services revenue streams. We currently anticipate that we will adopt the standards using the modified retrospective method. This method requires theapproach. Adoption of this standard to be applied to existing and future contracts as of the effective date, withdid not require an adjustment to opening retained earnings in the year of adoption for the cumulative effect of the change. In addition, we will disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the new guidance as compared with the guidance that was in effect before the change.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The standard is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. The guidance is effective for us on January 1, 2018. We dodid not expect the application of this standard to have a significant impact on our results of operations or financial position.

In February 2016,
NOTE 3: SUPPLEMENTAL BALANCE SHEET AND CASH FLOW INFORMATION

Trade accounts receivable – Changes in the FASB issued ASU No. 2016-02, Leasing. The standard is intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilitiesallowances for virtually all leases and by
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

requiring the disclosure of key information about leasing arrangements. The guidance is effective for us on January 1, 2019 and requires adoption using a modified retrospective approach. We are currently assessing the impact of this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The standard introduces new guidanceuncollectible accounts included within trade accounts receivable were as follows for the accounting for credit losses on instruments within its scope, including tradequarters ended March 31, 2021 and loans receivable and available-for-sale debt securities. The guidance is effective for us on January 1, 2020 and requires adoption using a modified retrospective approach. We do not expect the application of this standard to have a significant impact on our results of operations or financial position.2020:

Quarter Ended
March 31,
(in thousands)20212020
Balance, beginning of year$6,428 $4,985 
Bad debt (benefit) expense(649)1,059 
Write-offs and other(900)(2,098)
Balance, end of period$4,879 $3,946 
In October 2016, the FASB issued ASU No. 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory. The standard requires recognition of the tax effects resulting from the intercompany sale of an asset when the transfer occurs. Previously, the tax effects were deferred until the transferred asset was sold to a third party. The guidance is effective for us on January 1, 2018 and requires adoption using a modified retrospective approach. We do not expect the application of this standard to have a significant impact on our results of operations or financial position.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business. The standard revises the
definition of a business, which affects many areas of accounting such as business combinations and disposals and goodwill impairment. The revised definition of a business will likely result in more acquisitions being accounted for as asset acquisitions, as opposed to business combinations. The guidance is effective for us on January 1, 2018 and is required to be applied prospectively to transactions occurring on or after the effective date.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The standard requires that the service cost component of net periodic benefit expense be recognized in the same statement of comprehensive income caption(s) as other compensation costs, and requires that the other components of net periodic benefit expense be recognized in the non-operating section of the statement of comprehensive income. In addition, only the service cost component of net periodic benefit expense is eligible for capitalization when applicable. The guidance is effective for us on January 1, 2018. The reclassification of the other components of net periodic benefit expense will be applied on a retrospective basis. As we will use the practical expedient for adoption outlined in the standard, annual net periodic benefit income of $2,016 for 2017, $1,841 for 2016 and $2,697 for 2015 will be reclassified from total cost of revenue and selling, general and administrative (SG&A) expense to other income in our consolidated statements of comprehensive income. This represents the entire amount of our net periodic benefit income as there is no service cost associated with our plans. The guidance allowing only the service cost component of net periodic benefit expense to be capitalized will be adopted on a prospective basis, and we do not expect this change to have a significant impact on our results of operations or financial position.

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting. The standard provides guidance about which changes to the terms or conditions of a share-based payment award require modification accounting, which may result in a different fair value for the award. The guidance is effective for us on January 1, 2018 and is required to be applied prospectively to awards modified on or after the effective date. Historically, modifications to our share-based payment awards have been rare. As such, we do not expect the application of this standard to have a significant impact on our results of operations or financial position.


Note 3: Supplemental balance sheet information

Inventories and supplies – Inventories and supplies were comprised of the following:
(in thousands)March 31,
2021		December 31,
2020
Raw materials$5,415 $5,412 
Semi-finished goods7,916 7,943 
Finished goods31,464 33,513 
Supplies5,263 5,010 
Reserve for excess and obsolete items(12,939)(11,748)
Inventories and supplies$37,119 $40,130 
(in thousands) September 30,
2017		 December 31,
2016
Raw materials $7,702
 $5,861
Semi-finished goods 8,322
 7,990
Finished goods 21,716
 23,235
Supplies 3,189
 3,096
Inventories and supplies $40,929
 $40,182

DELUXE CORPORATION
7
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Changes in the reserve for excess and obsolete items were as follows for the quarters ended March 31, 2021 and 2020:

Quarter Ended
March 31,
(in thousands)20212020
Balance, beginning of year$11,748 $6,600 
Amounts charged to expense2,013 88 
Write-offs(822)(335)
Balance, end of period$12,939 $6,353 

Available-for-sale debt securities – – Available-for-sale debt securities included within funds held for customers were comprised of the following:
  September 30, 2017
(in thousands) Cost Gross unrealized gains Gross unrealized losses Fair value
Funds held for customers:(1)
        
Domestic money market fund $10,000
 $—
 $—
 $10,000
Canadian and provincial government securities 9,091
 —
 (424) 8,667
Canadian guaranteed investment certificates 8,018
 —
 —
 8,018
Available-for-sale securities $27,109
 $—
 $(424) $26,685

 March 31, 2021
(in thousands)CostGross unrealized gainsGross unrealized lossesFair value
Funds held for customers:(1)
Domestic money market fund$12,000 $0 $0 $12,000 
Canadian and provincial government securities9,722 0 (311)9,411 
Canadian guaranteed investment certificate3,980 0 0 3,980 
Available-for-sale debt securities$25,702 $0 $(311)$25,391 

(1) Funds held for customers, as reported on the consolidated balance sheet as of September 30, 2017,March 31, 2021, also included cash of $51,762.$97,075.

  December 31, 2016
(in thousands) Cost Gross unrealized gains Gross unrealized losses Fair value
Funds held for customers:(1)
        
Domestic money market fund $6,002
 $—
 $—
 $6,002
Canadian and provincial government securities 8,320
 —
 (228) 8,092
Canadian guaranteed investment certificates 7,440
 —
 —
 7,440
Available-for-sale securities $21,762
 $—
 $(228) $21,534
 December 31, 2020
(in thousands)CostGross unrealized gainsGross unrealized lossesFair value
Funds held for customers:(1)
Domestic money market fund$15,000 $0 $0 $15,000 
Canadian and provincial government securities9,566 0 (33)9,533 
Canadian guaranteed investment certificate3,929 0 0 3,929 
Available-for-sale debt securities$28,495 $0 $(33)$28,462 
 
(1) Funds held for customers, as reported on the consolidated balance sheet as of December 31, 2016,2020, also included cash of $66,289.$91,287.
Expected maturities of available-for-sale debt securities as of September 30, 2017March 31, 2021 were as follows:
(in thousands)Fair value
Due in one year or less$14,550 
Due in two to five years7,971 
Due in six to ten years2,870 
Available-for-sale debt securities$25,391 
(in thousands) Fair value
Due in one year or less $18,564
Due in two to five years 4,255
Due in six to ten years 3,866
Available-for-sale securities $26,685


Further information regarding the fair value of available-for-sale debt securities can be found in Note 7.

8
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Assets held for saleRevenue in excess of billings – Assets held for saleRevenue in excess of billings was comprised of the following:
(in thousands)March 31,
2021		December 31,
2020
Conditional right to receive consideration$20,072 $13,950 
Unconditional right to receive consideration(1)
7,583 3,667 
Revenue in excess of billings$27,655 $17,617 

(1) Represents revenues that are earned but not currently billable under the related contract terms. Trade accounts receivable on the consolidated balance sheets included unbilled receivables of $19,295 as of September 30, 2017 included 2 providers of printingMarch 31, 2021 and promotional products that were classified as held for sale during the third quarter of 2017. Assets held for sale$21,319 as of December 31, 2016 included the operations of a small business distributor that was sold during the second quarter of 2017 and a provider of printed and promotional products that was sold during the first quarter of 2017. Also during the nine months ended September 30, 2017, we sold the operations of an additional small business distributor that previously did not meet the requirements to be reported as assets held for sale in the consolidated balance sheets, as well as a small business distributor and assets associated with certain custom printing activities that were classified as held for sale during the second quarter of 2017. We determined that these businesses would be better positioned for long-term growth if they were managed independently. Subsequent to the sales, these businesses are owned by independent distributors that are part of our Safeguard® distributor network. As such, our revenue is not impacted by these sales and the impact to our costs is not significant. We entered into aggregate notes receivable of $24,497 in conjunction with these sales (non-cash investing activity) and we recognized aggregate net gains of $1,924 for the quarter ended September 30, 2017 and $8,703 for the nine months ended September 30, 2017. The gains are included in SG&A expense in the consolidated statements of comprehensive income.2020.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


The businesses sold during 2017, as well as those held for sale as of September 30, 2017, were included in our Small Business Services segment and their net assets consisted primarily of intangible assets. During the first six months of 2017, we recorded aggregate pre-tax asset impairment charges of $8,250 related to the small business distributor sold during the second quarter of 2017. The impairment charges reduced the carrying value of the business to its fair value less costs to sell, as we finalized the sale of the business.

We are actively marketing the remaining assets held for sale and we expect the selling prices will equal or exceed their current carrying values. Net assets held for sale consisted of the following:
(in thousands) September 30,
2017		 December 31,
2016		 Balance sheet caption
Current assets $4
 $3
 Other current assets
Intangibles 6,401
 14,135
 Assets held for sale
Goodwill 2,081
 —
 Assets held for sale
Other non-current assets 207
 433
 Assets held for sale
Accrued liabilities (621) (146) Accrued liabilities
Deferred income tax liabilities —
 (5,697) Other non-current liabilities
Net assets held for sale $8,072
 $8,728
  


Intangibles – Intangibles were comprised of the following:
 March 31, 2021December 31, 2020
(in thousands)Gross carrying amountAccumulated amortizationNet carrying amountGross carrying amountAccumulated amortizationNet carrying amount
Amortizable intangibles:      
Internal-use software$397,675 $(314,125)$83,550 $380,144 $(303,422)$76,722 
Customer lists/relationships366,241 (212,425)153,816 352,895 (202,428)150,467 
Software to be sold36,900 (24,941)11,959 36,900 (23,884)13,016 
Technology-based intangibles33,813 (29,163)4,650 33,813 (27,613)6,200 
Trade names30,230 (30,053)177 30,281 (29,926)355 
Intangibles$864,859 $(610,707)$254,152 $834,033 $(587,273)$246,760 
  September 30, 2017 December 31, 2016
(in thousands) Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount
Indefinite-lived intangibles:            
Trade name $19,100
 $—
 $19,100
 $19,100
 $—
 $19,100
Amortizable intangibles:  
  
  
  
  
  
Internal-use software 407,844
 (335,112) 72,732
 385,293
 (310,195) 75,098
Customer lists/relationships 337,985
 (109,495) 228,490
 308,375
 (76,276) 232,099
Trade names(1)
 38,761
 (20,595) 18,166
 68,261
 (40,857) 27,404
Software to be sold 36,900
 (10,147) 26,753
 34,700
 (7,050) 27,650
Technology-based intangibles 31,800
 (4,783) 27,017
 28,000
 —
 28,000
Other 1,800
 (1,535) 265
 1,808
 (1,378) 430
Amortizable intangibles 855,090
 (481,667)
373,423

826,437

(435,756)
390,681
Intangibles $874,190
 $(481,667)
$392,523

$845,537

$(435,756)
$409,781


(1) During the third quarter of 2017, we recorded a pre-tax asset impairment charge of $14,752 for one of our trade names. Further information can be found in Note 7.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Amortization of intangibles was $27,456$23,264 for the quarter ended September 30, 2017, $19,273March 31, 2021 and $23,511 for the quarter ended September 30, 2016, $79,284 for the nine months ended September 30, 2017 and $56,364 for the nine months ended September 30, 2016.March 31, 2020. Based on the intangibles in service as of September 30, 2017,March 31, 2021, estimated future amortization expense is as follows:
(in thousands)Estimated
amortization
expense
Remainder of 2021$65,583 
202268,285 
202348,720 
202423,206 
202517,327 
(in thousands) 
Estimated
amortization
expense
Remainder of 2017 $28,333
2018 93,153
2019 72,877
2020 54,692
2021 44,412


During the nine months ended September 30, 2017, we acquired internal-use software in the normal course of business. We also acquired intangible assets in conjunction with acquisitions (Note 6). The following intangible assetsintangibles were acquired during the nine monthsquarter ended September 30, 2017:March 31, 2021:
(in thousands)AmountWeighted-average amortization period
(in years)
Internal-use software$17,321 3
Customer lists/relationships13,302 8
Acquired intangibles$30,623 5
(in thousands) Amount 
Weighted-average amortization period
(in years)
Internal-use software $27,065
 3
Customer lists/relationships 50,184
 8
Trade names 9,795
 6
Software to be sold 2,200
 5
Technology-based intangibles 800
 3
Acquired intangibles $90,044
 6
9
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Information regarding acquired intangibles does not include adjustments recorded during the nine months ended September 30, 2017 for changes in the estimated fair values of intangibles acquired during 2016 through acquisitions. Information regarding these adjustments can be found in Note 6.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Goodwill – Changes in goodwill duringby reportable segment and in total for the nine monthsquarter ended September 30, 2017March 31, 2021 were as follows:
(in thousands) 
Small
Business
Services
 
Financial
Services
 
Direct
Checks
 Total
Balance, December 31, 2016:        
Goodwill, gross $684,261
 $293,189
 $148,506
 $1,125,956
Accumulated impairment charges (20,000) —
 —
 (20,000)
Goodwill, net of accumulated impairment charges 664,261
 293,189

148,506

1,105,956
Impairment charge (Note 7) (28,379) —
 —
 (28,379)
Goodwill resulting from acquisitions 22,966
 30,583
 —
 53,549
Measurement-period adjustments for previous acquisitions (Note 6) 30
 (2,160) —
 (2,130)
Sale of small business distributor (1,000) —
 —
 (1,000)
Reclassification to assets held for sale (2,484) —
 —
 (2,484)
Currency translation adjustment 574
 —
 —
 574
Balance, September 30, 2017:  
  
  
  
Goodwill, gross 704,347
 321,612
 148,506
 1,174,465
Accumulated impairment charges (48,379) —
 —
 (48,379)
Goodwill, net of accumulated impairment charges $655,968
 $321,612

$148,506

$1,126,086
(in thousands)PaymentsCloud SolutionsPromotional SolutionsChecksTotal
Balance, December 31, 2020:    
Goodwill, gross$168,165 $432,984 $252,864 $434,812 $1,288,825 
Accumulated impairment charges0 (362,058)(189,923)0 (551,981)
Goodwill, net of accumulated impairment charges168,165 70,926 62,941 434,812 736,844 
Currency translation adjustment— — 18 — 18 
Balance, March 31, 2021$168,165 $70,926 $62,959 $434,812 $736,862 
Balance, March 31, 2021:    
Goodwill, gross$168,165 $432,984 $252,882 $434,812 $1,288,843 
Accumulated impairment charges0 (362,058)(189,923)0 (551,981)
Goodwill, net of accumulated impairment charges$168,165 $70,926 $62,959 $434,812 $736,862 

Other non-current assets – Other non-current assets were comprised of the following:
(in thousands)March 31,
2021		December 31,
2020
Postretirement benefit plan asset$72,775 $71,208 
Prepaid product discounts51,044 50,602 
Cloud computing arrangements38,249 29,242 
Loans and notes receivable from distributors, net of allowances for doubtful accounts(1)
27,182 35,068 
Deferred sales commissions(2)
15,461 9,199 
Other13,124 13,360 
Other non-current assets$217,835 $208,679 
(in thousands) September 30,
2017		 December 31,
2016
Contract acquisition costs $66,631
 $65,792
Loans and notes receivable from Safeguard distributors 43,904
 21,313
Postretirement benefit plan asset 28,840
 23,940
Deferred advertising costs 5,987
 7,309
Other 6,531
 6,708
Other non-current assets $151,893
 $125,062


(1) Amount Includes the non-current portion of loans and notes receivable. The current portion of these receivables is included in other current assets on the consolidated balance sheets and was $1,704 as of March 31, 2021 and $2,008 as of December 31, 2020.

(2) Amortization of deferred sales commissions was $972 for the quarter ended March 31, 2021 and $882 for the quarter ended March 31, 2020.

Changes in contract acquisition coststhe allowances for uncollectible accounts related to loans and notes receivable from distributors were as follows for the quarters ended March 31, 2021 and 2020:
Quarter Ended
March 31,
(in thousands)20212020
Balance, beginning of year$3,995 $284 
Adoption of ASU No. 2016-13— 4,749 
Bad debt (benefit) expense(634)5,382 
Balance, end of period$3,361 $10,415 

During the quarter ended March 31, 2020, we recorded a loan-specific allowance related to a distributor that was underperforming. In calculating this reserve, we utilized various valuation techniques to determine the value of the underlying collateral, resulting in an allowance of $6,128 as of March 31, 2020. Other past due receivables and those on non-accrual status were not significant as of March 31, 2021 or December 31, 2020.

We categorize loans and notes receivable into risk categories based on information about the ability of borrowers to service their debt, including current financial information, historical payment experience, current economic trends and other
10
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
factors. The highest quality receivables are assigned a 1-2 internal grade. Those that have a potential weakness requiring management's attention are assigned a 3-4 internal grade.

The following table presents loans and notes receivable from distributors, including the current portion, by credit quality indicator and by year of origination, as of March 31, 2021. There were 0 write-offs or recoveries recorded during the nine monthsquarter ended March 31, 2021.
Loans and notes receivable from distributors amortized cost basis by origination year
(in thousands)2020201920182017PriorTotal
Risk rating:
1-2 internal grade$1,310 $587 $14,546 $11,744 $1,481 $29,668 
3-4 internal grade0 2,579 0 0 0 2,579 
Loans and notes receivable$1,310 $3,166 $14,546 $11,744 $1,481 $32,247 

September 30, 2017
Changes in prepaid product discounts during the quarters ended March 31, 2021 and 20162020 were as follows:
 Quarter Ended
March 31,
(in thousands)20212020
Balance, beginning of year$50,602 $51,145 
Additions(1)
7,890 2,470 
Amortization(7,440)(7,077)
Other(8)(544)
Balance, end of period$51,044 $45,994 
  Nine Months Ended
September 30,
(in thousands) 2017 2016
Balance, beginning of year $65,792
 $58,792
Additions(1)
 15,651
 23,471
Amortization (14,685) (14,700)
Other (127) (75)
Balance, end of period $66,631
 $67,488
(1) Contract acquisition costsPrepaid product discounts are generally accrued upon contract execution. Cash payments made for contract acquisition costsprepaid product discounts were $20,003$9,590 for the nine monthsquarter ended September 30, 2017March 31, 2021 and $17,190$7,321 for the nine monthsquarter ended September 30, 2016.March 31, 2020.

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Accrued liabilities – Accrued liabilities were comprised of the following:
(in thousands)March 31,
2021		December 31,
2020
Deferred revenue(1)
$49,469 $42,104 
Employee cash bonuses, including sales incentives17,005 21,090 
Prepaid product discounts due within one year12,640 14,365 
Operating lease liabilities10,914 11,589 
Customer rebates7,046 8,179 
Other77,849 79,856 
Accrued liabilities$174,923 $177,183 
(in thousands) September 30,
2017		 December 31,
2016
Funds held for customers $77,397
 $86,799
Deferred revenue 34,567
 48,049
Employee profit sharing/cash bonus 25,560
 27,760
Acquisition-related liabilities(1)
 25,346
 12,763
Customer rebates 14,256
 16,281
Contract acquisition costs due within one year 13,508
 12,426
Wages, including vacation 12,381
 8,640
Income tax 6,890
 19,708
Restructuring due within one year (Note 8) 1,549
 4,181
Other 44,088
 36,442
Accrued liabilities $255,542
 $273,049
(1) $16,121 of the December 31, 2020 amount was recognized as revenue during the quarter ended March 31, 2021.


Supplemental cash flow information– The reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents to the consolidated balance sheets was as follows:
(in thousands)March 31,
2021		March 31,
2020
Cash and cash equivalents$125,440 $310,146 
Restricted cash and restricted cash equivalents included in funds held for customers109,075 75,657 
Total cash, cash equivalents, restricted cash and restricted cash equivalents$234,515 $385,803 
(1) Consists of holdback payments due at future dates and liabilities for contingent consideration. Further information regarding liabilities for contingent consideration can be found in Note 7.

Other non-current liabilities – Other non-current liabilities were comprised of the following:
11
(in thousands) September 30,
2017		 December 31,
2016
Contract acquisition costs $24,348
 $29,855
Acquisition-related liabilities(1)
 2,415
 19,390
Other 21,929
 30,461
Other non-current liabilities $48,692
 $79,706
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 4: EARNINGS (LOSS) PER SHARE
(1)
Consists of holdback payments due at future dates and liabilities for contingent consideration. Further information regarding liabilities for contingent consideration can be found in Note 7.


DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 4: Earnings per share

The following table reflects the calculation of basic and diluted earnings (loss) per share. During each period, certain stock options, as noted below, were excluded from the calculation of diluted earnings (loss) per share because their effect would have been antidilutive. 
 Quarter Ended
March 31,
(in thousands, except per share amounts)20212020
Earnings (loss) per share – basic:  
Net income (loss)$24,325 $(60,131)
Net income attributable to non-controlling interest(33)0 
Net income (loss) attributable to Deluxe24,292 (60,131)
Income allocated to participating securities(19)(21)
Income (loss) attributable to Deluxe available to common shareholders$24,273 $(60,152)
Weighted-average shares outstanding42,046 42,028 
Earnings (loss) per share – basic$0.58 $(1.43)
Earnings (loss) per share – diluted:
Net income (loss)$24,325 $(60,131)
Net income attributable to non-controlling interest(33)0 
Net income (loss) attributable to Deluxe24,292 (60,131)
Income allocated to participating securities0 (21)
Re-measurement of share-based awards classified as liabilities0 (775)
Income (loss) attributable to Deluxe available to common shareholders$24,292 $(60,927)
Weighted-average shares outstanding42,046 42,028 
Dilutive impact of potential common shares458 37 
Weighted-average shares and potential common shares outstanding42,504 42,065 
Earnings (loss) per share – diluted$0.57 $(1.45)
Antidilutive options excluded from calculation2,423 2,214 
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
(in thousands, except per share amounts) 2017 2016 2017 2016
Earnings per share – basic:        
Net income $28,801
 $58,663
 $145,446
 $175,154
Income allocated to participating securities (176) (491) (961) (1,445)
Income available to common shareholders $28,625
 $58,172

$144,485
 $173,709
Weighted-average shares outstanding 48,081
 48,493
 48,217
 48,634
Earnings per share – basic $0.60
 $1.20
 $3.00
 $3.57
         
Earnings per share – diluted:  
  
    
Net income $28,801
 $58,663
 $145,446
 $175,154
Income allocated to participating securities (175) (487) (956) (1,436)
Re-measurement of share-based awards classified as liabilities 53
 (64) 7
 230
Income available to common shareholders $28,679
 $58,112

$144,497
 $173,948
Weighted-average shares outstanding 48,081
 48,493
 48,217
 48,634
Dilutive impact of potential common shares 296
 455
 331
 427
Weighted-average shares and potential common shares outstanding 48,377
 48,948

48,548
 49,061
Earnings per share – diluted $0.59
 $1.19
 $2.98
 $3.55
Antidilutive options excluded from calculation 266
 223
 266
 223



12
Note 5: Other comprehensive income
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE 5: OTHER COMPREHENSIVE INCOME (LOSS)

Reclassification adjustments – Information regarding amounts reclassified from accumulated other comprehensive loss to net income (loss) was as follows:
Accumulated other comprehensive loss components Amounts reclassified from accumulated other comprehensive loss Affected line item in consolidated statements of comprehensive income
  Quarter Ended
September 30,		 Nine Months Ended
September 30,		  
(in thousands) 2017 2016 2017 2016  
Amortization of postretirement benefit plan items:          
Prior service credit $355
 $355
 1,066
 1,066
 
(1) 
Net actuarial loss (909) (949) (2,728) (2,848) 
(1) 
Total amortization (554) (594) (1,662) (1,782) 
(1) 
Tax benefit 167
 181
 497
 544
 
(1) 
Total reclassifications, net of tax $(387) $(413) $(1,165) $(1,238)  

Accumulated other comprehensive loss componentsAmounts reclassified from accumulated other comprehensive lossAffected line item in consolidated statements of comprehensive income (loss)
Quarter Ended
March 31,
(in thousands)20212020
Realized (loss) gain on interest rate swap$(334)$93 Interest expense
Tax benefit (expense)87 (24)Income tax (provision) benefit
Realized (loss) gain on interest rate swap, net of tax(247)69 Net income (loss)
Amortization of postretirement benefit plan items:
Prior service credit355 355 Other income
Net actuarial loss(407)(575)Other income
Total amortization(52)(220)Other income
Tax (expense) benefit(31)12 Income tax (provision) benefit
Amortization of postretirement benefit plan items, net of tax(83)(208)Net income (loss)
Total reclassifications, net of tax$(330)$(139)
(1)
Amortization of postretirement benefit plan items is included in the computation of net periodic benefit income as presented in Note 10. Net periodic benefit income is included in cost of revenue and SG&A expense in the consolidated statements of comprehensive income, based on the composition
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

of our workforce. A portion of net periodic benefit income is capitalized as a component of labor costs and is included in inventories and intangibles in our consolidated balance sheets.

Accumulated other comprehensive loss – Changes in the components of accumulated other comprehensive loss during the nine monthsquarter ended September 30, 2017March 31, 2021 were as follows:
(in thousands)Postretirement benefit plans
Net unrealized loss on available-for-sale debt securities(1)
Net unrealized loss on cash flow hedge(2)
Currency translation adjustmentAccumulated other comprehensive loss
Balance, December 31, 2020$(21,956)$(90)$(5,351)$(14,036)$(41,433)
Other comprehensive (loss) income before reclassifications0 (204)477 1,006 1,279 
Amounts reclassified from accumulated other comprehensive loss83 0 247 0 330 
Net current-period other comprehensive income (loss)83 (204)724 1,006 1,609 
Balance, March 31, 2021$(21,873)$(294)$(4,627)$(13,030)$(39,824)
(in thousands) Postretirement benefit plans, net of tax 
Net unrealized loss on marketable securities,
net of tax(1)
 Currency translation adjustment Accumulated other comprehensive loss
Balance, December 31, 2016 $(35,684) $(213) $(14,474) $(50,371)
Other comprehensive (loss) income before reclassifications —
 (130) 4,500
 4,370
Amounts reclassified from accumulated other comprehensive loss 1,165
 —
 —
 1,165
Net current-period other comprehensive income (loss) 1,165
 (130) 4,500
 5,535
Balance, September 30, 2017 $(34,519) $(343) $(9,974) $(44,836)


(1) Other comprehensive loss before reclassifications is net of an income tax benefit of $45.$71.


(2) Other comprehensive income before reclassifications is net of income tax expense of $168.

Note 6: Acquisitions

13
We periodically complete business combinations that align with
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS

As part of our business strategy.interest rate risk management strategy, we entered into an interest rate swap in July 2019, 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 (Note 11). The assets and liabilities acquiredinterest rate swap, which terminates in March 2023 when our revolving credit facility matures, effectively converts $200,000 of variable rate debt to a fixed rate of 1.798%. Changes in the fair value of the interest rate swap are recorded at their estimatedin accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair valuesvalue of the interest rate swap was $6,231 as of March 31, 2021 and the results$7,210 as of operations of each acquired business areDecember 31, 2020 and was included in other non-current liabilities on the consolidated balance sheets. The fair value of this derivative is calculated based on the prevailing LIBOR rate curve on the date of measurement. The cash flow hedge was fully effective as of March 31, 2021 and December 31, 2020 and its impact on consolidated net income (loss) and our consolidated statements of comprehensive income from their acquisition dates. Transaction costs related to acquisitions are expensed as incurred and are included in SG&A expense in the consolidated statements of comprehensive income. Transaction costs were not significant to our consolidated statements of comprehensive income for the quarters or nine months ended September 30, 2017 and 2016. The acquisitions completed during the nine months ended September 30, 2017 were cash transactions, funded by cash on hand and/or use of our revolving credit facility. We completed these acquisitions to increase our mix of marketing solutions and other services revenue and to reach new customers.
2017 acquisitions – In February 2017, we acquired selected assets of Panthur Pty Ltd (Panthur), an Australian web hosting and domain registration service provider. The allocation of the purchase price based upon the estimated fair values of the assets acquired and liabilities assumed resulted in goodwill of $1,198 that is not deductible for tax purposes. The acquisition resulted in goodwill as we expect to utilize Panthur's platform as we selectively expand into foreign markets. The operations of this business from its acquisition date are included within our Small Business Services segment.

In April 2017, we acquired all of the equity of RDM Corporation (RDM) of Canada, a provider of remote deposit capture software, hardware and digital imaging solutions for financial institutions and corporate clients. The preliminary allocation of the purchase price based upon the estimated fair values of the assets acquired and liabilities assumed resulted in goodwill of $30,583 that is not deductible for tax purposes. The acquisition resulted in goodwill as it enhances our suite of treasury management solutions, strengthening our value proposition and improving our market position. We expect to finalize the allocation of the purchase price by the end of 2017 when our valuation of several of the acquired assets and liabilities is completed. The operations of this business from its acquisition date are included within our Financial Services segment.

In July 2017, we acquired all of the equity of Digital Pacific Group Pty Ltd (Digital Pacific), and in September 2017, we acquired all of the equity of j2 Global Australia Pty Ltd, doing business as Web24. Both businesses are based in Australia and provide web hosting and domain registration services. The preliminary allocations of the purchase price based upon the estimated fair values of the assets acquired and liabilities assumed resulted in goodwill of $21,768 that is not deductible for tax purposes. The goodwill resulted from our acquisition of enhanced web hosting capabilities as we selectively expand into foreign markets. We expect to finalize the allocations of the purchase price by the end of 2017 when our valuation of several of the acquired assets and liabilities is completed. The operations of these businesses from their acquisition dates are included within our Small Business Services segment.

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Also during the nine months ended September 30, 2017, we acquired the operations of several small business distributors which are included in our Small Business Services segment. The assets acquired consisted primarily of customer list intangible assets. We expect to finalize the allocations of the purchase price by the end of 2017 when our valuation of the acquired intangible assets is completed, as well as the determination of the related estimated useful lives. As these small business distributors were previously part of our Safeguard distributor network, our revenueflows was not impacted by these acquisitions andsignificant. We also do not expect the impactamount to our costs was notbe reclassified to interest expense over the next 12 months to be significant.

Information regarding the useful lives of acquired intangibles and goodwill by reportable segment can be found in Note 3. Information regarding the calculation of the estimated fair values of the acquired intangibles can be found in Note 7. As our acquisitions were immaterial to our reported operating results both individually and in the aggregate, pro forma results of operations are not provided. The following illustrates the preliminary allocation, as of September 30, 2017, of the aggregate purchase price for the above acquisitions to the assets acquired and liabilities assumed:
(in thousands) 2017 acquisitions
Net tangible assets acquired and liabilities assumed(1)
 $5,123
Identifiable intangible assets:  
Customer lists/relationships 50,184
Trade name 9,795
Software to be sold 2,200
Technology-based intangible 800
Internal-use software 445
Total intangible assets 63,424
Goodwill 53,549
Total aggregate purchase price 122,096
Liabilities for holdback payments (4,562)
Net cash paid for 2017 acquisitions 117,534
Holdback payments for prior year acquisitions 7,883
Payments for acquisitions, net of cash acquired of $27,282 $125,417


(1) Net tangible assets acquired consisted primarily of accounts receivable, marketable securities, inventory and accrued liabilities of RDM.

During the nine months ended September 30, 2017, we finalized the purchase accounting for the acquisitions of BNBS, Inc., Payce, Inc., PTM Document Systems, Inc. and Data Support Systems, Inc., which were acquired in 2016, and we adjusted the purchase accounting for First Manhattan Consulting Group, LLC (FMCG Direct), which was acquired in December 2016. We expect to finalize the purchase accounting for FMCG Direct by the end of 2017 when our valuation of certain miscellaneous receivables and liabilities is completed. Further information regarding these acquisitions can be found under the caption “Note 5: Acquisitions” in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. These measurement-period adjustments resulted in a decrease in goodwill of $2,130 during the nine months ended September 30, 2017, with the offset to various assets and liabilities, including other current assets, accounts payable and intangibles, including an increase of $3,000 in acquired technology-based intangibles and a decrease of $1,924 in customer list intangibles.

During the nine months ended September 30, 2016, we completed the following acquisitions:

In February 2016, we acquired selected assets of Category 99, Inc., doing business as MacHighway®, a web hosting and domain registration service provider.
In March 2016, we acquired selected assets of New England Art Publishers, Inc., doing business as Birchcraft Studios, a supplier of personalized invitations, holiday cards, all-occasion cards and social announcements.
In April 2016, we acquired selected assets of 180 Fusion LLC, a digital marketing services provider.
In June 2016, we acquired selected assets of L.A.M. Enterprises, Inc., a provider of printed and promotional products.
In June 2016, we acquired selected assets of Liquid Web, LLC, a web hosting services provider.
In June 2016, we acquired selected assets of National Document Solutions, LLC, a provider of printing, promotional products, office products, scanning and document management solutions.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

In July 2016, we acquired selected assets of Inkhead, Inc., a provider of customized promotional products.
In August 2016, we acquired selected assets of BNBS, Inc., doing business as B&B Solutions, a provider of printing, promotional and office products and services.
In September 2016, we acquired all of the equity of Payce, Inc., a provider of payroll processing, payroll tax filing and related payroll services.
We acquired the operations of several small business distributors, all of which were previously part of our Safeguard distributor network.

Payments for acquisitions, net of cash acquired, as presented on the consolidated statement of cash flows for the nine months ended September 30, 2016, included payments of $63,103 for these acquisitions and $1,534 for holdback payments for prior year acquisitions. Further information regarding our 2016 acquisitions can be found under the caption “Note 5: Acquisitions” in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K.


Note 7: Fair value measurements

NOTE 7: FAIR VALUE MEASUREMENTS
Annual asset
Our policies on impairment analyses – We evaluate the carrying value of goodwill and our indefinite-lived trade name as of July 31 of each yearintangible assets and between annual evaluations if events occur or circumstances change that would indicate a possible impairment. Our policy on impairment of indefinite-livedlong-lived assets and amortizable intangibles explain our methodology for assessing impairment of these assets and goodwill, which is includedcan be found under the caption "Note 1: Significant accounting policies"Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 20162020 Form 10-K, explains our methodology for assessing10-K.

2020 asset impairment of these assets.charges

In conjunction with our annual strategic planning process during – During the third quarter of 2017,ended March 31, 2020, we made various changes to our internal reporting structure. As a result, we reassessed our operating segments and determined that no changes were required in our reportable operating segments. We also reassessed our previously determined reporting units and concluded that a realignment of a portiontriggering event had occurred for 2 of our reporting units was required.as a result of the COVID-19 pandemic. As such, we reallocated the carrying value ofcompleted goodwill to our revisedimpairment analyses for these reporting units based on their relative fair values. We analyzed goodwill for impairment immediately prior to this realignment by performing qualitativeas of March 31, 2020. Our analyses for our Small Business Services reporting units and quantitative analyses for our Financial Services and Direct Checks reporting units. 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 analysis 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 valuegoodwill of anyour Promotional Solutions reporting unit was less than its carrying amount, withpartially impaired and the exceptiongoodwill of our Small Business Services Safeguard reporting unit. The analysis of thisCloud Solutions Web Hosting reporting unit which incorporated the results of the annual strategic planning process, indicated lowered projected long-term revenue growth and profitability levels resulting from changes in market trends and the mix of products and services sold, including the continuing decline in check and forms usage. As a result, we completed impairment analyses of the long-term assets of this reporting unit, excluding goodwill, and concluded that these assets were not impaired. We then completed the quantitative analysis of the reporting unit, utilizing the income approach outlined under the caption "Note 1: Significant accounting policies" in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. This quantitative analysis indicated that this reporting unit's goodwill was fully impaired and resulted in a non-cash pre-taximpaired. As such, we recorded goodwill impairment chargecharges of $28,379 during the quarter ended September 30, 2017. In accordance with ASU No. 2017-04, which we adopted on January 1, 2017, the$63,356 and $4,317, respectively. The impairment charge wascharges were measured as the amount by which the reporting unit'sunits' carrying valuevalues exceeded its estimated fair value. Further information regarding this accounting pronouncement can be found in Note 2.

Immediately subsequent to the realignment of our reporting unit structure, we completed a quantitative analysis for all of our reporting units to which goodwill is assigned. This quantitative analysis as of July 31, 2017 indicated that thetheir estimated fair values, limited to the carrying amount of goodwill. After the impairment charges, $62,785 of goodwill remained in the Promotional Solutions reporting unit as of the measurement date.

Also as a result of the impacts of the COVID-19 pandemic, we assessed for impairment certain long-lived assets of our Cloud Solutions Web Hosting reporting units exceeded their carrying values by approximate amounts between $64,000unit as of March 31, 2020. As a result of these assessments, we recorded asset impairment charges of $17,678, primarily related to customer list, software and $1,405,000, or by amounts between 36% and 314% above the carrying values of their net assets.

In completing the 2017 annual impairment analysis of our indefinite-lived trade name intangible assets. With the exception of certain internal-use software assets, we elected to perform a quantitative assessment which indicateddetermined that the calculatedassets were fully impaired. We utilized the discounted value of estimated future cash flows to estimate the fair value of the asset exceeded itsgroup. In our analysis, we assumed a revenue decline of 31% and a gross margin decline of 5.2 points in 2020, as well as a discount rate of 9%.

During the first quarter of 2020, we assessed for impairment the carrying value of $19,100 by approximately $16,000 as of July 31, 2017.

Non-recurringan asset impairment analyses – During the six months ended June 30, 2017, we recorded aggregate pre-tax asset impairment charges of $8,250group related to a small business distributor that we previously purchased. Our assessment was classified as held for sale in the consolidated balance sheets prior to its saleresult of customer attrition during the second quarter that impacted our projections of 2017. Thefuture cash flows. Based on our estimate of discounted future cash flows, we determined that the asset group was partially impaired as of February 29, 2020, and we recorded an asset impairment charges were calculated based on on-going
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

negotiations for the salecharge of the business and reduced its carrying value to its fair value less costs to sell by$2,752, reducing the carrying value of the related customer list intangible asset. Further information regarding assets held for sale can be found in Note 3.

DuringIn calculating the quarter ended September 30, 2017, we decided that we would no longer utilize our Small Business Services NEBS® trade name in the marketplace, and we recorded a pre-tax asset impairment charge of $14,752 to write down the remaining book value of this trade name to a fair value of $0. Also during the quarter ended September 30, 2017, we recorded pre-tax asset impairment charges of $3,499 related to other long-lived assets within Small Business Services, primarily internal-use software related to an order capture system. During the third quarter of 2017, we signed a contract for customer relationship management services that resulted in our decision to no longer utilize a portion of this software. As such, the remaining net book value of the assets was written down to a fair value of $0.

Information regarding these non-recurring asset impairment analyses is as follows:
    Fair value measurements using  
  Fair value as of measurement date Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs Impairment charge
(in thousands)  (Level 1) (Level 2) (Level 3) 
Trade name $—
 $—
 $—
 $—
 $14,752
Assets held for sale 3,500
 —
 —
 3,500
 8,250
Other —
 —
 —
 —
 3,499
Total         $26,501


2017 acquisitions – For all acquisitions, we are required to measure the fair value of the net identifiable tangible and intangible assets and liabilities acquired. Information regarding the acquisitions completed during the nine months ended September 30, 2017 can be found in Note 6. The identifiable net assets acquired during the nine months ended September 30, 2017 were comprised primarily of customer list intangible assets and trade names. The estimated fair values of the RDM, Digital Pacific and Web24 customer list intangibles were calculated 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 brand 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 estimated fair value of the remainderasset group, we assumed 0 revenue growth, a 1.9 point improvement in gross margin and a discount rate of our acquired customers lists was calculated by discounting11%. Also during the estimated cash flows expectedfirst quarter of 2020, we recorded asset impairment charges of $2,227 related to be generated by the assets. Key assumptions usedinternal-use software and a small business distributor held for sale. Customer attrition in the calculations included same-customer revenue growth ratesbusiness utilizing the software caused us to evaluate the asset for impairment, and estimated customer retention rates basedthis analysis indicated that the software was fully impaired. During the first quarter of 2020, we agreed to sales terms for the small business distributor. Based on the acquirees' historical information. The estimated fair valuesnegotiated sales price, we recorded an asset impairment charge to write-down the carrying value of the Digital Pacificasset group to its fair value less costs to sell.

14
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Information regarding the asset impairment analyses completed during the quarter ended March 31, 2020 was as follows:
 Fair value measurements using
Fair value as of measurement dateQuoted prices in active markets for identical assetsSignificant other observable inputsSignificant unobservable inputsImpairment charge
(in thousands)(Level 1)(Level 2)(Level 3)
Intangible assets (Cloud Solutions Web Hosting reporting unit)(1)
$2,172 $— $— $2,172 $17,678 
Small business distributor7,622 — — 7,622 2,752 
Other assets1,412 — — 1,412 2,227 
Goodwill67,673 
Total$90,330 

(1) The impairment charge consisted of $8,397 related to customer lists, $6,932 related to internal-use software and Web24 trade names were calculated using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the trade name. An assumed royalty rate is applied$2,349 related to forecasted revenue and the resulting cash flows are discounted.other intangible assets.

Recurring fair value measurements – Funds held for customers included cash equivalents and available-for-sale marketabledebt securities (Note 3). The cash equivalents consisted ofThese securities included a money market fund investment that is traded in an active market. Because of the short-term nature of the underlying investments, the cost of this investment approximates its fair value. Available-for-sale marketable securities consisted ofmarket, a mutual fund investment that invests in Canadian and provincial government securities, and investmentsan investment in a Canadian guaranteed investment certificates (GICs)certificate (GIC) with maturitiesa maturity of 1 year.2 years. The cost of the money market fund approximates its fair value because of the short-term nature of the investment. The cost of the GIC approximates its fair value, based on estimates using current market rates offered for deposits with similar remaining maturities. The mutual fund investment is not traded in an active market and its fair value is determined by obtaining quoted prices in active markets for the underlying securities held by the fund. The fair value of the GICs approximated cost due to their relatively short duration. Unrealized gains and losses, net of tax, are included in accumulated other comprehensive loss inon the consolidated balance sheets. The cost of securities sold is determined using the average cost method. Realized gains and losses are included in revenue inon the consolidated statements of comprehensive income (loss) and were not significant forduring the quarters or nine months ended September 30, 2017March 31, 2021 and 2016.2020.

We have elected to account for long-term investments in domestic mutual funds underInformation regarding the fair value option forvalues of our financial assetsinstruments was as follows:
 Fair value measurements using
March 31, 2021Quoted prices in active markets for identical assets
(Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)
(in thousands)Balance sheet locationCarrying valueFair value
Measured at fair value through comprehensive income (loss):
Cash equivalentsFunds held for customers$12,000 $12,000 $12,000 $— $— 
Available-for-sale debt securitiesFunds held for customers13,391 13,391 — 13,391 — 
Derivative liability (Note 6)Other non-current liabilities(6,231)(6,231)— (6,231)— 
Amortized cost:
CashCash and cash equivalents125,440 125,440 125,440 — — 
CashFunds held for customers97,075 97,075 97,075 — — 
Loans and notes receivable from distributorsOther current and non-current assets28,886 28,843 — — 28,843 
Long-term debtLong-term debt840,000 840,000 — 840,000 — 

15
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 Fair value measurements using
December 31, 2020Quoted prices in active markets for identical assets
(Level 1)		Significant other observable inputs
(Level 2)		Significant unobservable inputs
(Level 3)
(in thousands)Balance sheet locationCarrying valueFair value
Measured at fair value through comprehensive income (loss):
Cash equivalentsFunds held for customers$15,000 $15,000 $15,000 $— $— 
Available-for-sale debt securitiesFunds held for customers13,462 13,462 — 13,462 — 
Derivative liability (Note 6)Other non-current liabilities(7,210)(7,210)— (7,210)— 
Amortized cost:
CashCash and cash equivalents123,122 123,122 123,122 — — 
CashFunds held for customers91,287 91,287 91,287 — — 
Loans and notes receivable from distributorsOther current and non-current assets37,076 36,950 — — 36,950 
Long-term debtLong-term debt840,000 840,000 — 840,000 — 


NOTE 8: RESTRUCTURING AND INTEGRATION EXPENSE

Restructuring and integration expense consists of costs related to the consolidation and migration of certain applications and processes, including our financial liabilities. The fair value option provides companies an irrevocable optionand sales management systems. It also includes costs related to measure many financial assetsthe integration of acquired businesses into our systems and liabilities at fair value with changes in fair value recognized in earnings. The investments are included in long-term investments in the consolidated balance sheets. Long-term investments also include the cash surrender val
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

uesprocesses. These costs consist primarily of company-owned life insurance policies. Realizedinformation technology consulting, project management services and unrealized gains and losses,internal labor, as well as dividends earned by the mutual fund investments,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. We are included in SG&Acurrently pursuing several initiatives designed to focus on our growth strategy and to increase our efficiency. Restructuring and integration expense in the consolidated statements of comprehensive income. These investments correspond to a liability under an officers’ deferred compensation plan that is not availableallocated to new participantsour reportable business segments.

Restructuring and integration expense is fully funded by the mutual fund investments. The liability under the plan equals the fair value of the mutual fund investments. Thus, as the value of the investments changes, the value of the liability changes accordingly. As changes in the liability are reflected within SG&A expense inon the consolidated statements of comprehensive income the fair value option of accounting(loss) as follows:
 Quarter Ended
March 31,
(in thousands)20212020
Total cost of revenue$899 $829 
Operating expenses14,313 17,654 
Restructuring and integration expense$15,212 $18,483 

16
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Restructuring and integration expense for the mutual fund investments allows us to net changes in the investments and the related liability in the statements of comprehensive income. The cost of securities sold is determined using the average cost method. The fair valueeach period was comprised of the mutual fund investments is determined by obtaining quoted prices in active markets for the mutual funds. Net unrealized losses recognized during the nine months ended September 30, 2017following:
 Quarter Ended
March 31,
(in thousands)20212020
External consulting fees$7,383 $10,901 
Internal labor2,041 1,853 
Employee severance benefits857 5,083 
Other4,931 646 
Restructuring and integration expense$15,212 $18,483 

Our restructuring and net realized gains recognized during the nine months ended September 30, 2017 and September 30, 2016 were not significant. We recognized net unrealized losses of $160 during the nine months ended September 30, 2016.

We have recorded liabilities for contingent consideration related to certain of our acquisitions, primarily the acquisitions of Verify Valid and a small business distributor during 2015 and the acquisition of Data Support Systems, Inc. during 2016. Further information regarding these acquisitions can be found under the caption “Note 5: Acquisitions” in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. Under the Verify Valid and Data Support Systems agreements, there are no maximum amounts of contingent payments specified, although payments are based on a percentage of the revenue or operating income generated by the business. The fair value of accrued contingent consideration is remeasured each reporting period. Increases or decreases in projected revenue, gross profit or operating income, as appropriate, and the related probabilities of achieving the forecasted results may result in a higher or lower fair value measurement. Changes in fair value resulting from changes in the timing, amount of, or likelihood of contingent paymentsintegration accruals are included in SG&A expense in the consolidated statements of comprehensive income. Changes in fair value resulting from accretion for the passage of time are included in interest expense in the consolidated statements of comprehensive income.

Changes in accrued contingent consideration during the nine months ended September 30, 2017 were as follows:
(in thousands) Nine Months Ended September 30, 2017
Balance, December 31, 2016 $4,682
Change in fair value 1,028
Settlements (1,249)
Balance, September 30, 2017 $4,461


Information regarding recurring fair value measurements completed during each period was as follows:
    Fair value measurements using
  
Fair value as of
 September 30, 2017
 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands)  (Level 1)  (Level 2) (Level 3)
Cash equivalents (funds held for customers) $10,000
 $10,000
 $—
 $—
Available-for-sale marketable securities (funds held for customers) 16,685
 —
 16,685
 —
Long-term investments in mutual funds 1,729
 1,729
 —
 —
Accrued contingent consideration (4,461) —
 —
 (4,461)
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

    Fair value measurements using
  
Fair value as of
December 31, 2016
 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands)  (Level 1) (Level 2) (Level 3)
Cash equivalents (funds held for customers) $6,002
 $6,002
 $—
 $—
Available-for-sale marketable securities (funds held for customers) 15,532
 —
 15,532
 —
Long-term investments in mutual funds 1,877
 1,877
 —
 —
Accrued contingent consideration (4,682) —
 —
 (4,682)

Our policy is to recognize transfers between fair value levels as of the end of the reporting period in which the transfer occurred. There were no transfers between fair value levels during the nine months ended September 30, 2017.

Fair value measurements of other financial instruments – The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.

Cash and cash included within funds held for customers – The carrying amounts reported inliabilities on the consolidated balance sheets approximate fair value because ofand represent expected cash payments required to satisfy the short-term nature of these items.

Loansremaining severance obligations to those employees already terminated and notes receivable from Safeguard distributors – We have receivables for loans madethose expected to certain of our Safeguard distributors. In addition, we have acquired the operations of several small business distributors, which we then sold to our Safeguard distributors. In most cases, we entered into notes receivable upon the sale of the assets. The fair value of these loans and notes receivable is calculated as the present value of expected future cash flows, discounted using an estimated interest rate based on published bond yields for companies of similar risk.

Long-term debt – Information regarding the composition of our long-term debt can be found in Note 11. The carrying amounts reported in the consolidated balance sheets for amounts drawnterminated under our revolving credit facility and our term loan facility, excluding unamortized debt issuance costs, approximate fair value because our interest rates are variable and reflect current market rates.

The estimated fair values of these financial instruments were as follows:
    Fair value measurements using
  September 30, 2017 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands) Carrying value Fair value (Level 1) (Level 2) (Level 3)
Cash $53,410
 $53,410
 $53,410
 $—
 $—
Cash (funds held for customers) 51,762
 51,762
 51,762
 —
 —
Loans and notes receivable from Safeguard distributors 45,820
 41,987
 —
 —
 41,987
Long-term debt(1)
 754,580
 755,250
 —
 755,250
 —

(1) Amounts exclude capital lease obligations.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

    Fair value measurements using
  December 31, 2016 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs
(in thousands) Carrying value Fair value (Level 1) (Level 2) (Level 3)
Cash $76,574
 $76,574
 $76,574
 $—
 $—
Cash (funds held for customers) 66,289
 66,289
 66,289
 —
 —
Loans and notes receivable from Safeguard distributors 23,278
 21,145
 —
 —
 21,145
Long-term debt(1)
 756,963
 758,000
 —
 758,000
 —


(1) Amounts exclude capital lease obligations.


Note 8: Restructuring charges

Net restructuring charges for each period consisted of the following components:
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
(in thousands, except number of employees) 2017 2016 2017 2016
Severance accruals $1,248
 $1,824
 $3,596
 $3,870
Severance reversals (78) (198) (596) (666)
Operating lease obligations —
 —
 23
 —
Net restructuring accruals 1,170
 1,626

3,023

3,204
Other costs 72
 432
 669
 939
Net restructuring charges $1,242
 $2,058

$3,692

$4,143
Number of employees included in severance accruals 30
 55
 80
 120

The net restructuring charges are reflected in the consolidated statements of comprehensive income as follows:
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
(in thousands) 2017 2016 2017 2016
Total cost of revenue $(25) $65
 $(16) $136
Operating expenses 1,267
 1,993
 3,708
 4,007
Net restructuring charges $1,242
 $2,058

$3,692

$4,143


During the quarters and nine months ended September 30, 2017 and September 30, 2016, the net restructuring accruals included severance charges related to employee reductions across functional areas as we continued to reduce costs, primarily within our sales and marketing, information technology and fulfillment functions. These charges were reduced by the reversal of restructuring accruals recorded in previous periods, as fewer employees received severance benefits than originally estimated. Other restructuring costs, which were expensed as incurred, included items such as information technology costs, employee and equipment moves, training and travel related to our restructuring activities.

Restructuring accruals of $1,549 as of September 30, 2017 and $4,181 as of December 31, 2016 are reflected in the consolidated balance sheets as accrued liabilities.various initiatives. The majority of the employee reductions are expected to be completed in 2017,the second quarter of 2021, and we expect most of the related severance payments to be paid by mid-2018,mid-2021, utilizing cash from operations. As of
September 30, 2017, approximately 10 employees had not yet started to receive severance benefits.

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollarsChanges in thousands, except per share amounts)

Accruals for our restructuring initiatives, summarized by year,and integration accruals were as follows:
(in thousands)Employee severance benefits
Balance, December 31, 2020$6,798 
Charges1,877 
Reversals(1,020)
Payments(5,701)
Balance, March 31, 2021$1,954 
(in thousands) 
2015
 initiatives
 
2016
 initiatives
 
2017
initiatives
 Total
Balance, December 31, 2016 $80
 $4,101
 $—
 $4,181
Restructuring charges 41
 485
 3,093
 3,619
Restructuring reversals (42) (461) (93) (596)
Payments (79) (3,999) (1,577) (5,655)
Balance, September 30, 2017 $—
 $126
 $1,423
 $1,549
Cumulative amounts:  
      
Restructuring charges $6,246
 $7,683
 $3,093
 $17,022
Restructuring reversals (972) (742) (93) (1,807)
Payments (5,274) (6,815) (1,577) (13,666)
Balance, September 30, 2017 $—

$126
 $1,423
 $1,549


The componentscharges and reversals presented in the rollforward of our restructuring and integration accruals by segment, weredo not include items charged directly to expense as incurred, as those items are not reflected in accrued liabilities on the consolidated balance sheets.

17
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE 9: INCOME TAX PROVISION (BENEFIT)

The effective tax rate on pre-tax income (loss) reconciles to the U.S. federal statutory tax rate as follows:
  Employee severance benefits Operating lease obligations  
(in thousands) Small Business Services Financial Services Direct Checks 
 
Corporate(1)
 Small Business Services Financial Services Total
Balance, December 31, 2016 $1,183
 $1,341
 $7
 $1,650
 $—
 $—
 $4,181
Restructuring charges 1,315
 876
 —
 1,405
 23
 —
 3,619
Restructuring reversals (199) (89) (4) (304) —
 —
 (596)
Payments (1,979) (1,628) (3) (2,032) (13) —
 (5,655)
Balance, September 30, 2017 $320
 $500

$—

$719

$10
 $—

$1,549
Cumulative amounts(2):
  
  
  
  
  
    
Restructuring charges $6,162
 $4,228
 $143
 $6,069
 $367
 $53
 $17,022
Restructuring reversals (869) (248) (6) (684) —
 —
 (1,807)
Inter-segment transfer 41
 (14) —
 (27) —
 —
 —
Payments (5,014) (3,466) (137) (4,639) (357) (53) (13,666)
Balance, September 30, 2017 $320
 $500

$—

$719

$10
 $—

$1,549

Quarter Ended March 31, 2021Year Ended December 31, 2020
Income tax at federal statutory rate21.0 %21.0 %
Goodwill impairment charges (Note 7)0 39.2 %
State income tax expense, net of federal income tax benefit3.8 %1.7 %
Tax impact of share-based compensation2.1 %7.4 %
Non-deductible executive compensation0.9 %2.0 %
Foreign tax rate differences0.6 %3.7 %
Change in unrecognized tax benefits, including interest and penalties0.3 %(2.9 %)
Payables and receivables for prior year tax returns(0.9 %)2.8 %
Research and development tax credit(0.6 %)(3.3 %)
Return to provision adjustments0 (2.3 %)
Change in valuation allowances0 0.8 %
Other0.2 %0.8 %
Effective tax rate27.4 %70.9 %
(1) As discussed in Note 14, corporate costs are allocated to our business segments. As such, the net corporate restructuring charges are reflected in the business segment operating income presented in Note 14 in accordance with our allocation methodology.

(2) Includes accruals related to our cost reduction initiatives for 2015 through 2017.


Note 9: Income tax provision

Our effective income tax rate for the quarter ended September 30, 2017 was 41.2% compared to our annual effective income tax rate for 2016 of 32.6%. The significant change in the effective tax rate for the third quarter of 2017 was due primarily to the non-deductible portion of the goodwill impairment charge recorded during the quarter. The entire income tax effect of this item was reflected in our income tax provision for the third quarter of 2017 and resulted in an increase in our third quarter 2017 effective tax rate of 7.1 points. Further information regarding the asset impairment charge can be found in Note 7.


Note 10: Postretirement benefits
NOTE 10: POSTRETIREMENT BENEFITS

We have historically provided certain health care benefits for a portionlarge number of our retired U.S. employees. In addition to our retiree health care plan, we also have a U.S. supplemental executive retirement plan in the United States.plan. Further information
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

regarding our postretirement benefit plans can be found under the caption “Note 12:14: Postretirement benefits” ofBenefits” in the Notes to Consolidated Financial Statements appearing in the 20162020 Form 10-K.

Postretirement benefit income for each periodis included in other income on the consolidated statements of comprehensive income (loss) and consisted of the following components:
Quarter Ended
March 31,
(in thousands)20212020
Interest cost$242 $478 
Expected return on plan assets(1,875)(1,905)
Amortization of prior service credit(355)(355)
Amortization of net actuarial losses407 575 
Net periodic benefit income$(1,581)$(1,207)

18
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
(in thousands) 2017 2016 2017 2016
Interest cost $724
 $780
 $2,172
 $2,339
Expected return on plan assets (1,782) (1,834) (5,346) (5,501)
Amortization of prior service credit (355) (355) (1,066) (1,066)
Amortization of net actuarial losses 909
 949
 2,728
 2,848
Net periodic benefit income $(504) $(460) $(1,512) $(1,380)
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

NOTE 11: DEBT

Note 11: Debt

Debt outstanding was comprisedconsisted of the following:
(in thousands) September 30,
2017		 December 31,
2016
Amount drawn on revolving credit facility $450,000
 $428,000
Amount outstanding under term loan facility 305,250
 330,000
Capital lease obligations 1,818
 1,685
Long-term debt, principal amount 757,068
 759,685
Less unamortized debt issuance costs (579) (927)
Less current portion of long-term debt (42,057) (35,952)
Long-term debt 714,432
 722,806
     
Current portion of amount drawn under term loan facility 41,250
 35,063
Current portion of capital lease obligations 807
 889
Long-term debt due within one year, principal amount 42,057
 35,952
Less unamortized debt issuance costs (91) (110)
Long-term debt due within one year 41,966
 35,842
Total debt $756,398
 $758,648


There are currently no limitationsamounts drawn on the amount of dividends and share repurchases under the terms of our credit agreement. However, if our leverage ratio, defined as total debt less unrestricted cash to EBITDA, should exceed 2.75 to one, there would be an annual limitation on the amount of dividends and share repurchases under the terms of this agreement.

As of September 30, 2017, we had a $525,000 revolving credit facility thatof $840,000 as of March 31, 2021 and December 31, 2020. As of March 31, 2021, the total availability under our revolving credit facility was $1,150,000. The facility includes an accordion feature allowing us, subject to lender consent, to increase the credit commitment to an aggregate amount not exceeding $1,425,000. The credit facility matures in February 2019.March 2023. Our quarterly commitment fee ranges from 0.20%0.175% to 0.40%0.35% based on our leverage ratio. As of September 30, 2017, $450,000 wasAmounts drawn on our revolvingunder the credit facility athad a weighted-average interest rate of 2.69%. As2.00% as of March 31, 2021 and 2.01% as of December 31, 2016, $428,000 was drawn on our revolving credit facility at a weighted-average2020. In July 2019, we executed an interest rate swap to convert $200,000 of 2.22%.

During 2016, we amended the credit agreement governing ouramount drawn under the credit facility to include a variablefixed rate term loan facilitydebt. Further information can be found in the aggregate amount of $330,000. We borrowed the full amount during the fourth quarter of 2016 using the proceeds to retire our senior notes due in 2020 and to partially fund the acquisition of FMCG Direct in December 2016. The term loan facility matures in February 2019 and requires periodic principal payments throughout the term of the loan. Interest is paid weekly and we may prepay the term loan facility in full or in part at our discretion. Amounts repaid may not be reborrowed. As of September 30, 2017, $305,250 was outstanding under the term loan facility at a weighted-average interest rate of 2.70%. As of December 31, 2016, $330,000 was outstanding under the term loan facility at a weighted-average interest rate of 2.27%.Note 6.
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Borrowings under the credit agreement are collateralized by substantially all of our personal and intangible property. The credit agreement governing our 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 and, as a condition to borrowing, requires that all such representations and warranties be true and correct in all material respects on the date of each borrowing, including representations as to no material adverse change in our business, assets, operations or financial covenants regardingcondition.

There are currently no limitations on the amount of dividends and share repurchases under the terms of our credit agreement. However, if our leverage ratio, interest coveragedefined as total debt less unrestricted cash to EBITDA, should exceed 2.75 to 1, there would be an annual limitation on the amount of dividends and liquidity.share repurchases.

Daily average amounts outstanding under our credit facility were as follows:
(in thousands)Quarter Ended March 31, 2021Year Ended
December 31, 2020
Daily average amount outstanding$840,165 $1,016,896 
Weighted-average interest rate
2.00 %2.12 %
(in thousands) Nine Months Ended
September 30,		 
Year Ended
December 31, 2016
Revolving credit facility:    
Daily average amount outstanding $441,894
 $417,219
Weighted-average interest rate 2.48% 1.93%
Term loan facility:    
Daily average amount outstanding $320,118
 $52,381
Weighted-average interest rate 2.51% 1.52%


As of September 30, 2017,March 31, 2021, 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 March 31, 2021$302,342 
(in thousands) 
Total
available
Revolving credit facility commitment $525,000
Amount drawn on revolving credit facility (450,000)
Outstanding letters of credit(1)
 (10,361)
Net available for borrowing as of September 30, 2017 $64,639


(1) We use standby letters of credit to collateralize certain obligations related primarily 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.

The aggregate debt maturities for our revolving line of credit and our term loan facility as of September 30, 2017 were as follows:
(in thousands) Debt maturities
Remainder of 2017 $10,313
2018 43,313
2019 701,624
Total $755,250


In addition to amounts outstanding under our credit facility, we had capital lease obligations of $1,818 as of September 30, 2017 and $1,685 as of December 31, 2016 related to information technology hardware. The lease obligations will be paid through June 2021. The related assets are included in property, plant and equipment in the consolidated balance sheets. Depreciation of the leased assets is included in depreciation expense in the consolidated statements of cash flows.


NOTE 12: OTHER COMMITMENTS AND CONTINGENCIES
Note 12:  Other commitments
Leases– During the third quarter of 2020, we executed a lease on a facility located in Minnesota with a term of 16 years. As this lease has not yet commenced, it was not reflected on the consolidated balance sheets as of March 31, 2021 or December 31, 2020. The total obligation under this lease is approximately $43,000, with approximately $4,000 due in 2022 - 2023, approximately $5,000 due in 2024 - 2025 and contingenciesthe remainder due through 2037.

Indemnifications – In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. These indemnificationsindemnification 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
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

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,
19
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
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.

Environmental matters – We are currently involved in environmental compliance, investigation and remediation activities at some of our current and former sites, primarily printing facilities of our Financial Services and Small Business Services segments that have been sold. Remediation costs are accrued on an undiscounted basis when the obligations are either known or considered probable and can be reasonably estimated. Remediation or testing costs that result directly from the sale of an asset and which we would These liabilities were not have otherwise incurred are considered direct costs of the sale of the asset. As such, they are included in our measurement of the carrying value of the asset sold.

Accruals for environmental matters were $2,717significant as of September 30, 2017 and $3,206 as of March 31, 2021 or December 31, 2016, primarily related to facilities that have been sold. These accruals are included in accrued liabilities and other non-current liabilities in the consolidated balance sheets. Accrued costs consist of direct costs of the remediation activities, primarily fees that will be paid to outside engineering and consulting firms. Although recorded accruals include our best estimates, our total costs cannot be predicted with certainty due to various factors such as the extent of corrective action that may be required, evolving environmental laws and regulations and advances in environmental technology. Where the available information is sufficient to estimate the amount of the liability, that estimate is used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range is recorded. We do not believe that the range of possible outcomes could have a material effect on our financial condition, results of operations or liquidity. Environmental expense was $195 for the nine months ended September 30, 2017. The consolidated statement of comprehensive income for the nine months ended September 30, 2016 included a benefit from environmental matters of $1,759, as we reversed a portion of the liability for one of our sold facilities. During the second quarter of 2016, we determined that it was no longer probable that a portion of the estimated environmental remediation costs for this location would be incurred.

2020.
We purchased an insurance policy during 2002 that covers up to
$10,000 of third-party pollution claims through 2032 at certain owned, leased and divested sites. We also purchased an insurance policy during 2009 that covers up to $15,000 of third-party pollution claims through April 2019 at certain other sites. These policies cover liability for claims of bodily injury or property damage arising from pollution events at the covered facilities, as well as remediation coverage should we be required by a governing authority to perform remediation activities at the covered sites. No accruals have been recorded in our consolidated financial statements for any of the events contemplated in these insurance policies. We do not anticipate significant net cash outlays for environmental matters during 2017.

Self-insurance – We are self-insured for certain costs, primarily workers' compensation claims and medical and dental benefits for active employees and those employees on long-term disability. The liabilities associated with these items represent our best estimate of the ultimate obligations for reported claims plus those incurred, but not reported, and totaled $7,480$8,383 as of September 30, 2017March 31, 2021 and $6,999$9,046 as of December 31, 2016.2020. These accruals are included in accrued liabilities and other non-current liabilities inon the consolidated balance sheets. Our workers' compensation liability is recorded at present value. The difference between the discounted and undiscounted liability was not significant as of September 30, 2017March 31, 2021 or December 31, 2016.2020.

Our self-insurance liabilities are estimated, in part, by considering historical claims experience, demographic factors and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future events and claims differ from these assumptions and historical trends.

Litigation – Recorded liabilities for legal matters, as well as related charges recorded in each period, were not material to our financial position, results of operations or liquidity during the nine months ended September 30, 2017 and 2016,periods presented, 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 forin the period in which the ruling occurs or in future periods.

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)


Note 13: Shareholders’ equity
NOTE 13: SHAREHOLDERS' EQUITY

During the nine months ended September 30, 2017, we repurchased a total of 709 thousand shares for $50,070. A portion of these repurchases were completed under an outstanding authorization fromIn October 2018, our board of directors to purchase up to 10 million shares of our common stock. As of December 31, 2016, 65 thousand shares remained available for purchase under this authorization and we completed the purchase of all of these remaining shares during the quarter ended March 31, 2017.

The remainder of the share repurchases completed during the nine months ended September 30, 2017 were completed under an additional authorization from our board of directors forauthorized the repurchase of up to $300,000$500,000 of our common stock, effective at the conclusion of the previous authorization.stock. This additional authorization has no expiration datedate. NaN shares were repurchased during the first quarter of 2021 and $254,656$287,452 remained available for purchaserepurchase under thisthe authorization as of September 30, 2017.March 31, 2021.


Note 14: Business segment information

NOTE 14: BUSINESS SEGMENT INFORMATION

We operate 34 reportable business segments: Small Business Services, Financial Services and Direct Checks. Our business segments, are generally organized by product type, of customer servedas follows:

•Payments – This segment includes our treasury management solutions, including remittance and reflect the way we manage the company. Small Business Services promoteslockbox processing, remote deposit capture, receivables management, payment processing and sells productspaperless treasury management, in addition to payroll and disbursement services, to small businesses via direct response mailincluding Deluxe Payment Exchange, and internet advertising; referrals from financial institutions, telecommunications clientsfraud and other partners; networks of Safeguard distributorssecurity services.

•Cloud Solutions – This segment includes web hosting and independent dealers; a direct sales force that focuses on selling todesign services, data-driven marketing solutions and through major accounts; and an outbound telemarketing group. Financial Services' products and services are sold primarily through a direct sales force, which executes product and service supply contracts with ourhosted solutions, including digital engagement, logo design, financial institution clients nationwide, including banks, credit unionsprofitability reporting and financial services companies. In the case of check supply contracts, once the financial institution relationship is established, consumers may submit their check orders through their financial institution or over the phone or internet. Direct Checks sells productsbusiness incorporation services.

•Promotional Solutions – This segment includes business forms, accessories, advertising specialties, promotional apparel, retail packaging and services directly to consumers using direct marketing, including print advertising and search engine marketing and optimization strategies. All 3 segments operate primarily in the United States. Small Business Services also has operations in Canada, Australia and portions of Europe.strategic sourcing services.

Our product and service offerings are comprised of the following:

•Checks – We remain one of the largest providers of checks in the United States. During 2016, checks represented 39.1% of our Small Business Services segment's revenue, 53.8% of our Financial Services segment's revenue and 84.1% of our Direct Checks segment's revenue.

Marketing solutions and other services – We offer products and services designed to meet our customers' sales and marketing needs, as well as various other service offerings. Our marketing products utilize digital printing and web-to-print solutions to provide promotional solutions such as postcards, brochures, retail packaging supplies, apparel, greeting cardsThis segment includes printed personal and business cards. Our web services offerings include logo and web design; hosting and other web services; search engine optimization; and marketing programs, including email, mobile and social media. We also offer fraud protection and security services, online and offline payroll services, and electronic checks ("eChecks"). Our Financial Services segment also offers a suite of financial technology ("FinTech") solutions. These solutions include data-driven marketing solutions, including outsourced marketing campaign targeting and execution; treasury management solutions; and digital engagement solutions, including loyalty and rewards programs.checks.

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

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

The accounting policies of the segments are the same as those described in the Notes to Consolidated Financial Statements included in the 20162020 Form 10-K. We allocate corporate costs for our shared services functions to our business
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

segments includingwhen the costs of our executive management,are directly attributable to a segment. This includes certain sales and marketing, human resources, supply chain, real estate, finance, information technology and legal functions. Generally, where costs incurred are directly attributable to a business segment, primarily within the areas of information technology, supply chain, finance and legal, those costs are charged directly tocosts. Costs that segment. Because we use a shared services approach for many of our functions, certain costs are not directly attributable to a business segment. These costssegment are allocated to our business segments based on segment revenue,reported as revenue is a measure of the relative size and magnitude of each segment and indicates the level of corporate shared services consumed by each segment. Corporate assets are not allocated to the segmentsoperations and consist primarily of property, plant and equipment; internal-use software; and inventories and supplies related to our corporate shared services functions of manufacturing,marketing, accounting, information technology, facilities, executive management and real estate,legal, tax and treasury costs that support the corporate function. Corporate operations also includes other income. All of our segments operate primarily in the U.S., with some operations in Canada. In addition, Cloud Solutions has operations in Australia and portions of Europe, as well as long-term investments.partners in Central and South America.

We areOur chief operating decision maker (i.e., our Chief Executive Officer) reviews earnings before interest, taxes, depreciation and amortization (EBITDA) on an integrated enterprise, characterized by substantial intersegment cooperation, cost allocationsadjusted basis for each segment when deciding how to allocate resources and the sharing of assets. Therefore, we do not represent that these segments, if operated independently, would report theto assess
20
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
segment operating performance. Adjusted EBITDA for each segment excludes depreciation and amortization expense, interest expense, income tax expense and certain other amounts, which may include, from time to time: asset impairment charges; restructuring, integration and other financialcosts; CEO transition costs; share-based compensation expense; acquisition transaction costs; certain legal-related expense; and gains or losses on sales of businesses and customer lists. Our Chief Executive Officer does not review segment asset information shown.

when making investment or operating decisions regarding our reportable business segments.
The following is our segment
Segment information as of and for the quarters ended September 30, 2017March 31, 2021 and 2020 was as follows:
2016:
Quarter Ended March 31,
(in thousands)20212020
Payments:
Revenue$79,438 $77,040 
Adjusted EBITDA18,329 18,023 
Cloud Solutions:
Revenue62,220 75,945 
Adjusted EBITDA17,209 14,920 
Promotional Solutions:
Revenue124,507 142,794 
Adjusted EBITDA17,714 11,197 
Checks:
Revenue175,099 190,644 
Adjusted EBITDA83,534 90,712 
Total segment:
Revenue$441,264 $486,423 
Adjusted EBITDA136,786 134,852 
    Reportable Business Segments    
(in thousands)   Small Business Services Financial Services Direct Checks Corporate Consolidated
Total revenue from external customers: 2017 $306,408
 $157,407
 $33,854
 $—
 $497,669
  2016 298,931
 123,033
 36,956
 —
 458,920
Operating income: 2017 13,213
 29,347
 11,296
 —
 53,856
  2016 50,670
 28,708
 12,914
 —
 92,292
Depreciation and amortization expense: 2017 14,502
 15,935
 809
 —
 31,246
  2016 13,315
 8,876
 868
 —
 23,059
Asset impairment charges: 2017 46,630
 —
 —
 —
 46,630
  2016 —
 —
 —
 —
 —
Total assets: 2017 1,051,076
 692,511
 159,526
 276,867
 2,179,980
  2016 1,075,661
 434,374
 160,624
 270,489
 1,941,148
Capital asset purchases: 2017 —
 —
 —
 11,563
 11,563
  2016 —
 —
 —
 10,031
 10,031
             
The following is our segment information as of and for the nine months ended September 30, 2017 and 2016:
             
    Reportable Business Segments    
(in thousands)   Small Business Services Financial Services Direct Checks Corporate Consolidated
Total revenue from external customers: 2017 $917,406
 $445,946
 $107,314
 $—
 $1,470,666

 2016 877,384
 374,511
 116,965
 —
 1,368,860
Operating income: 2017 120,633
 76,500
 35,555
 —
 232,688
  2016 150,776
 84,467
 40,640
 —
 275,883
Depreciation and amortization expense: 2017 42,158
 46,709
 2,430
 —
 91,297

 2016 38,195
 26,888
 2,628
 —
 67,711
Asset impairment charges: 2017 54,880
 —
 —
 —
 54,880
  2016 —
 —
 —
 —
 —
Total assets: 2017 1,051,076
 692,511
 159,526
 276,867
 2,179,980
  2016 1,075,661
 434,374
 160,624
 270,489
 1,941,148
Capital asset purchases: 2017 —
 —
 —
 34,351
 34,351
  2016 —
 —
 —
 32,215
 32,215

The following table presents a reconciliation of total segment adjusted EBITDA to consolidated income (loss) before income taxes:
Quarter Ended March 31,
(in thousands)20212020
Total segment adjusted EBITDA$136,786 $134,852 
Corporate operations(46,281)(51,518)
Depreciation and amortization expense(27,780)(28,430)
Interest expense(4,524)(6,999)
Net income attributable to non-controlling interest33 0 
Asset impairment charges0 (90,330)
Restructuring, integration and other costs(15,212)(19,633)
CEO transition costs0 180 
Share-based compensation expense(6,742)(3,618)
Acquisition transaction costs(2,765)(9)
Certain legal-related benefit0 2,164 
Income (loss) before income taxes$33,515 $(63,341)



DELUXE CORPORATION
21
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

The following tables present revenue disaggregated by our product and service offerings:
Quarter Ended March 31, 2021
(in thousands)PaymentsCloud SolutionsPromotional SolutionsChecksConsolidated
Checks$— $— $— $175,099 $175,099 
Forms and other products— — 71,781 — 71,781 
Treasury management solutions59,136 — — — 59,136 
Marketing and promotional solutions— — 52,726 — 52,726 
Data-driven marketing solutions— 33,646 — — 33,646 
Web and hosted solutions— 28,574 — — 28,574 
Other payments solutions20,302 — — — 20,302 
Total revenue$79,438 $62,220 $124,507 $175,099 $441,264 
Quarter Ended March 31, 2020
(in thousands)PaymentsCloud SolutionsPromotional SolutionsChecksConsolidated
Checks$— $— $— $190,644 $190,644 
Forms and other products— — 81,813 — 81,813 
Treasury management solutions56,867 — — — 56,867 
Marketing and promotional solutions— — 60,981 — 60,981 
Data-driven marketing solutions— 38,997 — — 38,997 
Web and hosted solutions— 36,948 — — 36,948 
Other payments solutions20,173 — — — 20,173 
Total revenue$77,040 $75,945 $142,794 $190,644 $486,423 
22
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following tables present revenue disaggregated by geography, based on where items are shipped from or where services are performed:

Quarter Ended March 31, 2021
(in thousands)PaymentsCloud SolutionsPromotional SolutionsChecksConsolidated
United States$68,484 $53,512 $119,148 $169,014 $410,158 
Foreign, primarily Canada and Australia10,954 8,708 5,359 6,085 31,106 
Total revenue$79,438 $62,220 $124,507 $175,099 $441,264 
Quarter Ended March 31, 2020
(in thousands)PaymentsCloud SolutionsPromotional SolutionsChecksConsolidated
United States$68,358 $68,070 $136,814 $184,294 $457,536 
Foreign, primarily Canada and Australia8,682 7,875 5,980 6,350 28,887 
Total revenue$77,040 $75,945 $142,794 $190,644 $486,423 


NOTE 15: RISKS AND UNCERTAINTIES

The impact on our business of the COVID-19 pandemic continues to evolve. As such, we are uncertain of the impact on our future financial condition, liquidity and/or results of operations. This uncertainty affected several of the assumptions made and estimates used in the preparation of these consolidated financial statements. As discussed in Note 7, the COVID-19 pandemic resulted in a goodwill impairment triggering event during the first quarter of 2020, as the adverse economic effects of the pandemic materially decreased demand for the products and services we provide to our customers. The extent to which the pandemic will continue to impact our business depends on future developments, including the severity and duration of the pandemic, the timing and effectiveness of vaccines, business and workforce disruptions and the ultimate number of businesses that fail. Our evaluation of asset impairment required us to make assumptions about these future events over the life of the assets being evaluated. This required significant judgment and actual results may differ significantly from our estimates. As a result of the continuing effects of COVID-19, we may be required to record additional goodwill or other asset impairment charges in the future.

We held loans and notes receivable from our Promotional Solutions distributors of $28,886 as of March 31, 2021. These distributors sell our products and services primarily to small businesses, which have been significantly impacted by the COVID-19 pandemic. As of March 31, 2021, our allowance for expected credit losses on these receivables was $3,361, although the majority of this amount was not driven by impacts of the pandemic. We utilized all information known to us in determining this allowance, as well as allowances related to our trade accounts receivable and unbilled receivables. If our assumptions prove to be incorrect, we may be required to record additional bad debt expense in the future. Additionally, uncertainty surrounding the impact of the COVID-19 outbreak could affect estimates we made regarding inventory obsolescence and workers' compensation liabilities and thus, could result in additional expense in the future.


NOTE 16: SUBSEQUENT EVENT

On April 21, 2021, we entered into an Agreement and Plan of Merger under which First American Payment Systems, L.P. (First American), will become our wholly-owned subsidiary. First American is a large-scale payments technology company that provides partners and merchants with comprehensive in-store, online and mobile payment solutions. The aggregate purchase price payable on the closing date is $960,000 in cash, subject to customary adjustments for cash, debt, net working capital, transaction expenses and certain tax benefits.

We expect the acquisition will close during the second quarter of 2021. The transaction is subject to customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. The shareholders of First American have approved the transaction and no further shareholder approvals are required. The merger agreement contains customary representations, warranties and covenants.
23
DELUXE CORPORATION
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
From the date of the merger agreement until the closing date, First American is, with limited exceptions, required to conduct its business in the ordinary course consistent with past practice and to comply with certain covenants regarding the operation of its business. The representations and warranties of the parties contained in the merger agreement will terminate and be of no further force and effect as of the closing date, except for those covenants that by their terms expressly apply in whole or in part after the closing of the transaction. We have obtained representation and warranty insurance to cover, subject to certain limitations, losses resulting from potential breaches of First American’s representations and warranties made in the merger agreement. Pursuant to the merger agreement, we are entitled to limited indemnification for certain expenses and losses, if any, that may be incurred after the consummation of the transaction that arise out of certain matters, including a Federal Trade Commission investigation initiated in December 2019 seeking information to determine whether certain subsidiaries of First American may have engaged in conduct prohibited by the Federal Trade Commission Act, the Fair Credit Reporting Act or the Duties of Furnishers of Information. As fully set forth in the merger agreement, our rights to indemnification for any such expenses and losses are limited to the amount of an indemnity holdback, which will be our sole recourse for any such losses.

We expect to finance the transaction with a combination of cash on hand and proceeds from new debt. In connection with the merger, we have obtained a $2,200,000 financing commitment from a group of lenders. During the quarter ended March 31, 2021, we recorded related acquisition transaction costs of $2,765, which are included in selling, general and administrative expense on the consolidated statement of comprehensive income. The results of operations for First American will be included in our Payments segment from the date of acquisition.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 2. 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 year.upcoming year;
•Consolidated Results of Operations,Operations; Restructuring, CostsIntegration and Other Costs; and Segment Results that includes a more detailed discussion of our revenue and expenses.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.position;
•Off-Balance Sheet Arrangements, Guarantees and Contractual Obligations that discusses our financial commitments.commitments; and
•Critical Accounting Policies that discusses the policies we believe are most important to understanding the assumptions and judgments underlying our financial statements.

You shouldPlease note that this MD&A discussion contains forward-looking statements that involve risks and uncertainties. Known material risks are discussed inPart I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162020 (the "20162020 Form 10-K")10-K) outlines known material risks and areimportant information to consider when evaluating our forward-looking statements and is incorporated into this Item 2 of this report on Form 10-Q as if fully stated herein. Although we have attempted to compile a comprehensive list of these important factors, we want to caution you that other factors may prove to be important in affecting future operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor or combination of factors may have on our business. You are further cautioned not to place undue reliance on those forward-looking statements because they speak only of our views as of the date the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. We are filing this cautionary statement in connection with the Reform Act. When we use the words or phrases “should result,” “believe,” “intend,” “plan,” “are expected to,” “targeted,” “will continue,” “will approximate,” “is anticipated,” “estimate,” “project,” “outlook,” "forecast" or similar expressions in this Quarterly Report on Form 10-Q, 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.


EXECUTIVE OVERVIEW

Checks – We remain one of the largest providers of checksThis MD&A includes financial information prepared in accordance with accounting principles generally accepted in the United States. During 2016, checks represented 39.1%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 Small Business Services segment's revenue, 53.8%non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Consolidated Results of our Financial Services segment's revenue and 84.1% of our Direct Checks segment's revenue.Operations.

Marketing solutions and other services
24

EXECUTIVE OVERVIEW

COVID-19 impact – We offer products and services designedThe COVID-19 pandemic began to meetimpact our customers' sales and marketing needs,operations late in the first quarter of 2020. Information regarding the impact in 2020, as well as various other service offerings. Our marketing products utilize digital printing and web-to-print solutions to provide promotional solutions such as postcards, brochures, retail packaging supplies, apparel, greeting cards and business cards. Our web services offerings include logo and web design; hosting and other web services; search engine optimization; and marketing programs, including email, mobile and social media. We also offer fraud protection and security services, online and offline payroll services, and electronic checks ("eChecks"). Our Financial Services segment also offers a suite of financial technology ("FinTech") solutions. These solutions include data-driven marketing solutions, including outsourced marketing campaign targeting and execution; treasury management solutions; and digital engagement solutions, including loyalty and rewards programs.

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


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

Throughout the past several years,actions we have focused on opportunities to increase revenue and operating income, while maintaining strong operating margins, despite the continuing declinetook in check and forms usage. These opportunities have included new product and service offerings, brand awareness and positioning initiatives, investing in technology for our service offerings, enhancing our information technology capabilities and infrastructure, improving customer segmentation, extending our sales channel reach, and reducing costs. In addition, we invested in various acquisitions that extend the range of products and services we offer to our customers, primarily marketing solutions and other services offerings. Information about our acquisitionsresponse, can be found under the captionscaption "Executive Overview" in Part II, Item 7 of the 2020 Form 10-K.

The impact of the pandemic continued in the first quarter of 2021 and was the main driver of the 9.3% decrease in revenue, as compared to the first quarter of 2020. Within Promotional Solutions, many of our business customers continued to be impacted by their customers' and governmental responses to the pandemic. Demand for promotional products has declined, as many of our customers reduced or stopped virtually all promotional activities while their business activities are limited. The decline in travel and event cancellations also has reduced promotional spending. In Checks, both business and personal check volumes declined as a result of the slowdown in the economy. The impact in Cloud Solutions was driven primarily by a decline in data-driven marketing solutions, as some clients suspended or reduced their marketing campaigns during this period of uncertainty. We did see some recovery in data-driven marketing revenue during the first quarter of 2021, with an increase of 11.3% as compared to the fourth quarter of 2020. This resulted, in part, from the continuation of low interest rates and an improving credit risk environment, which drove increased marketing efforts by our banking and mortgage lending customers.

Despite the continuing challenges of the pandemic, net income improved in the first quarter of 2021, as compared to the first quarter of 2020, and adjusted EBITDA margin was 20.5% for the first quarter of 2021, in line with our annual expectations prior to the pandemic. Cash provided by operating activities increased $13.1 million in the first quarter of 2021, as compared to the first quarter of 2020, and free cash flow increased $5.7 million. Total debt at the end of the quarter remained unchanged from the beginning of the year, and net debt as of March 31, 2021 was the lowest since June 30, 2018. We held cash and cash equivalents of $125.4 million as of March 31, 2021, and liquidity was $427.8 million. Our priority is to maintain our financial strength, while simultaneously continuing our business transformation. We are continuing important systems implementation work and capital projects, including our enterprise resource planning and sales technology implementations. We also continue to pay our regular quarterly dividend of $0.30 per share.

2021 results vs. 2020 – Numerous factors drove the increase in net income for the first quarter of 2021, as compared to the first quarter of 2020. The primary factor was a decrease in asset impairment charges of $90.3 million, as compared to 2020. Other factors that increased net income included:

•actions taken to reduce costs in line with reduced revenues and the continuing evaluation of our cost structure, including savings of approximately $2.8 million from the suspension of the 401(k) plan employer matching contribution implemented in response to the COVID-19 pandemic;

•a $7.7 million decrease in bad debt expense, primarily driven by allowances recorded in the first quarter of 2020 related to notes receivable from our Promotional Solutions distributors;

•revenue growth in certain business lines, including some recovery of data-driven marketing revenue and increased treasury management revenue; and

•a $4.4 million decrease in restructuring, integration and other costs.

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

•the continuing secular decline in checks and business forms and the 2020 decision to exit certain product lines within Cloud Solutions;

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

•a $3.1 million increase in share-based compensation expense; and

•acquisition transaction costs of $2.8 million in 2021.

Diluted EPS of $0.57 for the first quarter of 2021, as compared to diluted loss per share of $1.45 for the first quarter of 2020, reflects the increase in net income as described in the preceding paragraphs, partially offset by higher average shares outstanding in 2021. Adjusted diluted EPS for the first quarter of 2021 was $1.26, compared to $1.08 for the first quarter of 2020, and excludes the impact of non-cash items or items that we believe are not indicative of ongoing operations. The increase in adjusted EPS for the first quarter of 2021, as compared to the first quarter of 2020, was driven primarily by various cost savings actions across functional areas, as well as the lower bad debt expense and revenue growth in certain business lines. These increases were partially offset by the continuing secular decline in checks and business forms and the impact of the COVID-19
25

pandemic. A reconciliation of diluted earnings (loss) per share to adjusted diluted EPS can be found in Consolidated Results of Operations.

Asset impairment charges– Net loss for the first quarter of 2020 included pretax asset impairment charges of $90.3 million, or $1.81 per share. The impairment charges related primarily to the goodwill of our Promotional Solutions and Cloud Solutions Web Hosting reporting units, as well as amortizable intangibles of our Cloud Solutions Web Hosting reporting unit. Further information regarding these impairment charges can be found under the caption "Note 6: Acquisitions"7: Fair Value Measurements" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report and under the caption "Note 5: Acquisitions""Critical Accounting Policies" in Part II, Item 7 of the Notes to Consolidated Financial Statements appearing in the 20162020 Form 10-K. During the remainder of 2017, we plan to continue our focus in these areas, with an emphasis on profitable revenue growth and increasing the mix of marketing solutions and other services revenue. We also plan to continue to assess small-to-medium-sized acquisitions that complement our large customer bases, with a focus on marketing solutions and other services.

"One Deluxe" Strategy

A more detailed discussion of our business strategiesstrategy can be found under the caption "Business Segments" appearing in Part I, Item 1 of the 20162020 Form 10-K. We continue to be encouraged by the success to-date of our One Deluxe strategy. We have made significant progress in the integration of our various technology platforms, we have developed an enterprise-class sales organization, we have built a talented management team and we have strengthened our balance sheet. We have also built an organization focused on developing new and improved products. With all of these achievements, we determined that we are ready to augment our business through meaningful acquisitions.

Earnings forOn April 21, 2021, we entered into an Agreement and Plan of Merger under which First American Payment Systems, L.P. (First American), will become our wholly-owned subsidiary. First American is a large-scale payments technology company that provides partners and merchants with comprehensive in-store, online and mobile payment solutions. The aggregate purchase price payable on the first nine months of 2017, as compared to the first nine months of 2016, decreased due to pre-tax asset impairment charges of $54.9closing date is $960.0 million in 2017, volume reductionscash, subject to customary adjustments for personalcash, debt, net working capital, transaction expenses and business checks and forms due primarilycertain tax benefits. The transaction provides an end-to-end payments technology platform, which we believe will provide significant leverage to the continuing decline in check and forms usage, investments inaccelerate organic growth. First American generated revenue growth opportunities, and increased performance-based compensation, medical and legal costs, as well as higher material and delivery rates in 2017. These decreases in earnings were partially offset by the benefit of price increases, continuing initiatives to reduce our cost structure, primarily within our sales, marketing and fulfillment organizations, and aggregate gains of $8.7 million from the sale of businesses within Small Business Services.

Business Challenges/Market Risks

Our business, consolidated results of operations, financial condition and cash flows could be adversely affected by various risks and uncertainties. We have disclosed all known material risks in Item 1A of our 2016 Form 10-K, including discussion of the declining market for checks and business forms, competition, factors affecting our financial institution clients, data security risks, risks related to acquisitions and the impact of economic conditions. All of these factors could cause our actual results to differ materially from the statements we make from time to time regarding our expected future results, including, but not limited to, forecasts regarding estimated revenue, marketing solutions and other services revenue, earnings per share, cash provided by operating activities and expected cost savings. There were no significant changes in these factors during the first nine months of 2017.

Cost Reduction Initiatives

We anticipate that we will realize net cost reductions of approximately $45.0$290.0 million in 2017, as comparedduring 2020. We expect to our 2016 resultsfinance the transaction with a combination of operations, primarilycash on hand and proceeds from our sales, marketing and fulfillment organizations. Approximately 70% of these savings are expected to impact selling, general and administrative (SG&A) expense,new debt. In connection with the remaining 30% affecting costmerger, we have obtained a $2.2 billion financing commitment from a group of revenue. Further information regarding our cost reduction initiatives can be found in the MD&A section of the 2016 Form 10-K.

Outlook for 2017

We anticipate that consolidated revenue will be between $1.965 billion and $1.975 billion for 2017, compared to $1.849 billion for 2016. In Small Business Services, we expect revenue to increase approximately 4% compared to 2016 revenue of $1.196 billion. Volume declines in core business products and our strategic decision to eliminate certain low margin business are expected to be more than offset by growth in our online, dealer and major accounts channels, price increases, increased revenue from our marketing solutions and other services offerings and continued small-to-medium-sized tuck-in acquisitions. In Financial Services, we expect revenue to increase between 18% and 19% compared to 2016 revenue of $500.0 million.lenders. We expect increased revenue from marketing solutions and other services, including data-driven marketing solutions and treasury management solutions, as well as continued small-to-medium-sized tuck-in acquisitions. Our outlook includes incremental revenue from the acquisitions of FMCG Direct and Data Support Systems in the fourth quarter of 2016 and RDM Corporation inacquisition will close during the second quarter of 2017. We expect these revenue increases to2021, pending customary regulatory approvals and closing conditions. The results of operations for First American will be partially offset by year-over-year secular check order declines of approximately 5% and an expected loss of approximately $9.0 million in Deluxe Rewards revenue, driven by the loss of Verizon Communications Inc. as a customer, as well as pricing adjustments. We also expect some impact

from pricing pressureincluded in our check programs. In Direct Checks, we expect revenue to decline approximately 9% compared to 2016 revenuePayments segment from the date of $153.3 million, driven primarily by secular check order volume declines resulting from reduced check usage.

We expect that 2017 diluted earnings per share will be between $4.37 and $4.42, including charges of $0.88 per share related to the asset impairment charges, as well as restructuring costs andacquisition. Further information regarding this transaction costs related to acquisitions. This compares to $4.65 for 2016, which included total charges of $0.32 per share related to a loss on early debt extinguishment in the fourth quarter of 2016, as well as restructuring costs and transaction costs related to acquisitions. We expect that the benefits of additional cost reduction activities will be partially offset by the continuing decline in check and forms usage and continued investments in revenue growth opportunities, including brand awareness, marketing solutions and other services offers, and enhanced internet capabilities. We also expect material costs and delivery rates to increase. We estimate that our annual effective tax rate for 2017 will be approximately 32.5%, compared to 32.6% for 2016.

We anticipate that net cash provided by operating activities will be between $340.0 million and $345.0 million in 2017, compared to $319.3 million in 2016, driven by stronger operating performance and lower interest payments, partially offset by higher income tax and medical payments. We anticipate contract acquisition payments of approximately $26.0 million in 2017, and we estimate that capital spending will be approximately $45.0 million in 2017, as we continue to invest in key revenue growth initiatives and order fulfillment and information technology infrastructure.

We believe that cash generated by operating activities, along with availability under our revolving credit facility, will be sufficient to support our operations for the next 12 months, including dividend payments, capital expenditures, required debt principal and interest payments, and periodic share repurchases, as well as small-to-medium-sized acquisitions. We expect to maintain a disciplined approach to capital deployment that focuses on our need to continue investing in initiatives to drive revenue growth, including small-to-medium-sized acquisitions. We anticipate that our board of directors will maintain our current dividend level. However, dividends are approved by the board of directors on a quarterly basis, and thus are subject to change. As of September 30, 2017, $64.6 million was available for borrowing under our revolving credit facility. To the extent we generate excess cash, we plan to reduce the amount outstanding under our credit facility agreement.


CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands, except per order amounts) 2017 2016 Change 2017 2016 Change
Total revenue $497,669
 $458,920
 8.4% $1,470,666
 $1,368,860
 7.4%
Orders(1)
 12,595
 12,912
 (2.5%) 37,643
 39,173
 (3.9%)
Revenue per order $39.51
 $35.54
 11.2% $39.07
 $34.94
 11.8%

(1) Orders is our company-wide measure of volume and includes both products and services.
The increase in total revenue for the third quarter and first nine months of 2017, as compared to the same periods in 2016, was driven by incremental revenue from acquired businesses of approximately $51.8 million for the third quarter of 2017 and $136.4 million for the first nine months of 2017, as well as price increases in all of our segments. Information regarding our acquisitions can be found under the caption "Note 6: Acquisitions"16: Subsequent Event" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report and underreport.

Outlook for 2021

Our outlook for 2021 does not include the caption "Note 5: Acquisitions"impact of the NotesFirst American transaction, which we expect to Consolidated Financial Statements appearingclose during the second quarter of 2021. While the overall economic recovery in 2021 remains uncertain, we believe that we will generate sales-driven revenue growth during 2021 in the 2016 Form 10-K. These increasesrange of 0% to 2%, primarily driven by the combination of our sales performance and expected steady macroeconomic recovery from the COVID-19 pandemic. We expect 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 tax rate for 2021 will be approximately 25%.

As of March 31, 2021, we held cash and cash equivalents of $125.4 million and $302.3 million was available for borrowing under our revolving credit facility. 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 and debt service requirements for the next 12 months, including costs of the additional debt we expect to incur in conjunction with the merger with First American. We were in compliance with our debt covenants as of March 31, 2021, and we anticipate that we will remain in compliance with our debt covenants throughout the next 12 months.


CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue
 Quarter Ended March 31,
(in thousands)20212020Change
Total revenue$441,264 $486,423 (9.3%)

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The decrease in total revenue were partially offsetfor the first quarter of 2021, as compared to the first quarter of 2020, was driven primarily by lowervolume declines resulting from the impact of the COVID-19 pandemic, primarily in our Promotional Solutions, Cloud Solutions and Checks segments, as discussed in Executive Overview. Revenue also continued to be impacted by the secular decline in order volume for both personalchecks and business checks, as well as forms and accessories sold by Small Business Services.forms. In addition, Cloud Solutions web and hosted solutions revenue declined approximately $6.8 million in the first quarter of 2021 due to continued pricing allowances within Financial Services.our 2020 decision to exit certain product lines. Partially offsetting these revenue declines was an increase in Cloud Solutions data-driven marketing revenue, resulting in part, from the continuation of low interest rates and an improving credit risk environment, which drove increased marketing efforts by our banking and mortgage lending customers. In addition, Payments treasury management revenue increased 4.0% compared to the first quarter of 2020.


Service revenue represented 25.4%32.2% of total revenue for the first nine monthsquarter of 20172021 and 20.3%32.0% for the first nine monthsquarter of 2016. As such, the majority of our revenue is generated by product sales.2020. We do not manage our business based on product versus service revenue. Instead, we analyze our products and servicesrevenue based on the following categories:
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
  2017 2016 2017 2016
Checks 42.4% 46.9% 43.9% 47.8%
Marketing solutions and other services 40.2% 33.5% 37.9% 32.5%
Forms 10.4% 11.8% 10.8% 11.6%
Accessories and other products 7.0% 7.8% 7.4% 8.1%
Total revenue 100.0% 100.0% 100.0% 100.0%

The number of orders decreased for the third quarter and first nine months of 2017, as compared to the same periods in 2016, driven by the impact of the continuing decline in check and forms usage, partially offset by growth in marketing solutions and other services, including the impact of acquisitions. Revenue per order increased for the third quarter and first nine months of 2017, as compared to the same periods in 2016, primarily due to the benefit of price increases and favorable product and service offerings shown under the caption: "Note 14: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Our revenue mix partially offset by the impact of Financial Services continued pricing allowances.business segment was as follows:
 Quarter Ended
March 31,
20212020
Payments18.0 %15.8 %
Cloud Solutions14.1 %15.6 %
Promotional Solutions28.2 %29.4 %
Checks39.7 %39.2 %
Total revenue100.0 %100.0 %

Consolidated Cost of Revenue
 Quarter Ended March 31,
(in thousands)20212020Change
Total cost of revenue$178,509 $202,049 (11.7%)
Total cost of revenue as a percentage of total revenue40.5 %41.5 %(1.0) pts.
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Total cost of revenue $192,917
 $166,270
 16.0% $551,290
 $490,407
 12.4%
Total cost of revenue as a percentage of total revenue 38.8% 36.2% 2.6 pts. 37.5% 35.8% 1.7 pts.

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 ourdigital service offerings, and related overhead.

The increasedecrease in total cost of revenue for the thirdfirst quarter and first nine months of 2017,2021, as compared to the same periods in 2016,first quarter of 2020, was primarily attributable to the increasedecrease in revenue including incremental costs of acquired businesses of approximately $31.4 million forvolume resulting from the third quarter of 2017 and $80.0 million for the first nine months of 2017.COVID-19 impact. In addition, delivery rates and material costs increased in 2017, and results for the first nine months of 2016 included a benefit of $2.1 million related to an adjustment to our environmental remediation liabilities. Partially offsetting these increases in total cost of revenue was the impact of lower order volume for both personal and business checks, as well as forms and accessories sold by Small Business Services, and favorable product mix. In addition, total cost of revenue decreased dueas a result of the continued secular decline in checks and business forms, as well as the decline in Cloud Solutions web and hosted solutions revenue driven by the 2020 decision to manufacturingexit certain product lines. Total cost of revenue also benefited from cost reductions and efficiencies and other benefits resulting fromin our continuedfulfillment area. Total cost reduction initiatives of approximately $3.0 million forrevenue as a percentage of total revenue decreased in the thirdfirst quarter of 2017 and $9.0 million for2021, as compared to the first nine monthsquarter of 2017.2020, due in large part, to the change in revenue mix driven by the COVID-19 impact and the 2020 decision to exit certain Cloud Solutions product lines.

Consolidated Selling, General & Administrative (SG&A) Expense
 Quarter Ended March 31,
(in thousands)20212020Change
SG&A expense$212,436 $237,204 (10.4%)
SG&A expense as a percentage of total revenue48.1 %48.8 %(0.7) pts.
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
SG&A expense $202,999
 $198,365
 2.3% $628,100
 $598,563
 4.9%
SG&A expense as a percentage of total revenue 40.8% 43.2% (2.4) pts. 42.7% 43.7% (1.0) pts.

The increase in SG&A expense for the third quarter of 2017, as compared to the third quarter of 2016, was driven primarily by incremental costs of acquired businesses of approximately $15.5 million, as well as investments in various revenue growth opportunities, including increased spending on brand awareness initiatives, as well as an increase in performance-based compensation of approximately $1.3 million and increased medical costs in 2017. These increases were partially offset by various expense reduction initiatives of approximately $9.0 million, primarily within our sales and marketing organizations, and a $1.9 million gain from the sale of businesses within our Small Business Services segment. Further information regarding the business sales can be found in the discussion of assets held for sale under the caption "Note 3:

Supplemental balance sheet information" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

The increasedecrease in SG&A expense for the first nine monthsquarter of 2017,2021, as compared to the first nine monthsquarter of 2016,2020, was primarily driven by various cost reduction actions and internal value realization initiatives, including advertising expense reductions and other efficiencies in sales, marketing and our corporate support functions. In addition, bad debt expense decreased $7.7 million, primarily by incremental operatingdue to allowances recorded in the first quarter of 2020 related to notes receivable from our Promotional Solutions distributors. Also, we incurred lower customer referral expenses on the lower order volume resulting from the impact of acquired businessesthe COVID-19 pandemic, and SG&A expense decreased approximately $2.8 million from the suspension of approximately $49.9the 401(k) plan employer
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matching contribution implemented in response to the COVID-19 pandemic. Partially offsetting these decreases in SG&A expense were $2.8 million as well as investmentsof acquisition transaction costs in various revenue growth opportunities, including higher financial institution commission rates, as well as anthe first quarter of 2021, a $2.7 million increase in performance-basedshare-based compensation expense and a legal-related benefit of approximately $2.5 million. In addition, Financial Services incurred legal settlement and expenses of $2.5$2.2 million in the first quarter of 20172020. Total SG&A expense as a percentage of revenue decreased for the first quarter of 2021, as compared to the first quarter of 2020, as the benefit of cost reductions and medical costs increasedthe decrease in 2017. These increases were partiallybad debt expense more than offset by various expense reductionthe impact of the revenue decline.

Restructuring and Integration Expense
 Quarter Ended March 31,
(in thousands)20212020Change
Restructuring and integration expense$14,313 $17,654 $(3,341)

We are currently pursuing several initiatives of approximately $24.0 million, primarily withindesigned to focus our salesbusiness behind our growth strategy and marketing organizations, and an $8.7 million gain from the sale of businesses withinto increase our Small Business Services segment.efficiency. Further information regarding the business sales can be found in the discussion of assets held for sale under the caption "Note 3: Supplemental balance sheet information" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

Net Restructuring Charges
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Net restructuring charges $1,267
 $1,993
 $(726) $3,708
 $4,007
 $(299)

We recorded net restructuring charges related to the cost reduction initiatives discussed under ExecutiveOverview. The net charges for each period related primarily tothese costs of our restructuring activities such as employee severance benefits, information technology costs, employee and equipment moves, training and travel. Further information can be found under Restructuring, Integration and Other Costs.

Asset Impairment Charges
 Quarter Ended March 31,
(in thousands)20212020Change
Asset impairment charges$— $90,330 $(90,330)
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Asset impairment charges $46,630
 $—
 $46,630
 $54,880
 $—
 $54,880


We did not record any asset impairment charges during the first quarter of 2021. During the thirdfirst quarter of 2017,2020, we recorded pre-tax asset impairment charges of $46.6$90.3 million, within Small Business Services related primarily to the goodwill the discontinued NEBS trade nameof our Promotional Solutions and other non-current assets, primarily internal-use software.Cloud Solutions Web Hosting reporting units and amortizable intangibles of our Cloud Solutions Web Hosting reporting unit. Further information regarding these charges can be found under the caption "Note 7: Fair value measurements"Value Measurements" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Duringreport and under the nine months ended September 30, 2017, we also recorded pre-tax assetcaption "Critical Accounting Policies" in Part II, Item 7 of the 2020 Form 10-K.

Interest Expense
 Quarter Ended March 31,
(in thousands)20212020Change
Interest expense$4,524 $6,999 (35.4%)
Weighted-average debt outstanding840,165 923,423 (9.0%)
Weighted-average interest rate2.0 %2.8 %(0.8) pts.

The decrease in interest expense for the first quarter of 2021, as compared to the first quarter of 2020, was primarily driven by our lower weighted-average interest rate, as well as the lower average debt outstanding in 2021.

Income Tax Provision (Benefit)
 Quarter Ended March 31,
(in thousands)20212020Change
Income tax provision (benefit)$9,190 $(3,210)386.3%
Effective income tax rate27.4 %5.1 %22.3 pts.

The increase in our effective tax rate for the first quarter of 2021, as compared to the first quarter of 2020, was driven primarily by the impact of the nondeductible portion of the goodwill impairment charges of $8.3 million related to a small business distributor that was sold duringin the secondfirst quarter of 2017.2020, which lowered our 2020 effective income tax rate by 18.8 points. In addition, the tax impact of share-based compensation resulted in a 3.0 point increase in our effective income tax rate, as compared to the first quarter of 2020. Further information regarding these chargesour effective income tax rate for the first quarter of 2021, as compared to our 2020 annual effective income tax rate, can be found in the discussion of assets held for sale under the captioncaption: "Note 3: Supplemental balance sheet information" of9: Income Tax Provision (Benefit)" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Interest Expense
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  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Interest expense $5,708
 $4,855
 17.6% $15,795
 $15,281
 3.4%
Weighted-average debt outstanding 759,084
 613,244
 23.8% 763,802
 618,644
 23.5%
Weighted-average interest rate 2.7% 3.0% (0.3) pts. 2.5% 3.0% (0.5) pts.
Net Income (Loss) / Diluted Earnings (Loss) Per Share

 Quarter Ended March 31,
20212020Change
Net income (loss)$24,325 $(60,131)140.5%
Diluted earnings (loss) per share0.57 (1.45)139.3%
Adjusted diluted EPS(1)
1.26 1.08 16.7%

(1) See the following Reconciliation of Non-GAAP Financial Measures section, which illustrates how we calculate adjusted diluted EPS.

The increaseincreases in interest expense for the third quarternet income, diluted EPS and first nine months of 2017, as compared to the same periods in 2016, was primarily driven by our higher weighted-average debt level during 2017, partially offset by the lower weighted-average interest rate. The reduction in our weighted-average interest rate for both periods resulted from the fourth quarter 2016 retirement of long-term notes that carried a higher interest rate.


Income Tax Provision
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Income tax provision $20,146
 $29,516
 (31.7%) $73,551
 $86,783
 (15.2%)
Effective income tax rate 41.2% 33.5% 7.7  pts. 33.6% 33.1% 0.5  pts.

The increase in our effective tax rate for the third quarter of 2017, as compared to the third quarter of 2016, was due primarily to the non-deductible portion of the goodwill impairment charge recorded during the quarter. The entire income tax effect of this item was reflected in our income tax provision for the third quarter of 2017 and resulted in an increase in our third quarter 2017 effective tax rate of 7.1 points. In addition, our 2017 tax rate increased due to a number of minor items.

The increase in our effective tax rateadjusted diluted EPS for the first nine monthsquarter of 2017,2021, as compared to the first nine monthsquarter of 2016,2020, were driven primarily by the factors outlined in Executive Overview - 2021 results vs. 2020.

Adjusted EBITDA
Quarter Ended March 31,
(in thousands)20212020Change
Adjusted EBITDA(1)
$90,505 $83,334 8.6%
Adjusted EBITDA margin20.5 %17.1 %3.4 pts.

(1) See the following Reconciliation of Non-GAAP Financial Measures section, which illustrates how we calculate adjusted EBITDA.

The increase in adjusted EBITDA for the first quarter of 2021, as compared to the first quarter of 2020, was also duedriven primarily by various cost reduction actions and internal value realization initiatives, including advertising expense reductions and other efficiencies in sales, marketing and our corporate support functions. In addition, bad debt expense decreased $7.7 million in the first quarter of 2021, primarily driven by allowances recorded in the first quarter of 2020 related to notes receivable from our Promotional Solutions distributors, and revenue grew in certain business lines, including some recovery of data-driven marketing revenue and increased treasury management revenue. Partially offsetting these increases in adjusted EBITDA were the continuing secular decline in checks and business forms, the impact of the thirdCOVID-19 pandemic on revenue volumes and the loss of Cloud Solutions web and hosted services revenue resulting from our 2020 decision to exit certain product lines. Adjusted EBITDA margin increased for the first quarter goodwillof 2021, as compared to the first quarter of 2020, as the impact of cost reductions and reduced bad debt expense exceeded the impact of the revenue volume decline.

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 charge, which increasedcharges, 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 define free cash flow as net cash provided by operating activities less purchases of capital assets. 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 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:
 Quarter Ended
March 31,
(in thousands)20212020
Net cash provided by operating activities$39,581 $26,468 
Purchases of capital assets(21,670)(14,269)
Free cash flow$17,911 $12,199 

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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. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.
(in thousands)March 31, 2021December 31, 2020
Total debt$840,000 $840,000 
Cash and cash equivalents(125,440)(123,122)
Net debt$714,560 $716,878 

Liquidity – We define liquidity as cash and cash equivalents plus the amount available for borrowing under our revolving credit facility. We consider liquidity to be an important metric for demonstrating the amount of cash that is available or that could be 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)March 31, 2021December 31, 2020
Cash and cash equivalents$125,440 $123,122 
Amount available for borrowing under revolving credit facility302,342 302,342 
Liquidity$427,782 $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:
 Quarter Ended
March 31,
(in thousands)20212020
Net income (loss)$24,325 $(60,131)
Net income attributable to non-controlling interest(33)— 
Net income (loss) attributable to Deluxe24,292 (60,131)
Asset impairment charges— 90,330 
Acquisition amortization13,193 14,724 
Restructuring, integration and other costs15,212 19,633 
CEO transition costs— (180)
Share-based compensation expense6,742 3,618 
Acquisition transaction costs2,765 9 
Certain legal-related benefit— (2,164)
Adjustments, pre-tax37,912 125,970 
Income tax provision impact of pre-tax adjustments(1)
(8,456)(19,175)
Adjustments, net of tax29,456 106,795 
Adjusted net income attributable to Deluxe53,748 46,664 
Income allocated to participating securities(41)(77)
Re-measurement of share-based awards classified as liabilities— (788)
Adjusted income attributable to Deluxe available to common shareholders$53,707 $45,799 
Weighted average shares and potential common shares outstanding42,504 42,065 
Adjustment(2)
(32)155 
Adjusted weighted average shares and potential common shares outstanding42,472 42,220 
GAAP diluted earnings (loss) per share$0.57 $(1.45)
Adjustments, net of tax0.69 2.53 
Adjusted diluted EPS$1.26 $1.08 

(1) The tax effect of the pre-tax 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 first nine months of 2017 by 1.1 points. Partially offsetting this increase in our effective tax rate was the favorable impact of thecertain adjustments, such as asset impairment charges recorded duringand share-based compensation expense, depends on whether the first six monthsamounts are deductible in the respective tax jurisdictions and the applicable effective tax rate(s) in those jurisdictions.
(2) The total of 2017weighted-average shares and potential common shares outstanding used in the calculations of adjusted diluted EPS differs from the GAAP calculations, due to differences in the amount of dilutive securities in each calculation.

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:
Quarter Ended
March 31,
(in thousands)20212020
Net income (loss)$24,325 $(60,131)
Pre-tax income attributable to non-controlling interest(33)— 
Depreciation and amortization expense27,780 28,430 
Interest expense4,524 6,999 
Income tax provision (benefit)9,190 (3,210)
Asset impairment charges— 90,330 
Restructuring, integration and other costs15,212 19,633 
CEO transition costs— (180)
Share-based compensation expense6,742 3,618 
Acquisition transaction costs2,765 9 
Certain legal-related benefit— (2,164)
Adjusted EBITDA$90,505 $83,334 


RESTRUCTURING, INTEGRATION AND OTHER COSTS

Restructuring and integration expense consists of costs related to a small business distributor that was sold during the second quarterconsolidation and migration of 2017. These impairment charges reduced the book basis of the assets relative tocertain applications and processes, including our tax basis in the stock of the small business distributor. In addition, tax benefitsfinancial and sales management systems. It also includes costs related to stock-based compensation were $3.3 million for the first nine monthsintegration of 2017, compared to $1.7 million for the first nine monthsacquired businesses into our systems and processes. These costs primarily consist of 2016. We expect that our annual effective tax rate for 2017 will be approximately 32.5%.


RESTRUCTURING COSTS

We have recorded expenses related to our restructuring activities, including accruals consisting primarily of employee severance benefits,information technology consulting, project management services and internal labor, as well as other costs that are expensed when incurred, including information technologyassociated with our initiatives, such as training, travel and relocation and costs associated with facility closures. In addition, we recorded employee and equipment moves, training and travel. Our restructuring activities are driven byseverance costs related to these initiatives, as well as our ongoing cost reduction initiatives across functional areas. Further information regarding restructuring and include employee reductionsintegration expense can be found under the caption "Note 8: Restructuring and Integration Expense" in various functional areas, as well as the closingCondensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of facilities. During 2017,this report. In addition to restructuring and integration expense, we closed a facility housing general office space andalso recognized certain business transformation costs during 2016, we closed a printing facility, a call center, 2 warehouses and a facility housing general office space. Restructuring costs have been reduced by the reversal of severance accruals when fewer employees receive severance benefits than originally estimated.2020 related to optimizing our business processes in line with our growth strategies.

Net restructuring charges for each period were as follows:
  Quarter Ended
September 30,		 Nine Months Ended
September 30,
(in thousands, except number of employees) 2017 2016 2017 2016
Severance accruals $1,248
 $1,824
 $3,596
 $3,870
Severance reversals (78) (198) (596) (666)
Operating lease obligations —
 —
 23
 —
Net restructuring accruals 1,170
 1,626
 3,023
 3,204
Other costs 72
 432
 669
 939
Net restructuring charges $1,242
 $2,058
 $3,692
 $4,143
Number of employees included in severance accruals 30
 55
 80
 120

The majority of the employee reductions included in our restructuring and integration accruals as of March 31, 2021 are expected to be completed in 2017,the second quarter of 2021, and we expect most of the related severance payments to be paid by mid-2018, utilizing cash from operations.

mid-2021. As a result of our employee reductions, and facility closings, we expect to realize cost savings of approximately $2.0$35.0 million in SG&A expense and $1.0 million in total cost of revenue and $15.0 million in SG&A expense in 2017,2021, in comparison to our 20162020 results of operations, which represents a portion of the estimated $45.0 million of total net cost reductions we expect to realize in 2017. Expense reductions consist primarily of labor costs. Information about2021.


SEGMENT RESULTS

We operate 4 reportable segments: Payments, Cloud Solutions, Promotional Solutions and Checks. These segments are generally organized by product type and reflect the other initiatives drivingway we currently manage the company. The financial information presented below for our cost savings can be found in the MD&A section of the 2016 Form 10-K.

Further information regarding our restructuring charges can be foundreportable business segments is consistent with that presented under the caption “Note 8: Restructuring charges” of"Note 14: Business Segment Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

SEGMENT RESULTS

Additional financialreport, where information regarding revenue from our business segments appears under the caption “Note 14: Business segment information” of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.various product and service offerings can also be found.

Small Business Services
32


Payments
This segment's products and services are promoted through direct response mail and internet advertising; referrals from financial institutions, telecommunications clients and other partners; networks of Safeguard distributors and independent dealers; a direct sales force that focuses on selling to and through major accounts; and an outbound telemarketing group.
Results for thisour Payments segment were as follows:
 Quarter Ended March 31,
(in thousands)20212020Change
Total revenue$79,438 $77,040 3.1%
Adjusted EBITDA18,329 18,023 1.7%
Adjusted EBITDA margin23.1 %23.4 %(0.3) pts.
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Total revenue $306,408
 $298,931
 2.5% $917,406
 $877,384
 4.6%
Operating income 13,213
 50,670
 (73.9%) 120,633
 150,776
 (20.0%)
Operating margin 4.3% 17.0% (12.7) pts. 13.1% 17.2% (4.1) pts.

The increase in total revenue for the third quarter and first nine months of 2017, as compared to the same periods in 2016, was driven by incremental revenue from acquired businesses of approximately $12.7 million for the third quarter of 2017 and $47.7 million for the first nine months of 2017, as well as the benefit of price increases. Information about our acquisitions can be found under the caption “Note 6: Acquisitions” of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report and under the caption "Note 5: Acquisitions" of the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. These increases in revenue were partially offset by lower order volume, primarily related to checks, forms and accessories, as check and forms usage continues to decline, as well as the strategic decision to eliminate low margin business.

The decrease in operating income for the third quarter of 2017, as compared to the third quarter of 2016, was primarily due to pre-tax asset impairment charges of $46.6 million related to goodwill, the discontinued NEBS trade name and other non-current assets, primarily internal-use software. These charges reduced operating margin 15.2 points for the third quarter of 2017. Further information regarding these charges can be found under the caption "Note 7: Fair value measurements" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. In addition, operating income was impacted by the lower order volume for checks, forms and accessories; investments in various revenue growth opportunities, including increased spending on brand awareness initiatives; and higher performance-based compensation, medical costs and material and delivery rates. Partially offsetting these decreases in operating income were price increases and benefits of our cost reduction initiatives, as well as a $1.9 million gain from the sale of businesses in 2017. The results of acquired businesses resulted in a slight increase in operating income for the third quarter of 2017, including acquisition-related amortization, but resulted in a 0.7 point decrease in operating margin for the third quarter of 2017.

The decrease in operating income for the first nine months of 2017,2021, as compared to the first nine monthsquarter of 2016,2020, was driven by an increase in treasury management revenue of 4.0%, primarily duedriven by receivables management revenue. This segment continues to pre-tax asset impairment chargesdemonstrate growth, as revenue increased 1.8% over the fourth quarter of $54.9 million related to goodwill,2020. We expect continued growth in this segment in 2021, as we work on implementing the discontinued NEBS trade name, a small business distributor that was soldnew clients we signed during 2020 and during the secondfirst quarter of 2017, and other non-current assets, primarily internal-use software. These charges reduced operating margin 6.0 points for the first nine months of 2017. Further information regarding these charges can be found under the caption "Note 7: Fair value measurements" of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. In addition, operating income was impacted by lower order volume for checks, forms and accessories; investments in various revenue growth opportunities, including higher financial institution commission rates; higher performance-based compensation, medical costs and material and delivery rates; and a $1.4 million benefit in 2016 related to an adjustment to our environmental remediation liabilities. Partially offsetting these decreases in operating income were price increases and benefits of our cost reduction initiatives, as well as an $8.7 million gain from the sale of businesses in 2017. The results of acquired businesses resulted in a slight increase in operating income for the first nine months of 2017, including acquisition-related amortization, but resulted in a 1.0 point decrease in operating margin for the first nine months of 2017.2021.


Financial Services

Financial Services' products and services are sold primarily through a direct sales force, which executes product and service supply contracts with our financial institution clients nationwide, including banks, credit unions and financial services companies. In the case of check supply contracts, once the financial institution relationship is established, consumers may submit their check orders through their financial institution or over the phone or internet. Results for this segment were as follows:
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Total revenue $157,407
 $123,033
 27.9% $445,946
 $374,511
 19.1%
Operating income 29,347
 28,708
 2.2% 76,500
 84,467
 (9.4%)
Operating margin 18.6% 23.3% (4.7) pts. 17.2% 22.6% (5.4) pts.

The increase in revenue for the third quarter and first nine months of 2017, as compared to the same periods in 2016, was driven by growth in marketing solutions and other services of approximately $38.0 million for the third quarter of 2017 and $85.8 millionadjusted EBITDA for the first nine months of 2017, including incremental revenue from acquired businesses of approximately $39.1 million for the third quarter of 2017 and $88.7 million for the first nine months of 2017. These increases in marketing solutions and other services revenue were partially offset by a decrease in Deluxe Rewards revenue of approximately $2.0 million for the third quarter of 2017 and $5.0 million for the first nine months of 2017 driven primarily by the loss of Verizon Communications Inc. as a customer, as well as pricing adjustments. Further information about our acquisitions can be found under the caption “Note 6: Acquisitions” of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report and under the caption "Note 5: Acquisitions" of the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. In addition, revenue benefited from price increases. Partially offsetting these revenue increases was lower check order volume due to the continued decline in check usage, as well as the impact of continued pricing allowances.

The increase in operating income for the third quarter of 2017, as compared to the third quarter of 2016, was primarily due to the impact of price increases and the benefit of our continuing cost reduction initiatives. Partially offsetting these increases in operating income were lower check order volume; continued pricing allowances; the decline in Deluxe Rewards revenue; and higher performance-based compensation, medical costs and material and delivery rates. While the impact of acquired businesses was positive to operating income for the third quarter of 2017, including acquisition-related amortization, operating margin decreased 2.7 points for 2017 due to acquired businesses.

The decrease in operating income for the first nine months of 2017,2021, as compared to the first nine monthsquarter of 2016,2020, was primarily duedriven by the revenue increase, partially offset by costs associated with moving work from our Texas location during the winter storms in February 2021 and the mix of hardware sales. Adjusted EBITDA margin decreased for the first quarter of 2021, as compared to the first quarter of 2020, as the cost increases exceeded the benefit of the revenue increase. As we continue to invest in this business, we expect adjusted EBITDA margins to be in the low 20% range through the remainder of the year.

Cloud Solutions

Results for our Cloud Solutions segment were as follows:
 Quarter Ended March 31,
(in thousands)20212020Change
Total revenue$62,220 $75,945 (18.1%)
Adjusted EBITDA17,209 14,920 15.3%
Adjusted EBITDA margin27.7 %19.6 %8.1 pts.

The decrease in total revenue for the first quarter of 2021, as compared to the first quarter of 2020, was driven by the impact of the COVID-19 pandemic, primarily in data-driven marketing solutions, as some clients suspended or reduced their marketing campaigns. Data-driven marketing revenue increased 11.3% from the fourth quarter of 2020, as our customers slowly reactivated their marketing campaigns and the continuation of low interest rates and an improving credit risk environment drove increased marketing efforts by our banking and mortgage lending customers. Web and hosted solutions revenue decreased $8.4 million for the first quarter of 2021, as compared to the first quarter of 2020, $6.8 million of which was due to our 2020 decision to exit certain product lines.

Adjusted EBITDA and adjusted EBITDA margin for the first quarter of 2021 increased compared to the first quarter of 2020, despite the revenue decline, due to various cost reduction actions to bring expenses in line with our post-COVID-19 operating model. In addition, adjusted EBITDA benefited from the timing and type of customer marketing campaigns in each period, as well as lower check order volume; continued pricing allowances; higher performance-based compensation, medicalinformation technology costs and delivery and material rates in 2017; legal settlement and expenses of $2.5 million in the first quarter of 2017;2021. We expect the declineloss of revenue resulting from our 2020 decision to exit certain product lines will continue to impact this segment in Deluxe Rewards revenue; and an increase of $1.4 million in transaction costs related to acquisitions. Partially offsetting these decreases in operating income were price increases and the benefit of our continuing cost reduction initiatives. While the impact of acquired businesses was positive to operating income2021, but we anticipate that adjusted EBITDA margin for the first nine months of 2017, including acquisition-related amortization, operating margin decreased 2.7 points foryear will be in the first nine months of 2017 due to acquired businesses.low-to-mid 20% range.

Direct ChecksPromotional Solutions

Direct Checks sells products and services directly to consumers using direct marketing, including print advertising and search engine marketing and optimization strategies. Direct Checks sells under various brand names, including Checks Unlimited®, Designer Checks®, Checks.com, Check Gallery®, The Styles Check Company®, and Artistic Checks®, among others. Results for thisour Promotional Solutions segment were as follows:
 Quarter Ended March 31,
(in thousands)20212020Change
Total revenue$124,507 $142,794 (12.8%)
Adjusted EBITDA17,714 11,197 58.2%
Adjusted EBITDA margin14.2 %7.8 %6.4 pts.
  Quarter Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 Change 2017 2016 Change
Total revenue $33,854
 $36,956
 (8.4%) $107,314
 $116,965
 (8.3%)
Operating income 11,296
 12,914
 (12.5%) 35,555
 40,640
 (12.5%)
Operating margin 33.4% 34.9% (1.5) pts. 33.1% 34.7% (1.6) pts.

The decrease in total revenue for the thirdfirst quarter and first nine months of 2017,2021, as compared to the same periodsfirst quarter of 2020, continued to be driven primarily by the impact of the COVID-19 pandemic, as our small business and enterprise customers continued to conservatively react to the current economic environment, resulting in 2016, was primarily due to a reduction in orders stemming from the continueddecreased demand for marketing and promotional products. The
33

continuing secular decline in check usage. Forbusiness forms and some accessories also negatively impacted revenue. The year-over-year change in revenue improved in the first nine monthsquarter of 2021, as compared to the fourth quarter of 2020, when revenue declined 16.6% as compared to the prior year.


2017,Adjusted EBITDA and adjusted EBITDA margin for the volumefirst quarter of 2021 increased compared to the first quarter of 2020, despite the revenue decline was partially offsetand a $1.9 million increase in obsolete inventory expense. The increases were driven primarily by higher revenue per order, driven by price increasesthe benefit of various cost reduction actions and various sales initiatives.internal value realization initiatives, as well as lower bad debt expense related to notes receivable from distributors. We are anticipating adjusted EBITDA margins throughout 2021 in the low-to-mid teens, as a result of our cost reduction actions, including changes in key distribution relationships.

Checks

Results for our Checks segment were as follows:
 Quarter Ended March 31,
(in thousands)20212020Change
Total revenue$175,099 $190,644 (8.2%)
Adjusted EBITDA83,534 90,712 (7.9%)
Adjusted EBITDA margin47.7 %47.6 %0.1 pts.

The decrease in operating incometotal revenue for the thirdfirst quarter and first nine months of 2017,2021, as compared to the same periodsfirst quarter of 2020, was driven primarily by the continuing secular decline in 2016,checks and 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. We anticipate that the rate of decline will improve as the macroeconomic environment recovers. Early evidence of this recovery is the sequential improvement in the year-over-year revenue decline rate from 10.0% in the fourth quarter of 2020.

The decrease in Adjusted EBITDA for the first quarter of 2021, as compared to the first quarter of 2020, was due primarily to lower order volume and increased delivery and material costs in 2017. These decreases in operating income weredriven by the revenue decline, partially offset by benefits from ourvarious cost reduction actions and internal value realization initiatives including lower advertising expense driven by changes in circulation intended to maximize response rates.


CASH FLOWS AND LIQUIDITY

scale our operating expenses to match anticipated check volumes, as well as lower bad debt expense.


CASH FLOWS AND LIQUIDITY

As of September 30, 2017,March 31, 2021, we held cash and cash equivalents of $53.4$125.4 million,. as well as restricted cash and restricted cash equivalents included in funds held for customers of $109.1 million. The following table shows our cash flow activity for the nine monthsquarters ended September 30, 2017March 31, 2021 and 2016,2020, and should be read in conjunction with the consolidated statements of cash flows appearing in Part I, Item 1 of this report.
 Quarter Ended March 31,
(in thousands)20212020Change
Net cash provided by operating activities$39,581 $26,468 $13,113 
Net cash used by investing activities(21,850)(13,915)(7,935)
Net cash (used) provided by financing activities(14,231)211,156 (225,387)
Effect of exchange rate change on cash, cash equivalents, restricted cash and restricted cash equivalents1,606 (12,717)14,323 
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents$5,106 $210,992 $(205,886)
Free cash flow(1)
$17,911 $12,199 $5,712 

(1) See the Reconciliation of Non-GAAP Financial Measures within the Consolidated Results of Operations section, which defines and illustrates how we calculate free cash flow.
  Nine Months Ended September 30,
(in thousands) 2017 2016 Change
Net cash provided by operating activities $225,896
 $208,121
 $17,775
Net cash used by investing activities (154,102) (90,399) (63,703)
Net cash used by financing activities (97,211) (103,050) 5,839
Effect of exchange rate change on cash 2,253
 2,966
 (713)
Net change in cash and cash equivalents $(23,164) $17,638

$(40,802)


The $17.8 million increase in netNet cash provided by operating activities increased $13.1 million for the first nine monthsquarter of 2017,2021, as compared to the first nine monthsquarter of 2016, was2020, driven primarily due to cash generated by operations, the favorable timing of accounts receivable collections, a $12.0in certain of our businesses, the benefit of cost saving actions and internal value realization initiatives, and an $8.6 million decrease in payments for performance-based compensation and the payment in 2016 of an incentivepayments related to a 2013 acquisition.our 2020 performance. These increases in netoperating cash provided by operating activitiesflow were partially offset by an $18.0 million increasethe continuing impact of the COVID-19 pandemic, the continuing secular decline in income tax payments, as well as higher contract acquisitionchecks and interest payments.business forms and increased investments in cloud computing arrangements we are employing throughout the company.

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Included in net cash provided by operating activities were the following operating cash outflows:
  Nine Months Ended September 30,
(in thousands) 2017 2016 Change
Income tax payments $112,013
 $93,993
 $18,020
Performance-based compensation payments(1)
 20,772
 32,821
 (12,049)
Contract acquisition payments 20,003
 17,190
 2,813
Interest payments 14,372
 12,274
 2,098
Incentive payment related to previous acquisition —
 5,434
 (5,434)
Severance payments 5,642
 4,275
 1,367

 Quarter Ended March 31,
(in thousands)20212020Change
Performance-based compensation payments(1)
$12,180 $20,777 $(8,597)
Prepaid product discount payments9,590 7,321 2,269 
Severance payments5,701 2,703 2,998 
Interest payments4,033 6,705 (2,672)
Income tax payments3,330 4,332 (1,002)

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

Net cash used by investing activities for the first nine monthsquarter of 20172021 was $63.7$7.9 million higher than the first nine monthsquarter of 2016,2020, driven primarily by an increaseincreased purchases of $60.8 millioncapital assets, as we continue to invest in payments for acquisitions. Further information about our acquisitions can be found under the caption “Note 6: Acquisitions” of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report. In addition, proceeds from life insurance policies were $2.8 million lower than 2016.

transformation.

Net cash used by financing activities for the first nine monthsquarter of 20172021 was $5.8$225.4 million lower higher than the first nine monthsquarter of 2016,2020, due to borrowings on our revolving credit facility during the first quarter of 2020, primarily to a net decreasedraw of $238.0 million in payments on long-term debtMarch 2020, at the onset of $13.3 million and a $1.4 million increasethe COVID-19 pandemic. We repaid these amounts later in cash proceeds from the exercise of stock options.2020. Partially offsetting these decreasesthis increase in cash used by financing activities was the net change in customer funds obligations in each period and a $5.1 million increasedecrease in common share repurchases and a $4.5 million increaseof $14.0 million. We suspended share repurchases in employee taxes paid for shares withheld relatedthe second quarter of 2020 to stock-based compensation activity.assist in maintaining liquidity during the COVID-19 pandemic.


Significant cash outflows,transactions, excluding those related to operating activities, for each period were as follows:
 Quarter Ended March 31,
(in thousands)20212020Change
Net change in debt$— $256,500 $(256,500)
Purchases of capital assets(21,670)(14,269)(7,401)
Payments for common shares repurchased— (14,000)14,000 
Cash dividends paid to shareholders(12,932)(12,714)(218)
Net change in customer funds obligations1,659 (19,407)21,066 
  Nine Months Ended September 30,
(in thousands) 2017 2016 Change
Payments for acquisitions, net of cash acquired $125,417
 $64,637
 $60,780
Payments for common shares repurchased 50,070
 44,944
 5,126
Cash dividends paid to shareholders 43,672
 44,127
 (455)
Purchases of capital assets 34,351
 32,215
 2,136
Employee taxes paid for shares withheld 6,816
 2,333
 4,483
Net change in debt 3,590
 16,873
 (13,283)

We anticipate that net cash provided by operating activities will be between $340.0 million and $345.0 million in 2017, compared to $319.3 million in 2016, driven by stronger operating performance and lower interest payments, partially offset by higher income tax and medical payments. We anticipate that net cash provided by operating activities in 2017 will be utilized for dividend payments, capital expenditures of approximately $45.0 million, periodic share repurchases and small-to-medium-sized acquisitions. We intend to focus our capital spending on key revenue growth initiatives and investments in order fulfillment and information technology infrastructure. As of September 30, 2017, $64.6 million was available for borrowing under our revolving credit facility. To the extent we generate excess cash, we plan to reduce the amount outstanding under our credit facility agreement.

As of September 30, 2017,March 31, 2021, our foreign subsidiaries located in Canada held cash and cash equivalents of $30.5$99.2 million. This amount decreased $36.1 million from December 31, 2016, as we utilized Canadian cash to fund a portion of the acquisition of RDM Corporation in the second quarter of 2017. 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 the Canadianour foreign cash and cash equivalents into the United StatesU.S. at one time, we estimate we would incur a federalforeign withholding tax liability of approximately $4.0$5.0 million, based on current federalnotwithstanding any tax law.planning strategies that might be available.

As of March 31, 2021, $302.3 million was available for borrowing under our $1.15 billion revolving credit facility. We believeanticipate that net cash generated by operating activities,operations, along with the cash and cash equivalents on hand and availability underon our revolving credit facility, will be sufficient to support our operations and debt service requirements for the next 12 months, including dividend payments, capital expenditures, requiredthe additional debt principalwe expect to incur in conjunction with the merger with First American. We anticipate that we will continue to pay our regular quarterly dividend. However, dividends are approved by our board of directors each quarter and interest payments, and periodic share repurchases, as well as small-to-medium-sized acquisitions.


CAPITAL RESOURCES

thus, are subject to change.


CAPITAL RESOURCES

Our total debt was $756.4$840.0 million as of September 30, 2017, a decrease of $2.3 million from March 31, 2021 and December 31, 2016.2020. Further information concerning our outstanding debt can be found under the caption “Note 11: Debt” ofin the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.
35


Our capital structure for each period was as follows:
 March 31, 2021December 31, 2020 
(in thousands)AmountWeighted-
average interest rate		AmountWeighted-
average interest rate		Change
Fixed interest rate(1)
$200,000 3.3 %$200,000 3.3 %$— 
Floating interest rate640,000 1.2 %640,000 1.6 %— 
Total debt840,000 2.0 %840,000 2.0 %— 
Shareholders’ equity558,819  540,838  17,981 
Total capital$1,398,819  $1,380,838  $17,981 
  September 30, 2017 December 31, 2016  
(in thousands) Amount 
Weighted-
average interest rate
 Amount 
Weighted-
average interest rate
 Change
Fixed interest rate $1,818
 2.0% $1,685
 2.0% $133
Floating interest rate 754,580
 2.7% 756,963
 2.2% (2,383)
Total debt 756,398
 2.7% 758,648
 2.2% (2,250)
Shareholders’ equity 950,545
  
 880,970
  
 69,575
Total capital $1,706,943
  
 $1,639,618
  
 $67,325


(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.
During the first nine months of 2017, we repurchased a total of 0.7 million shares for $50.1 million. We had an outstanding authorization from
In October 2018, our board of directors to purchaseauthorized the repurchase of up to 10$500.0 million shares of our common stock. We completed the purchase of all of the remainingThis authorization has no expiration date. No shares under this authorizationwere repurchased during the first quarter of 2017. In May 2016, our board of directors approved an additional authorization for the repurchase of up to $300.02021 and $287.5 million of our common stock, effective at the conclusion of the previous authorization. This additional authorization has no expiration date and $254.7 million remained

available for purchaserepurchase under this authorization as of September 30, 2017.March 31, 2021. Information regarding changes in shareholders' equity can be found in the consolidated statementstatements of shareholders' equity appearing in Part I, Item 1 of this report.

As of September 30, 2017, we had a $525.0 millionMarch 31, 2021, the total availability under our revolving credit facility thatwas $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 February 2019.March 2023. Our quarterly commitment fee ranges from 0.20%0.175% to 0.40%0.35%, based on our leverage ratio. During 2016, we amended the credit agreement governing our credit facility to include a variable rate term loan facility in the aggregate amount of $330.0 million. We borrowed the full amount during the fourth quarter of 2016 using the proceeds to retire our senior notes due in 2020 and to partially fund the acquisition of FMCG Direct in December 2016. The term loan facility matures in February 2019 and requires periodic principal payments throughout the term of the loan. Interest is paid weekly and we may prepay the term loan facility in full or in part at our discretion. Amounts repaid may not be reborrowed.

Borrowings under our credit 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 containsrequires us to maintain certain financial covenants regarding ourratios, including a maximum leverage ratio of 3.5 and a minimum ratio of consolidated earnings before interest coverage and liquidity.taxes to consolidated interest expense, as defined in the credit agreement, of 3.0. Additionally, the agreement contains customary representations and warranties and, as a condition to borrowing, requires that all such representations and warranties be true and correct in all material respects on the date of each 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 September 30, 2017,March 31, 2021, and we expect toanticipate that we will remain in compliance with allour debt covenants throughout the next 12 months.


As of September 30, 2017,March 31, 2021, 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 March 31, 2021$302,342 

(in thousands)
Total
available
Revolving credit facility commitment$525,000
Amount drawn on revolving credit facility(450,000)
Outstanding letters of credit(1)
(10,361)
Net available for borrowing as of September 30, 2017$64,639

(1) (1) We use standby letters of credit to collateralize certain obligations related primarily 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.


As discussed in Executive Overview, we expect to finance the pending merger with First American via a combination of cash on hand and proceeds from new debt. In connection with the merger, we have obtained a $2.2 billion financing commitment from a group of lenders. We expect the acquisition will close during the second quarter of 2021, pending customary regulatory approvals and closing conditions.

OTHER FINANCIAL POSITION INFORMATION
36

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 information" ofBalance Sheet and Cash Flow Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.

Acquisitions – The impact of acquisitions on our consolidated balance sheet as of September 30, 2017 can be found under the caption “Note 6: Acquisitions” of the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Item 1 of this report.

Contract acquisition costsPrepaid product discounts – Other non-current assets include contract acquisition costs of our Financial Services segment. These costs, which are essentially pre-paidprepaid product discounts that are recorded as non-current assets upon contract execution and are generally amortized generally on the straight-line basis as reductions of revenue over the related contract term. Changes in contract acquisition costsprepaid product discounts during the nine monthsquarters ended September 30, 2017March 31, 2021 and 20162020 can be found under the caption "Note 3: Supplemental balance sheet information" ofBalance Sheet and Cash Flow Information" in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report. Cash payments for contract acquisition costsprepaid product discounts were $20.0 million for the first nine months of 2017 and $17.2$9.6 million for the first nine monthsquarter of 2016. We anticipate cash payments of approximately $26.02021 and $7.3 million for the year ending December 31, 2017.first quarter of 2020.

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


Liabilities for contract acquisition paymentsprepaid product discounts are recorded upon contract execution. These obligations are monitored for each contract and are adjusted as payments are made. Contract acquisitionPrepaid product discount payments due within the next year are included in accrued liabilities in ouron the consolidated balance sheets. These accruals were $13.5 million as of September 30, 2017 and $12.4$12.6 million as of DecemberMarch 31, 2016. Accruals for contract acquisition payments included in other non-current liabilities in our consolidated balance sheets were $24.3 million as of September 30, 20172021 and $29.9$14.4 million as of December 31, 20162020.
.


OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND CONTRACTUAL OBLIGATIONS
OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND CONTRACTUAL OBLIGATIONS

It is not our general business practice to enter into off-balance sheet arrangements or to guarantee the performance of third parties. In the normal course of business we periodically enter into agreements that incorporate general indemnification language. These indemnifications encompass third-party claims arising from our products and services, including, 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 mattersfees 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 March 31, 2021 or December 31, 2020. Further information regarding our environmental liabilities, as well as liabilities related to self-insurance and litigation can be found under the caption “Note 12: Other commitmentsCommitments and contingencies” ofContingencies” in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in thePart I, Item 1 of this report.

We are not engaged in any transactions, arrangements or other relationships with unconsolidated entities or other third parties that are reasonably likely to have a material effect on our liquidity or on our access to, or requirements for, capital resources. In addition, weWe have not established any special purpose entities norother 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 the 2020 Form 10-K. We did wenot enter into any material related party transactions during the first nine monthsquarter of 20172021 or during 2016.2020.

A table of our contractual obligations was provided in the MD&A section of the 20162020 Form 10-K. There were no significant changes in these obligations duringDuring the first nine monthsquarter of 2017.2021, we extended a software-as-a-service contract, which increased our contractual obligations by approximately $42.0 million. Of this amount, approximately $25.0 million is payable in 2021 - 2022, with the remainder payable in 2023.


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CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies was provided in the MD&A section of the 20162020 Form 10-K. There were no changes in these policies during the first nine months of 2017.

During the third quarter of 2017, we completed the annual impairment analysis of goodwill and our indefinite-lived trade name. In conjunction with our annual strategic planning process during the quarter, we made various changes to our internal reporting structure. As a result, we reassessed our operating segments and determined that no changes were required in our reportable operating segments. We also reassessed our previously determined reporting units and concluded that a realignment of a portion of our reporting units was required. As such, we reallocated the carrying value of goodwill to our revised reporting units based on their relative fair values. We analyzed goodwill for impairment immediately prior to this realignment by performing qualitative analyses for our Small Business Services reporting units and quantitative analyses for our Financial Services and Direct Checks reporting units. 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 analysis 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, with the exception of our Small Business Services Safeguard reporting unit. The analysis of this reporting unit, which incorporated the results of the annual strategic planning process, indicated lowered projected long-term revenue growth and profitability levels resulting from changes in market trends and the mix of products and services sold, including the continuing decline in check and forms usage. As a result, we completed impairment analyses of the long-term assets of this reporting unit, excluding goodwill, and concluded that these assets were not impaired. We then completed the quantitative analysis of the reporting unit, utilizing the income approach outlined under the caption "Note 1: Significant2021.

New accounting policies" in the Notes to Consolidated Financial Statements appearing in the 2016 Form 10-K. This quantitative analysis indicated that this reporting unit's goodwill was fully impaired and resulted in a non-cash pre-tax goodwill impairment charge of $28.4 million during the quarter ended September 30, 2017. In accordance with Accounting Standards Update No. 2017-04, which we adopted on

January 1, 2017, the impairment charge was measured as the amount by which the reporting unit's carrying value exceeded its estimated fair value. This impairment assessment is sensitive to changes in forecasted cash flows, as well as our selected discount rate of 9%. Changes in the reporting unit's forecast assumptions and estimates could materially affect the estimation of the fair value of this reporting unit.

Immediately subsequent to the realignment of our reporting unit structure, we completed a quantitative analysis for all of our reporting units to which goodwill is assigned. This quantitative analysis as of July 31, 2017 indicated that the estimated fair values of our reporting units exceeded their carrying values by approximate amounts between $64.0 million and $1.4 billion, or by amounts between 36% and 314% above the carrying values of their net assets.

In completing the annual impairment analysis of our indefinite-lived trade name, we elected to perform a quantitative assessment. This assessment indicated that the calculated fair value of the asset exceeded its carrying value of $19.1 million by approximately $16.0 million as of July 31, 2017. In this analysis, we assumed a discount rate of 10.0% and a royalty rate of 1.0%. A one-half percentage point increase in the discount rate would reduce the indicated fair value of the asset by approximately $2.0 million and a one-half percentage point decrease in the royalty rate would reduce the indicated fair value of the asset by approximately $17.0 million.

pronouncements – Information regarding the accounting pronouncementspronouncement adopted during the first nine monthsquarter of 2017 and those not yet adopted2021 can be found under the caption “Note 2: New accounting pronouncements” ofAccounting Pronouncements” in the Condensed Notes to Unaudited Consolidated Financial Statements appearing in Part I, Item 1 of this report.


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

ITEM 3. 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 September 30, 2017,March 31, 2021, our total debt was comprised of the following:
(in thousands) Carrying amount 
Fair value(1)
 Weighted-average interest rate
Amount drawn on revolving credit facility $450,000
 $450,000
 2.7%
Amount outstanding under term loan facility 304,580
 305,250
 2.7%
Capital lease obligations 1,818
 1,818
 2.0%
Total debt $756,398
 $757,068
 2.7%
(1) The carrying amounts reported in the consolidated balance sheets for amounts$840.0 million drawn under our revolving credit facility andat a weighted-average interest rate of 2.0%. The interest rate on the majority of the amount drawn under our term loanrevolving credit facility excluding unamortized debt issuance costs, approximate fair value because our interest rates areis variable and reflectreflects current market rates. Capital lease obligations are presented at theirAs such, the related carrying amount.

amount reported on the consolidated balance sheets approximates fair value. Amounts drawn on our revolving credit facility and our term loan facility mature in February 2019. Our capital lease obligationsMarch 2023.

As part of our interest rate risk management strategy, we entered into an interest rate swap in July 2019, 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 due through June 2021.

recorded in accumulated other comprehensive loss on the consolidated balance sheets and are subsequently reclassified to interest expense as interest payments are made on the variable-rate debt. The fair value of the interest rate swap was $6.2 million as of March 31, 2021 and $7.2 million as of December 31, 2020 and was included in other non-current liabilities on the consolidated balance sheets.

Based on the daily average amount of outstanding variable rate debt, in our portfolio, a one percentage point change in our weighted-average interest ratesrate would have resulted in a $5.7$1.6 million change in interest expense for the first nine monthsquarter of 2017.2021.

We are exposed to changes in foreign currency exchange rates. Investments in, loans and advances to foreign subsidiaries and branches, as well as the operations of these businesses, are denominated in foreign currencies, primarily the Canadian dollar.and Australian dollars. The effect of exchange rate changes is not expected to have a minimalsignificant 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.


Item 4.  Controls and Procedures.
ITEM 4. CONTROLS AND PROCEDURES

(a)  Disclosure Controls and Procedures —– As of the end of the period covered by this report, September 30, 2017March 31, 2021 (the “Evaluation Date”)Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management,

including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Exchange Act)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting —There– There were no changes in our internal control over financial reporting identified in connection with our evaluation during the quarter ended September 30, 2017March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II – OTHER INFORMATION


Item 1. Legal Proceedings.
ITEM 1. LEGAL PROCEEDINGS

We record provisionsaccruals 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 1A.  Risk Factors.
ITEM 1A. RISK FACTORS

Our risk factors are outlined in Item 1A of our Annual Report onthe 2020 Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).10-K. There have been no significant changes to these risk factors since we filed the 20162020 Form 10-K.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table shows purchases of our own equity securities, based on trade date, that were completed during the third quarter of 2017:
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum approximate dollar value of shares that may yet be purchased under the plans or programs
July 1, 2017 –
July 31, 2017
 —
 $—
 —
 $274,658,061
August 1, 2017 –
August 31, 2017
 202,400
 68.83
 202,400
 260,726,148
September 1, 2017 –
September 30, 2017
 87,900
 69.05
 87,900
 254,656,500
Total 290,300
 68.90
 290,300
 254,656,500

In August 2003,October 2018, our board of directors approved an authorization to purchase up to 10 million shares of our common stock. We completed the purchase of all of the remaining shares under this authorization during February 2017. In May 2016, our board of directors approved an additional authorization forauthorized the repurchase of up to $300.0$500.0 million of our common stock, effective at the conclusion of our previous authorization.stock. This additional authorization has no expiration datedate. No shares were repurchased during the first quarter of 2021 and $254.7$287.5 million remained available for purchase under this authorizationrepurchase as of September 30, 2017.March 31, 2021.


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 exercising or vesting of such awards. During the first quarter ended September 30, 2017,of 2021, we withheld 16,43162,328 shares in conjunction with the vesting and exercise of equity-based awards.

 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Item 3.  Defaults Upon Senior Securities
.

None.


Item 4.  Mine Safety Disclosures.
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


Item 5.  Other Information.
ITEM 5. OTHER INFORMATION

None.


Item 6.  Exhibits.





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ITEM 6. EXHIBITS

Exhibit NumberDescriptionMethod of Filing
3.12.1*
3.2
Bylaws (incorporated by reference to Exhibit 3.22.1 to the Current Report on Form 8-K filed with the Commission on October 23, 2008)April 22, 2021)
*
4.110.1
10.2
10.3
10.4
10.5*
31.110.6
31.1
Filed
herewith
31.2
Filed
herewith
32.1
Furnished
herewith
101101.INS
XBRL Instance Document – the instance document does not appear in the Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Comprehensive Income forData File because its XBRL tags are embedded within the quarters and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2017, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (v) Condensed Notes to Unaudited Consolidated Financial Statements
Inline XBRL document
101.SCH
Filed
herewith
XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
___________________
40

Exhibit NumberDescription
104Cover page interactive data file (formatted as Inline XBRL and contained in Exhibit 101)
* Incorporated by referenceDenotes compensatory plan or management contract

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
DELUXE CORPORATION

            (Registrant)
Date: October 27, 2017May 7, 2021/s/ Lee SchramBarry C. McCarthy
Lee Schram
Barry C. McCarthy
President and Chief Executive Officer

(Principal Executive Officer)
Date: October 27, 2017May 7, 2021/s/ Keith A. Bush
Keith A. Bush

Senior Vice President, Chief Financial Officer

(Principal Financial Officer and Officer)
Date: May 7, 2021/s/ Ronald Van Houwelingen
Ronald Van Houwelingen
Vice President, Corporate Controller
(Principal Accounting Officer)

42