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

Form 10-K

Commission file number: 1-7945

DELUXE CORPORATION
(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ü                     Accelerated filer                       Non-accelerated filer   

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

        The aggregate market value of the voting stock held by non-affiliates of the registrant is $2,043,326,849 based on the last sales price of the registrant’s common stock on the New York Stock Exchange on June 30, 2005. The number of outstanding shares of the registrant’s common stock as of February 10, 2006, was 51,035,834.

Documents Incorporated by Reference:

PART I

Item 1.   Business.

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

COMPANY OVERVIEW

        Through our industry-leading businesses and brands, we help small businesses and financial institutions better manage, promote, and grow their businesses. We use direct marketing, a North American sales force, financial institution referrals, independent distributors and the internet to provide our customers a wide range of customized products and services: personalized printed items (checks, forms, business cards, stationery, greeting cards, labels, and shipping/packaging supplies), promotional products and merchandising materials, fraud prevention services and financial institution customer retention programs. We also sell personalized checks and accessories directly to consumers.

BUSINESS SEGMENTS

        Our business segments consist of Small Business Services, Financial Services and Direct Checks. Our businesses are generally organized by type of customer and reflect the way we manage the company. Additional information concerning our segments appears under the caption “Note 17: Business segment information” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Small Business Services

        Small Business Services (SBS) is comprised of New England Business Service, Inc. (NEBS), which we acquired in June 2004, and our former Business Services segment. This segment is our largest in terms of revenue, and we are concentrating on growing this segment. SBS strives to be a leading resource to small businesses by providing products and services that help them manage and build their businesses. Through SBS, we sell business checks, forms and related printed products. We also distribute packaging, shipping and warehouse supplies, advertising specialties, and printing and payroll services. SBS serves more than six million small business customers in the United States and Canada.

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        The majority of SBS products are distributed through more than one channel. Our primary channel is direct mail, in which promotional advertising is delivered by mail to small businesses. These efforts are supplemented by the account development efforts of an outbound telemarketing group. A field sales organization is utilized to call on small businesses, mainly under the McBee® and Chiswick® brand names. A third channel of distribution is our network of independent local dealers and Safeguard® distributors. We also utilize financial institution referrals and the internet to market and distribute our products. Customer service for initial order support, product reorders and routine service is provided by a network of call center representatives located throughout the United States and Canada.

        We are focusing on the following initiatives to grow this segment:

        During 2005, we launched the Deluxe Business Advantage^SM program. This program provides a fast and simple way for financial institutions to offer expanded personalized service to small businesses. Our inside sales team works in combination with our direct sales force, which makes one-on-one contact with small businesses and financial institution branches more effective.

        Throughout 2005, we continued to integrate NEBS operations and take advantage of synergies. As previously announced, we plan to close our Los Angeles, California and Athens, Ohio printing facilities in mid-2006, and we continue to seek other means to further increase efficiencies.

Financial Services

        Financial Services supplies checks, check-related products and check merchandising services to financial institutions. We offer enhanced services to our financial institution clients, such as customized reporting, file management, expedited account conversion support and fraud prevention. Our relationships with specific financial institutions are usually formalized through supply contracts averaging three to five years in duration. Consumers and small businesses typically submit their check order to their financial institution, which in turn transmits the order to us. We process the order and ship it directly to the consumer or small business. Financial Services produces a wide range of check designs, with many consumers preferring one of the dozens of licensed or cause-related designs we offer, including Disney®, Warner Brothers®, NASCAR®, Harley-Davidson®, Coca-Cola®, Susan G. Komen Breast Cancer Foundation, American Heart Association and National Arbor Day Foundation®. Financial Services’ strategy is to increase its relevance to financial institutions by emphasizing the breadth and value of our checks and related products and services. We are leveraging our DeluxeSelect^SM merchandising platform, our Deluxe Business Advantage program and enhanced small business customer service. This is expected to create:

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        Our Deluxe Business Advantage program is designed to maximize financial institution business check programs by offering expanded personalized service to small businesses with a number of service level options. This program leverages the 2004 NEBS acquisition which brought us expanded product and service offerings, as well as a nationwide sales force with extensive knowledge of small business needs.

        Our DeluxeSelect^SM program allows a financial institution’s customers to buy checks when, where and in what manner they desire, whether it’s via the phone, our voice response unit or the internet. By allowing us to perform the check merchandising function on their behalf, financial institutions have the opportunity to lower their costs, increase the profitability of their check programs and increase their brand image and customer satisfaction.

        Through our ID TheftBlock® program, we offer an advanced suite of monitoring and protection services which we offer to consumers on behalf of our financial institution clients that enhances traditional identity protection tools by adding check order screening, daily credit monitoring, access to fraud resolution assistance and a comprehensive membership kit. The DeluxeCard™ Visa® gift card is a stored value prepaid gift card that allows financial institutions to meet growing consumer demand for a versatile payment tool and universal gift solution that is available to consumers via financial institutions, the internet and telephone.

        We have continued to expand our Knowledge Exchange Series for financial institution clients through which we host knowledge exchange expos, conduct web seminars and host special industry conference calls, as well as offer specialized publications. Through this program, financial institutions gain knowledge and exposure to thought leaders in areas that most impact their core strategies: client loyalty, small business and retail client strategy, cost management, experience and brand enhancement. Our Collaborative initiative, a key component of the Knowledge Exchange Series, enlists a team of leading financial institution executives who meet with us over a one year timeframe to develop and test specific and focused solutions on behalf of the financial services industry. These findings and new strategies or services are then disseminated for the benefit of all our clients. Our Small Business Collaborative initiative grew out of our Knowledge Exchange Series and explores new innovative ways for financial institution clients to improve relationships with small businesses. In addition, these activities are an important part of our client retention strategy.

Direct Checks

        Direct Checks is the nation’s leading direct-to-consumer check supplier, selling under the Checks Unlimited® and Designer® Checks brand names. Through these two brands, we sell personal and business checks, as well as related products, using direct response marketing and the internet. We estimate the direct-to-consumer personal check printing portion of the payments industry accounts for nearly 20% of all personal checks sold. Our strategy is to maximize customer lifetime value through more effective new customer acquisition, increased customer retention and maximization of the direct segment small business opportunity.

        We use a variety of direct marketing techniques to acquire new customers, including newspaper inserts, in-package advertising, statement stuffers and co-op advertising. We also use e-commerce strategies to direct traffic to our websites, which include: www.checksunlimited.com, www.designerchecks.com and www.checks.com. Our direct-to-consumer focus has resulted in a customer base of over 41 million lifetime customers, the most in the direct-to-consumer checks marketplace.

        Direct Checks competes primarily on price and design. Pricing in the direct-to-consumer channel is generally lower than prices typically charged in the financial institution channel. We also compete on design by seeking to offer the most attractive selection of images with high consumer appeal, many of which are acquired or licensed from well-known photographers, artists, and organizations such as Disney, Thomas Kinkade and NASCAR.

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PRODUCTS

Revenue, by product, as a percentage of consolidated revenue for the last three years was as follows:

         We are growing our sales of non-check products. This shift, along with the decline in check usage, has resulted in a decrease in our check revenue. We are the largest provider of checks in the United States, both in terms of revenue and the number of checks produced. We provide check printing and related services for approximately 7,500 financial institution clients, as well as personalized checks, related accessories and fraud prevention services directly to small businesses and consumers.

        We are a leading provider of printed forms to small businesses, providing products to more than six million customers. Printed forms include billing forms, work orders, job proposals, purchase orders, invoices and personnel forms. We produce computer forms compatible with accounting software packages commonly used by small businesses. Our stationery, letterhead, envelopes and business cards are produced in a variety of formats and ink colors. These items are designed to provide small business owners with the customized documents necessary to efficiently manage their business. We also provide promotional printed items and digital printing services designed to fulfill selling and marketing needs of the small businesses we serve.

MANUFACTURING

        As one of our key strategies, we continue to focus on reducing costs and increasing productivity. An example is the lean and cellular approach utilized in many of our manufacturing facilities. Under this approach, a group of employees works together to produce products, rather than those same employees working on individual tasks in a linear fashion. Because employees assume more ownership of the end product, the results are improvements in quality and service levels and lower costs. We continue to see the benefit of these operational efficiencies in our results. The expertise we have developed in logistics, productivity and inventory management, as well as the decline in check usage due to the use of alternative payment methods, allows us to reduce the number of production facilities while still meeting client requirements. We closed six check printing facilities in 2004 and as previously announced, we plan to close two additional printing facilities in mid-2006. We have also implemented a shared services approach to manufacturing through which our three business segments share manufacturing operations. Our printing operations are being managed by region, which allows us to create centers of operational excellence that have a culture of continuous improvement. We have created blended sites to serve a variety of segments, brands and channels. As a result, we continue to reduce costs by utilizing our assets and printing technologies more efficiently and by enabling employees to better leverage their capabilities and talents.

INDUSTRY OVERVIEW

Checks

        According to a Federal Reserve study released in December 2004, approximately 37 billion checks are processed annually. The check is the largest single non-cash payment method in the United States, accounting for approximately 45% of all non-cash payment transactions. However, according to our estimates, the use of checks is declining by four to five percent per year. The total transaction volume of all electronic payment methods now exceeds check payments, and we expect this trend to continue.

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Small Business Customers

        The Small Business Administration’s Office of Advocacy defines a small business as an independent business having fewer than 500 employees. In 2004, the most recent date for which information is available, it was estimated that there were approximately 25 million small businesses in the United States. This represents 99.7% of all employers. Small businesses employ half of all private sector employees and generated over 60% of net new jobs created each year over the last decade.

        The small business market is impacted by economic conditions and the rate of small business formations. Currently, small business growth is strong, which parallels the growth in the overall economy and recent Federal Reserve surveys which have noted an increase in small business loans. According to the National Federation of Independent Business (NFIB), small business optimism remained strong in 2005. In addition, sales volume and capital spending trends continued to be positive through the end of the year.

        We seek to serve the needs of the small business customer. We design, produce and distribute business checks, forms, envelopes, industrial packaging and related products to help them grow and promote their business. We intend to increase our customer base through increased referrals from our financial institution channel through the Deluxe Business Advantage program. The rate checks are used by small businesses has thus far not been impacted as significantly by the use of alternative payment methods. The Formtrac 2005 report from the Document Management Industries Association (DMIA) indicates that the business check portion of the markets serviced by SBS declined at a rate of 2%-3% in 2005. The overall small business market is impacted more significantly by economic conditions and the rate at which new small businesses incorporate.

Financial Institution Clients

        Checks are most commonly ordered through financial institutions. We estimate approximately 80% of all consumer checks are ordered in this manner. Financial institutions include banks, credit unions and other financial services companies. Several developments related to financial institutions have affected the check printing industry:

Consumer Response Rates

        Direct Checks has been impacted by reduced consumer response rates to direct mail advertisements. We believe that the decline in our customer response rates is attributable to the decline in check usage, an increase in financial institutions providing free checks to consumers, a general decline in direct marketing response rates and a lower number of eligible first-time customers. With such a large base of lifetime customers, fewer consumers are eligible for the lower introductory prices we offer first-time customers. We continue to evaluate our marketing techniques to ensure we utilize the most effective and affordable advertising media.

Competition

        The small business forms and supplies industry is highly fragmented with many small local suppliers. We believe we are well positioned in this competitive landscape through our broad customer base, comprehensive small

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business product and service offerings, multiple distribution channels, established relationships with our financial institution clients, reasonable prices, high quality and dependable service.

        In the small business forms and supplies industry, the competitive factors influencing a customer’s purchase decision are product guarantees, breadth of product line, speed of delivery, product quality, price, convenience and customer service. Our primary competitors providing printed products are local printers, business form dealers, contract stationers and office product superstores. Local printers provide personalization and customization, but can have a limited variety of products and services, as well as limited printing sophistication. Office superstores offer a variety of products at competitive prices, but provide limited personalization and customization, if any. We are aware of numerous independent companies or divisions of companies offering printed products and business supplies to small businesses through direct mail, distributors or a direct sales force.

        In the check printing portion of the payments industry, we face considerable competition from several other check printers, and we expect competition to remain intense as this portion of the payments industry continues to decline and financial institutions continue to consolidate. We also face competition from check printing software vendors and from internet-based sellers of checks and related products. Moreover, the check product must compete with alternative payment methods, including credit cards, debit cards, automated teller machines and electronic payment systems.

        In the financial institution check printing business, the principal factors on which we compete are product and service breadth, price, quality and check merchandising program management. From time to time, some of our check printing competitors have reduced the prices of their products in an attempt to gain greater volume. The corresponding pricing pressure placed on us has resulted in reduced profit margins and some loss of business. Continuing pressure will likely result in additional margin compression. Additionally, product discounts in the form of cash incentives payable to financial institutions upon contract execution have been a practice within the industry since the late 1990’s. However, both the number of financial institution clients requesting these payments and the size of the payments have increased. These up-front payments negatively impact check printers’ cash flows in the short-term and may result in additional pricing pressure when the financial institution also negotiates greater product discount levels throughout the term of the contract. We are seeking to reduce our use of up-front product discounts.

Raw Materials and Supplies

        The principal raw materials used in producing our main products are paper, ink and cartons, which we purchase from various sources. We also purchase stock business forms produced by third parties. We believe that we will be able to obtain an adequate supply of materials from current or alternative suppliers. We also utilize a paper printing plate material that is available from only a limited number of sources. We believe we have a reliable source of supply for this material and that we maintain an inventory sufficient to avoid any production disruptions in the event of an interruption of its supply.

Governmental Regulation

        We are subject to regulations implementing the privacy and information security requirements of the federal financial modernization law known as the Gramm-Leach-Bliley Act (the Act) and other federal regulation and state law on the same subject. These laws and regulations require us to develop and implement policies to protect the security and confidentiality of consumers’ nonpublic personal information and to disclose these policies to consumers before a customer relationship is established and annually thereafter. Our financial institution clients request various contractual provisions in our supply contracts that are intended to comply with their obligations under the Act and other privacy and security oriented laws. The regulations require some of our businesses to provide a notice to consumers to allow them the opportunity to have their nonpublic personal information removed from our files before we share their information with certain third parties. The regulations, including the above provision, may limit our ability to use our direct-to-consumer data in our businesses.

        Congress and many states have passed and are considering additional laws or regulations that, among other things, restrict the use, purchase, sale or sharing of nonpublic personal information about consumers and business customers. Laws and regulations may be adopted in the future with respect to the internet, e-commerce or marketing practices generally relating to consumer privacy. Such laws or regulations may impede the growth of the internet and/or use of other sales or marketing vehicles. For example, new privacy laws could decrease traffic to our

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websites, decrease telemarketing opportunities and decrease the demand for our products and services. We do not expect that changes to these laws and regulations will have a significant impact on our business in 2006.

Intellectual Property

        We rely on a combination of trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect our trademarks, software and know-how. However, intellectual property laws afford limited protection. Third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products or services. In addition, designs licensed from third parties account for a portion of our revenue. Typically, such license agreements are effective for a two- to three-year period. There can be no guarantee that such licenses will be renewed or will continue to be available on terms that would allow us to continue to be profitable with these products.

EMPLOYEES

        As of December 31, 2005, we employed 8,310 employees in the United States and 410 employees in Canada. None of our employees are represented by labor unions, and we consider our employee relations to be good.

AVAILABILITY OF COMMISSION FILINGS

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

        A copy of this report may be obtained without charge by calling 1-888-359-6397 (1-888-DLX-NEWS) or by sending a written request to Investor Relations, Deluxe Corporation, P.O. Box 64235, St. Paul, Minnesota 55164-0235.

CODE OF ETHICS AND CORPORATE GOVERNANCE GUIDELINES

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

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EXECUTIVE OFFICERS OF THE REGISTRANT

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

        Ronald E. Eilers has served as president and chief executive officer since November 2005. From December 2000 to November 2005 he served as our president and chief operating officer.

        Anthony C. Scarfone joined us in September 2000 as senior vice president, general counsel and secretary.

        Richard L. Schulte was named senior vice president in December 2000 and has served as president of our Small Business Services segment since July 2000.

        Douglas J. Treff joined us in October 2000 as senior vice president and chief financial officer.

        Luann Widener was named senior vice president, president of manufacturing shared services, supply chain and Financial Services effective March 1, 2006. From June 2003 to February 2006, Ms. Widener served as senior vice president, human resources and in December 2005, she assumed responsibility for our manufacturing and supply chain operations. From July 2000 to June 2003, Ms. Widener served as vice president of manufacturing operations for our Financial Services segment.

        Terry D. Peterson was named chief accounting officer in March 2005. Mr. Peterson joined us in September 2004 and served as director of internal audit until March 2005. From August 2002 until August 2004, Mr. Peterson was vice president and controller of the GCS Services Division of Ecolab, Inc., a worldwide developer and marketer of premium cleaning and sanitation products. Before joining Ecolab, Inc., Mr. Peterson held executive finance positions with Provell, Inc. (formerly Damark International, Inc.), a developer of customized marketing programs and services, including corporate controller from March 1999 to September 2001 and acting chief financial officer and controller from September 2001 to August 2002.

Item 1A.   Risk Factors.

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

        Check printing is, and is expected to continue to be, an essential part of our business, representing approximately 65% of our revenue in 2005. We primarily sell checks for personal and small business use and believe that there will continue to be a substantial demand for these checks for the foreseeable future. However, according to our estimates, the total number of checks written by individuals and small businesses continued to decline approximately four to five percent each year over the past three years, and the total number of checks written in the United States has been in decline since the mid-1990’s. We believe that the number of checks written will continue to decline due to the increasing use of alternative payment methods, including credit cards, debit cards, smart cards, automated teller machines, direct deposit, electronic and other bill paying services, home banking applications and internet-based payment services. However, the rate and the extent to which alternative payment methods will achieve consumer acceptance and replace checks, whether as a result of legislative developments, personal preference or otherwise, cannot be predicted with certainty. A surge in the popularity of any of these alternative payment methods could have a material, adverse effect on the demand for checks and a material, adverse effect on our business, results of operations and prospects.

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        We face intense competition in all areas of our business.

        Although we are the leading check printer in the United States, we face considerable competition. In addition to competition from alternative payment systems, we also face intense competition from other check printers in our traditional financial institution sales channel, from direct mail sellers of checks, from sellers of business checks and forms, from check printing software vendors and from internet-based sellers of checks to individuals and small businesses. Additionally, low-price, high volume office supply chain stores offer standardized business forms, checks and related products to small businesses. We cannot assure you that we will be able to compete effectively against current and future competitors. Continued competition could result in price reductions, reduced profit margins, loss of customers and an increase in up-front cash payments to financial institutions upon contract execution or renewal.

        Continuing softness in direct mail response rates could have a further adverse impact on our operating results.

        Our Direct Checks segment and portions of our Small Business Services segment have experienced declines in response and retention rates related to direct mail promotional materials. We believe that media response rates are declining across a wide variety of products and services. Additionally, we believe that our declines are attributable to the decline in check usage, the gradual obsolescence of standardized forms products and an increase in financial institutions offering free checks to consumers. To offset these impacts, we may have to modify and/or increase our marketing and sales efforts, which could result in increased expense.

        The profitability of our Direct Checks segment depends in large part on our ability to secure adequate advertising media placements at acceptable rates, as well as the consumer response rates generated by such advertising, and there can be no assurances regarding the future cost, effectiveness and/or availability of suitable advertising media. Competitive pressure may inhibit our ability to reflect any of these increased costs in the prices of our products. We can provide no assurance that we will be able to sustain our current levels of profitability in this situation.

        Consolidation among financial institutions may adversely affect the pricing of our products.

        The number of financial institutions has declined due to large-scale consolidation in the last few years. Margin pressures arise from such consolidation as merged entities seek to reduce costs by leveraging economies of scale in purchasing, including their check supply contracts. This increases the importance of retaining our major financial institution clients and attracting additional clients in an increasingly competitive environment. The increase in general negotiating leverage possessed by such consolidated entities typically results in new and/or renewed contracts which are not as favorable as those historically negotiated with these clients. Although we devote considerable effort toward the development of a competitively priced, high quality suite of products and services for the financial services industry, there can be no assurance that significant financial institution clients will be retained or that the loss of a significant client can be counterbalanced through the addition of new clients or by expanded sales to our remaining clients.

        Standardized business forms and related products face technological obsolescence and changing customer preferences.

        Continual technological improvements have provided small business customers with alternative means to enact and record business transactions. For example, because of the lower price and higher performance capabilities of personal computers and related printers, small businesses now have an alternate means to print business forms. Additionally, electronic transaction systems and off-the-shelf business software applications have been designed to automate several of the functions performed by business forms products. If small business customer preferences change rapidly and we are unable to develop new products and services with comparable profit margins, our results of operations could be adversely affected.

        Our failure to successfully implement a project we have undertaken to replace major portions of our existing order capture, billing and pricing systems would negatively impact our business.

        During 2006, we will continue to expand our use of the SAP software platform with the planned installation of the SAP sales and distribution module in a portion of our business. Once implemented, we expect the new system to reduce redundancy while standardizing systems and processes and reducing our costs. This is a significant information systems project with wide-reaching impacts on our internal operations and business. We can provide no assurance that the amount of this investment will not exceed our expectations and result in materially increased levels of expense or asset impairment charges. There is also no assurance that this initiative will achieve the expected cost savings or result in a positive return on our investment. Additionally, if the new system does not operate as intended, or is not implemented as planned, there could be disruptions in our business which could adversely affect our results.

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        We face uncertainty with respect to recent and future acquisitions.

        We acquired NEBS in June 2004 and have stated that we expect growth in our Small Business Services segment as we implement the business strategies contemplated at the time of the acquisition. The integration of any acquisition involves numerous risks, including, among others, difficulties in assimilating operations and products, diversion of management’s attention from other business concerns, potential loss of our key employees or key employees of acquired businesses, potential exposure to unknown liabilities and possible loss of our clients and customers or clients and customers of the acquired businesses. While we anticipate that we will be able to achieve our stated objectives, we can provide no assurance that one or more of these factors will not negatively impact our results of operations.

        In regard to future acquisitions, we cannot predict whether suitable acquisition candidates can be acquired on acceptable terms or whether any acquired products, technologies or businesses will contribute to our revenues or earnings to any material extent. Significant acquisitions typically result in the incurrence of contingent liabilities or debt, or additional amortization expense related to acquired intangible assets, and thus, could adversely affect our business, results of operations and financial condition.

        Costs incurred to implement our growth strategies within Small Business Services may exceed our expectations.

        As we execute our growth strategies within Small Business Services, we will incur additional costs, such as hiring and supporting a significant number of sales and call center personnel in early 2006. We can provide no assurance that these costs will not significantly exceed our expectations or that we will be able to hire enough qualified candidates to meet our sales targets. Additionally, we can provide no assurance that our strategy to expand sales to new and existing customers will be successful and result in a positive return on our investment.

        Forecasts involving future results reflect various assumptions that may prove to be incorrect.

        From time to time, we make predictions or forecasts regarding our future results, including, but not limited to, forecasts regarding estimated revenues, earnings, earnings per share or operating cash flow. Any forecast regarding our future performance reflects various assumptions which are subject to significant uncertainties, and, as a matter of course, may prove to be incorrect. Further, the achievement of any forecast depends on numerous factors which are beyond our control. As a result, we cannot assure you that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. You are cautioned not to base your entire analysis of our business and prospects upon isolated predictions, and are encouraged to use the entire mix of historical and forward-looking information made available by us, and other information affecting us and our products and services, including the factors discussed here.

        In addition, independent analysts periodically publish reports regarding our projected future performance. The methodologies we employ in arriving at our own internal projections and the approaches taken by independent analysts in making their estimates are likely different in many significant respects. We expressly disclaim any responsibility to advise analysts or the public markets of our views regarding the accuracy of the published estimates of independent analysts. If you are relying on these estimates, you should pursue your own investigation and analysis of their accuracy and the reasonableness of the assumptions on which they are based.

        We may be unable to protect our rights in intellectual property.

        Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or otherwise independently develop substantially equivalent products and services. In addition, designs licensed from third parties account for a portion of our revenues, and there can be no guarantee that such licenses will be available to us indefinitely or on terms that would allow us to continue to be profitable with those products. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business and ability to compete. We rely on a combination of trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect our trademarks, software and know-how. We may be required to spend significant resources to protect our trade secrets and monitor and police our intellectual property rights.

        We are dependent upon third party providers for certain significant information technology needs.

        We have entered into agreements with third party providers for information technology services, including software development and support services, and personal computer, telecommunications, network server and help desk services. In the event that one or more of these providers is not able to provide adequate information technology

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services, we would be adversely affected. Although we believe that information technology services are available from numerous sources, a failure to perform by one or more of our service providers could cause a disruption in our business while we obtain an alternative source of supply.

        Legislation relating to consumer privacy protection could harm our business.

        We are subject to regulations implementing the privacy and information security requirements of the federal financial modernization law known as the Gramm-Leach-Bliley Act and other federal regulation and state law on the same subject. These laws and regulations require us to develop and implement policies to protect the security and confidentiality of consumers’ nonpublic personal information and to disclose these policies to consumers before a customer relationship is established and annually thereafter. These regulations could have the effect of foreclosing future business initiatives. In addition, new technologies and higher criminal capabilities may breach or compromise the security of consumers’ nonpublic personal information.

        More restrictive legislation or regulations have been introduced in the past and could be introduced in the future in Congress and the states. We are unable to predict whether more restrictive legislation or regulations will be adopted in the future. Any future legislation or regulations could have a negative impact on our business, results of operations or prospects.

        Laws and regulations may be adopted in the future with respect to the internet, e-commerce or marketing practices generally relating to consumer privacy. Such laws or regulations may impede the growth of the internet and/or use of other sales or marketing vehicles. As an example, new privacy laws could decrease traffic to our websites, decrease telemarketing opportunities and increase the cost of obtaining new customers. Additionally, the applicability to the internet of existing laws governing property ownership, taxation, libel and personal privacy is uncertain and may remain uncertain for a considerable length of time.

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

        In accordance with current federal, state and local tax laws, and the constitutional limitations thereon, we currently collect sales, use or other similar taxes in state and local jurisdictions where our direct-to-consumer businesses have a physical presence. One or more state or local jurisdictions may seek to impose sales tax collection obligations on us and other out-of-state companies which engage in remote or online commerce. Further, tax law and the interpretation of constitutional limitations thereon are subject to change. In addition, any new operations of these businesses in states where they do not currently have a physical presence could subject shipments of goods by these businesses into such states to sales tax under current or future laws. If one or more state or local jurisdictions successfully asserts that we must collect sales or other taxes beyond our current practices, it could have a material, adverse affect on our business.

        We may be subject to environmental risks.

        Our printing facilities are subject to many existing and proposed federal and state regulations designed to protect the environment. In some instances, we owned and operated our printing facilities before the environmental regulations came into existence. We have sold former printing facilities to third parties and in some instances have agreed to indemnify the buyer of the facility for certain environmental liabilities. We have obtained insurance coverage related to environmental issues at certain of these facilities. We believe that, based on current information, we will not be required to incur additional material and uninsured expense with respect to these sites, but unforeseen conditions could result in additional exposure at lesser levels.

Item 1B.   Unresolved Staff Comments.

        None.

Item 2.   Properties.

        Our principal executive office is an owned property located in Shoreview, Minnesota. Aside from small sales offices, we occupy 31 facilities throughout the United States and three facilities in Canada where we conduct printing, call center, distribution, administration, and sales and marketing functions. These facilities are either owned

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or leased and have a combined floor space of approximately 3.3 million square feet. We believe that our properties are sufficiently maintained and are adequate and suitable for our business needs as presently conducted.

Item 3.   Legal Proceedings.

        We are involved in routine litigation incidental to our business, but there are no material pending legal proceedings to which we are a party or to which any of our property is subject.

Item 4.   Submission of Matters to a Vote of Security Holders.

        None.

PART II

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

        Our common stock is traded on the New York Stock Exchange under the symbol DLX. During the years ended December 31, 2005 and 2004, we declared dividends of $0.40 per share and $0.37 per share, respectively, during each quarterly period, for a total annual dividend of $1.60 for 2005 and $1.48 for 2004. Dividends are declared by our board of directors on a current basis and therefore, may be subject to change in the future, although we currently have no plans to change our dividend amount. As of December 31, 2005, the number of shareholders of record was 8,880. The table below shows the per share closing price ranges of our common stock for the past two fiscal years as quoted on the New York Stock Exchange.

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        In August 2003, our board of directors approved an authorization to purchase up to 10 million shares of our common stock. This authorization has no expiration date and 7.9 million shares remain available for purchase under this authorization. During the fourth quarter of 2005, we did not purchase any of our own equity securities under this authorization, and we have not completed any such purchases since the second quarter of 2004. We do not expect to repurchase a significant number of additional shares in the near future, as we intend to focus on reducing our outstanding debt. However, we have not terminated this authorization and may purchase additional shares under this authorization in the future.

        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 fourth quarter of 2005, we withheld 22,306 shares in conjunction with the vesting of restricted stock and restricted stock units.

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Item 6.   Selected Financial Data.

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

EXECUTIVE OVERVIEW

        Our businesses are organized into three segments: Small Business Services, Financial Services and Direct Checks. Our Small Business Services segment generated 54.3% of our 2005 consolidated revenue. This segment sells checks, forms and related products to more than six million small businesses and home offices through direct response marketing, financial institution referrals, independent distributors, sales representatives and the internet. Small Business Services is comprised of New England Business Service, Inc. (NEBS), which we acquired in June 2004, and our former Business Services segment. Our Financial Services segment generated 31.3% of our 2005 consolidated revenue. This segment sells personal and business checks and related products and services to approximately 7,500 financial institution clients nationwide, including banks, credit unions and financial services companies. Our Direct Checks segment generated 14.4% of our 2005 consolidated revenue. This segment is the nation’s leading direct-to-consumer check supplier, selling under the Checks Unlimited® and Designer® Checks brands via direct response marketing and the internet. All three of our segments operate primarily in the United States. Small Business Services also has operations in Canada.

        Our results of operations for 2005 were negatively impacted by lower volume in our Financial Services and Direct Checks segments caused by financial institution client losses, consolidations among financial institutions, the continuing decline in check usage and lower direct mail consumer response rates. Continuing pricing pressure in our Financial Services segment also had a negative impact. Partially offsetting these negative trends was the full-year impact of the NEBS acquisition and the resulting synergies. Additionally, we realized the benefit of several cost reduction initiatives undertaken in response to declining revenue in Financial Services and Direct Checks.

        As we begin 2006, our focus is shifting from integrating NEBS to executing strategies we believe will drive sustained growth in Small Business Services. The foundation of these strategies is the interdependency between our Small Business Services and Financial Services segments. The relationships we have with financial institutions help generate small business referrals, which we serve through our Small Business Services segment. We believe Small Business Services provides one of the most comprehensive product offerings for small businesses. This allows us to meet the needs of small businesses, which in turn, strengthens our ability to retain and acquire clients in our Financial Services segment as we enable them to better serve small business customers. Examples of steps we have already taken toward executing our strategies include the following:

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        Two of our largest product groups, checks and business forms, are mature products and their use has been declining. According to our estimates, the total number of checks written in the United States has been in decline as a result of alternative payment methods, including credit cards, debit cards, automated teller machines and electronic payment systems. A 2004 Federal Reserve study reported that the check is still the largest single non-cash payment method in the United States, accounting for approximately 45% of all non-cash payments processed in 2003, down from 2000 when checks comprised approximately 60% of all non-cash payments. The Federal Reserve Study also indicated that consumer checks are declining faster than business checks. In addition, continual technological improvements have provided small business customers with alternative means to enact and record business transactions. For example, electronic transaction systems and off-the-shelf business software applications have been designed to automate several of the functions performed by business forms products.

        Because check usage is declining and financial institutions are consolidating, we also have been encountering significant pricing pressure when negotiating contracts with our financial institution clients. Our traditional financial institution relationships are typically formalized through supply contracts averaging three to five years in duration. As we compete to retain and obtain financial institution business in the face of declining volume, the resulting pricing pressure has reduced our profit margins, and we expect this trend to continue.

        We acquired several new financial institution clients in 2005, including three major financial institutions, and we have renewed our relationship with another major client. We expect to see the full impact of these new clients in the second quarter of 2006. At the same time, mid-2005 client losses from financial institution consolidations will have a negative impact on revenue in comparison to 2005, especially in the early portions of 2006. During 2006, we expect our share of the financial institution channel to increase.

        Our Direct Checks segment and portions of our Small Business Services segment have been impacted by reduced customer response rates to direct mail advertisements. The DMA 2004 Response Rate Report published by the Direct Marketing Association and our own experience indicate that direct-to-consumer media response rates are declining across a wide variety of products and services. Additionally, we believe that the decline in our customer response rates is attributable to the decline in check usage, the gradual obsolescence of standardized forms products and an increase in financial institutions providing free checks to consumers. Moreover, with over 41 million customers who have purchased from our Direct Checks segment since its inception, fewer consumers are eligible for the lower introductory prices we offer first-time customers.

        We continue to focus on cost management and operational excellence. As previously announced, we intend to close two printing facilities by mid-2006. The application of lean principles in our manufacturing area continues to result in increased efficiencies, and we are applying these principles throughout the rest of the company. During 2006, we plan to complete our installation of a new order capture system in portions of our order processing and call center operations. This new system is expected to lower our information technology infrastructure costs by reducing redundancy while standardizing systems and processes.

        After considering the factors previously discussed, we expect that 2006 earnings will decrease from 2005. We estimate that diluted earnings per share will be between $2.70 and $2.90 for 2006, versus $3.09 for 2005, which reflects the following key differentiators from 2005:

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        We anticipate that operating cash flow will be between $240 million and $260 million in 2006, compared to $178 million in 2005. The increase in 2006 will be due primarily to anticipated decreases in contract acquisition payments to financial institution clients as fewer large clients are up for renewal in 2006 and we are seeking to reduce our use of up-front product discounts. Additionally, payments for performance-based employee compensation will be lower in 2006 based on our 2005 operating performance and we anticipate other positive working capital changes. In addition, we expect capital spending to be approximately $50 million in 2006.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Revenue

        As NEBS was acquired in June 2004, the full year impact of NEBS operations contributed an increase in revenue of $308.0 million in 2005. The $158.7 million decrease in revenue for our other businesses compared to 2004 was primarily due to a decline in volume for our Financial Services and Direct Checks segments. The loss of a large financial institution client in late 2004 was the largest single contributor to the volume decline. In addition, the volume decrease was due to the overall decline in check usage, mid-2005 client losses due to financial institution consolidations and the following factors specific to our Direct Checks segment: lower direct mail consumer response rates, lower customer retention and an increase in financial institutions offering free checks to consumers. On a total company basis, financial institution free check programs result in either the sale of a lower-priced product or a lost sale, depending on whether the financial institution is a client of our Financial Services segment. Revenue was also negatively affected by continued pricing pressure in our Financial Services segment. Partially offsetting these decreases was increased revenue per order for our Direct Checks segment due to a shift from the mail order channel to the internet and phone order channels, which typically result in higher revenue per order and a higher percentage of reorders. Additionally, Direct Checks reorders, which generate higher revenue per order, have become a larger percentage of total orders, and we benefited from price increases in our Small Business Services segment. Contract termination payments did not have a significant impact on our 2005 revenue, as compared to 2004, as the amount of these payments was comparable each year.

        The number of orders decreased in 2005, as compared to 2004, despite the full year impact of the NEBS acquisition. The volume decreases at Financial Services and Direct Checks exceeded the positive impact of the NEBS acquisition. Revenue per order increased in 2005, as compared to 2004, as Small Business Services orders increased as a percentage of total orders and Direct Checks revenue per order increased as discussed earlier.

        The acquisition of NEBS contributed revenue of $363.2 million in 2004. The $38.3 million decrease in revenue for our other businesses compared to 2003 was due to a decline in volume resulting from the decline in check usage and the following factors specific to our Direct Checks segment: lower direct mail consumer response rates, longer reorder cycles due to promotional strategies for multi-box orders and lower customer retention. These volume decreases were partially offset by increased financial institution referrals for our Small Business Services segment. Partially offsetting the volume decline was an increase in revenue per order as compared to 2003 due to continued strength in selling premium-priced licensed and specialty check designs, price increases in our Direct Checks and Small Business Services segments and a $7.7 million contract termination payment from a former financial institution client in the third quarter of 2004. These increases were partially offset by increased competitive pricing pressure within our Financial Services segment.

        The number of orders decreased in 2004, as compared to 2003, despite the NEBS acquisition in June 2004, as volume decreases at Financial Services and Direct Checks offset the increase from the NEBS acquisition. Revenue

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per order increased in 2004, as compared to 2003, primarily due to the increase in Small Business Services orders as a percentage of total orders.

        Supplemental information regarding revenue by product is as follows:

        Due to the addition of NEBS non-check revenue, as well as the revenue declines within Financial Services and Direct Checks, the percentage of total revenue derived from the sale of checks and related services decreased to 65.4% in 2005 from 75.8% in 2004 and 89.3% in 2003. Small Business Services contributed non-check revenue of $521.1 million in 2005 and $297.4 million in 2004, from the sale of forms, envelopes, packaging supplies, holiday cards, labels, business cards, stationery and other promotional products.

Consolidated Gross Margin

        Gross margin decreased in 2005, as compared to 2004, due in large part to the full year impact of NEBS operations. NEBS historical gross margins have been seven to eight points lower than our other businesses because of its non-check product mix. This resulted in a 2.5 percentage point decrease in our consolidated gross margin in 2005. Additionally, pricing pressure in our Financial Services segment continued to impact our gross margin. Offsetting these decreases was the increase in Direct Checks revenue per order discussed earlier, on-going cost management efforts, including the closing of six printing facilities in 2004, continued productivity improvements, as well as cost synergies resulting from the NEBS acquisition and lower performance-based employee compensation.

        Gross margin was flat in 2004, as compared to 2003. Higher revenue per order, as well as continued productivity improvements and on-going cost management efforts, including the closing of six printing facilities in 2004, were offset by the impact of the lower margin NEBS business and the continued pricing pressure facing our Financial Services segment.

Consolidated Selling, General & Administrative (SG&A) Expense

        The increase in SG&A expense in 2005, as compared to 2004, was primarily due to the full year impact of expenses of the acquired NEBS business, an increase of $18.0 million in acquisition-related amortization expense and an increase of $8.9 million in integration expenses. Partially offsetting these increases were a $19.7 million decrease in performance-based employee compensation, cost reductions in response to declining revenue, cost

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synergies resulting from the NEBS acquisition and a $6.2 million decrease in Direct Checks advertising expense primarily due to spending for new product initiatives in 2004.

        SG&A expense as a percentage of revenue increased in 2005, as compared to 2004, primarily due to the decline in revenue for Financial Services and Direct Checks being greater than the reduction in fixed SG&A expense. Additionally, NEBS results increased our SG&A percentage by 0.7 percentage points. NEBS has historically had a higher SG&A percentage than our other businesses due to its greater reliance on direct mail and a direct sales force to acquire and retain customers, as well as its decentralization of SG&A functions. Additionally, as previously discussed, these results included an increase of $18.0 million in acquisition-related amortization expense and an increase of $8.9 million in integration expenses.

        The increase in SG&A expense in 2004, as compared to 2003, was primarily due to expenses of the acquired NEBS business, including $19.1 million of additional acquisition-related amortization expense and $7.1 million of integration expenses, a $12.7 million increase in performance-based employee compensation due to our 2004 operating performance exceeding planned amounts, a $10.3 million increase in stock-based compensation due to the adoption of the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123 and a $4.7 million increase in Direct Checks advertising expense due to new product efforts. Partially offsetting these increases were cost management efforts, including savings realized from employee reductions, lower discretionary spending and $5.3 million of asset impairment losses in 2003. The asset impairment losses related to manufacturing technologies and software. We had been intending to implement the manufacturing technologies during 2003. However, having already realized many efficiencies in our manufacturing function as a result of other initiatives, including the implementation of lean manufacturing, the incremental benefits expected from these technologies no longer warranted their implementation. The impaired software was intended to replace several of our existing systems and bring various technologies used by the company onto one platform. However, based on our continuing evaluation of investment initiatives, we determined that the costs to implement the system and the timeline for implementation did not result in an adequate return on our investment. The majority of the impaired assets had no alternative use and could not be sold to third parties. Thus, these assets were written down to a carrying value of zero. Certain related hardware was sold to third parties and was written down to its fair value less costs to sell. Of the total asset impairment losses, $3.6 million related to property, plant and equipment and $1.7 million related to intangible assets.

        SG&A expense as a percentage of revenue increased in 2004, as compared to 2003, primarily as a result of NEBS historically higher SG&A percentage. Additionally, as discussed above, NEBS results included $19.1 million of additional acquisition-related amortization expense and $7.1 million of integration expenses.

Interest Expense

        The increase in interest expense in 2005, as compared to 2004, was due to higher interest rates and the higher average debt level resulting from the full-year impact of financing the acquisition of NEBS. The increase in interest expense in 2004, as compared to 2003, was due to our higher average debt level resulting from the acquisition of NEBS, partially offset by lower interest rates.

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Provision for Income Taxes

        The decrease in our effective tax rate for 2005, as compared to 2004, was primarily due to the new federal qualified production activity deduction which was passed as part of the American Jobs Creation Act of 2004, as well as changes in our state tax rates due to changes in our legal entity structure. These impacts were partially offset by lower tax credits in 2005 and the positive impact in 2004 of refunds received for prior year state income tax credits and an increase in our estimate of 2004 state income tax credits. We expect our 2006 tax rate to be approximately 37%.

        The increase in our effective tax rate for 2004, as compared to 2003, was primarily due to the reversal of $7.3 million of previously established income tax reserves during 2003. A prior year federal audit period was closed due to the expiration of the statute of limitations, and we reached agreements with two states to favorably settle proposed income tax audit assessments. As a result, the related reserves were no longer required. These reversals lowered our 2003 effective tax rate by 2.4 points. Our 2004 effective tax rate was positively impacted by refunds received for prior year state income tax credits, as well as an increase in our estimate of 2004 state income tax credits.

Income from Continuing Operations

        The decrease in income from continuing operations in 2005, as compared to 2004, was primarily due to lower volume resulting from the continuing decline in check usage, mid-2005 client losses due to financial institution consolidations, lower direct mail response rates and customer retention for our Direct Checks segment, and the loss of a large financial institution client in late 2004. Additionally, our results were negatively impacted by continued pricing pressure within our Financial Services segment, higher interest expense due to higher interest rates and the full year impact of financing the NEBS acquisition, as well as the full year impact of amortization resulting from the NEBS acquisition. These decreases were partially offset by the full-year contribution of the NEBS business and the resulting cost synergies, lower performance-based employee compensation, increased sales of premium-priced licensed and specialty check designs and cost reductions in response to lower revenue, as well as manufacturing productivity improvements.

        The increase in income from continuing operations in 2004, as compared to 2003, was due to the acquisition of NEBS, manufacturing productivity improvements, other cost management efforts and higher net restructuring charges in 2003. Further information regarding our restructuring charges can be found in the section entitled Restructuring Accruals. These increases were partially offset by higher interest expense in 2004 due to financing the NEBS acquisition, the positive impact in 2003 from the reversal of income tax reserves and higher stock-based compensation expense in 2004 due to the adoption of the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation.

        On January 1, 2004, we adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. We reported this change in accounting principle using the modified prospective method of adoption described in SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. During 2003, we accounted for our employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, our 2003 results of operations do not include compensation expense for stock options or for our employee stock purchase plan. Had this expense been included in our results, diluted earnings per share would have been $0.07 lower for 2003. This pro forma impact of stock-based compensation was calculated utilizing the method disclosed under the caption “Note 1:

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Significant accounting policies” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. Total stock-based compensation expense recognized in our consolidated statements of income was $7.0 million in 2005, $12.2 million in 2004 and $1.0 million in 2003. The decrease in 2005, as compared to 2004, was due to a lower number of stock options granted and lower restricted stock unit awards earned in 2005, as our operating performance did not meet planned results.

Net Loss from Discontinued Operations

        Discontinued operations in 2005 include the results of the apparel business acquired from NEBS. This business was sold in the third quarter of 2005, resulting in a pre-tax gain of $0.8 million. In addition to the apparel business, discontinued operations in 2004 also include the European operations of NEBS, which were sold on December 31, 2004. No gain or loss was recognized on this disposition as the assets and liabilities were recorded at fair value on the acquisition date. We continue to hold one building associated with the European operations and intend to complete the sale of this facility in the first half of 2006.

Diluted Earnings per Share

        In addition to the decrease in income from continuing operations in 2005, as compared to 2004, diluted earnings per share decreased in 2005 due to the increase in average shares outstanding resulting from shares issued under employee stock purchase and stock incentive plans. The change in shares outstanding resulted in a $0.03 decrease in earnings per share for 2005 as compared to 2004.

        In addition to the increase in income from continuing operations in 2004, as compared to 2003, diluted earnings per share increased in 2004 due to the decrease in average shares outstanding resulting from our share repurchase programs. During 2003, we purchased 12.2 million shares and during 2004, we purchased 0.6 million shares. The change in average shares outstanding resulting from share repurchases, partially offset by the impact of shares issued under employee stock purchase and stock incentive plans, resulted in a $0.34 increase in earnings per share for 2004 as compared to 2003.

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Earnings before Interest, Taxes, Depreciation and Amortization of Intangibles (EBITDA)

        EBIT and EBITDA are not measures of financial performance under Generally Accepted Accounting Principles (GAAP) in the United States of America. We disclose these measures because they can be used to analyze profitability between companies and industries by eliminating the effects of financing (i.e., interest) and capital investments (i.e., depreciation and amortization). We believe these measures can indicate whether a company’s earnings are adequate to pay its debts without regard to financing, capital structure or income taxes. We also believe that increases in these measures depict increased ability to attract financing and increase the valuation of our business. We do not consider these measures to be substitutes for performance measures calculated in accordance with GAAP. Instead, we believe that they are useful performance measures which should be considered in addition to those measures reported in accordance with GAAP.

RESTRUCTURING ACCRUALS

        During 2004, we recorded restructuring charges of $5.7 million for employee severance primarily related to the closing of our Financial Services check printing facility located in Dallas, Texas and our Direct Checks check printing facility located in Anniston, Alabama, as well as reductions in various functional areas primarily within our Direct Checks and Financial Services segments. The closure of the Dallas facility was primarily due to the loss of a major financial institution client whose contract expired at the end of 2004. The other reductions were a result of the continuing decline in check usage, as well as increased productivity. Both the Dallas and Anniston facilities were closed during the fourth quarter of 2004. The other employee reductions were completed during 2005. In total, 450 employees received a total of $5.3 million in severance payments, which were funded by cash from operations. These restructuring charges are reflected as cost of goods sold of $2.4 million and SG&A expense of $3.3 million in our 2004 consolidated statement of income.

        During 2003, we recorded restructuring charges of $11.8 million for employee severance primarily related to the closing of three of our Financial Services check printing facilities and other reductions in employees within Financial Services. We were able to close the three check printing facilities because of the expertise we have developed in logistics, productivity and inventory management, as well as the decline in check usage. The other employee reductions were the result of our ongoing cost management efforts. All three check printing facilities were closed during 2004, and the other employee reductions were also substantially completed during 2004. In total, 573 employees received a total of $10.7 million in severance payments, which were funded by cash from operations. These restructuring charges are reflected as cost of goods sold of $5.1 million and SG&A expense of $6.7 million in our 2003 consolidated statement of income.

        As a result of the five facility closings and other employee reductions discussed here, we estimate that we realized net cost savings in 2005 of approximately $18 million in cost of goods sold and $7 million in SG&A expense, in comparison to our 2004 results of operations. Reduced costs consisted primarily of labor and facility expenses such as insurance, taxes, depreciation and maintenance. In addition to a total of $16.0 million of severance payments, we also incurred other costs related to the closing of facilities, including equipment moves, training and travel. These costs were expensed as incurred, primarily as cost of goods sold, and totaled $2.1 million. Of this

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amount, $1.8 million was expensed in 2004 and $0.3 million was expensed in 2003. We also made improvements to our remaining check printing facilities to allow them to handle increased volume. These improvements, which totaled $5 million, were capitalized and are being depreciated, primarily as cost of goods sold, over their estimated useful lives.

        In conjunction with the acquisition of NEBS, we recorded $30.2 million of restructuring accruals in 2004 for NEBS activities which we decided to exit. These accruals primarily included severance benefits, as well as $2.8 million due under noncancelable operating leases on facilities which have been or will be vacated as we consolidate operations. The severance accruals include payments due 700 employees. This includes employees in the Tucker, Georgia printing facility, which was closed during the fourth quarter of 2004, and the Los Angeles, California and Athens, Ohio facilities, which we plan to close by mid-2006. Additionally, the accruals included employees in various functional areas throughout NEBS resulting from our shared services approach to manufacturing and certain SG&A functions. The severance accruals also included amounts due to certain NEBS executives under change of control provisions included in their employment agreements, as we eliminated redundancies between the two companies. Severance payments are expected to be substantially completed by the end of 2006, utilizing cash from operations. As a result of these facility closures and employee reductions, we estimate that we realized cost savings of approximately $1 million in cost of goods sold and $12 million in SG&A expense in 2005, in comparison to NEBS historical results of operations. We estimate that we will realize additional savings of approximately $7 million in cost of goods sold and $2 million in SG&A expense in 2006, in comparison to our 2005 results of operations.

        Further information regarding our restructuring accruals can be found under the caption “Note 6: Restructuring accruals” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

SEGMENT RESULTS

        Additional financial information regarding our business segments appears under the caption “Note 17: Business segment information” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

Small Business Services

        This segment sells checks, forms and related products to small businesses and home offices through direct response marketing, financial institution referrals and via sales representatives, independent distributors and the internet.

        The increase in revenue in 2005, as compared to 2004, was primarily due to the $308.0 million increase contributed by the full year impact of the NEBS business. Additionally, the increase in revenue resulted from increased financial institution referrals and price increases. The Deluxe Business Advantage program discussed earlier under Executive Overview is designed to leverage our financial institution relationships into increased sales within Small Business Services. These revenue increases were partially offset by the loss of a large financial institution client in late 2004, as well as mid-2005 client losses due to financial institution consolidations.

        The increase in operating income in 2005, as compared to 2004, was due to the full year impact of the NEBS acquisition, price increases and lower delivery and materials costs as we were able to negotiate lower prices subsequent to the NEBS acquisition. Partially offsetting these increases were an $18.0 million increase in acquisition-related amortization expense, an $8.9 million increase in integration costs and increased call center and marketing costs related to the implementation of our growth strategy. Additionally, the allocation of corporate costs to the NEBS portion of Small Business Services resulted in a decrease of $12.0 million in Small Business Services operating income in 2005. As discussed under the caption “Note 17: Business segment information” of the Notes to

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Consolidated Financial Statements appearing in Item 8 of this report, we began allocating corporate costs to the NEBS portion of Small Business Services on April 1, 2005 when NEBS implemented certain of our corporate information systems and began utilizing corporate shared services functions. As such, Small Business Services now bears a larger portion of corporate costs. The decrease in operating margin in 2005, as compared to 2004, was due to the full year impact of NEBS lower margin business, as well as the higher acquisition-related amortization expense and integration costs. NEBS historically has had lower operating margins than our other businesses because of its non-check product mix and its greater reliance on direct mail and a direct sales force to acquire and retain customers.

        The increase in revenue in 2004, as compared to 2003, was primarily due to the $363.2 million contributed by the NEBS acquisition. Additionally, the growth in revenue resulted from higher volume and price increases. Financial institution referrals increased due to the timing of client gains and losses and due to our focus on expanding the utilization of this referral program with our financial institution clients. Partially offsetting these improvements was the overall decline in the number of checks being written due to the increasing use of alternative payment methods.

        The increase in operating income in 2004, as compared to 2003, was due to the acquisition of NEBS, revenue growth and lower discretionary spending, partially offset by increased customer care costs in support of the higher revenue level. The decrease in operating margin in 2004, as compared to 2003, was due to NEBS historically lower margin business.

Financial Services

        Financial Services sells personal and business checks, related products and check merchandising services to financial institutions. Additionally, we offer enhanced services to our financial institution clients, such as customized reporting, file management, expedited account conversion support, fraud prevention and customer retention programs.

        The decrease in revenue in 2005, as compared to 2004, was due to a decline in volume resulting from the loss of a large financial institution client in late 2004, the continuing decline in check usage and mid-2005 client losses due to financial institution consolidations. Pricing pressure also continued to have a negative impact. Contract termination payments did not have a significant impact on 2005 revenue, as compared to 2004, as the amount of these payments was comparable each year.

        The decrease in operating income in 2005, as compared to 2004, was the result of the revenue decline, partially offset by cost management efforts, including the closing of four printing facilities in 2004, lower performance-based employee compensation, productivity improvements and cost synergies resulting from the NEBS acquisition. Additionally, as discussed earlier, we began allocating corporate costs to the NEBS portion of Small Business Services on April 1, 2005. This change benefited Financial Services, as NEBS now bears a portion of corporate costs. This change resulted in an $8.3 million benefit to Financial Services in 2005.

        The decrease in revenue in 2004, as compared to 2003, was due to the continuing decline in check usage, as well as increased competitive pricing pressure. These revenue decreases were partially offset by increased sales of premium-priced licensed and specialty check designs, as well as a $7.7 million contract termination payment recorded in the third quarter of 2004.

        The increase in operating income in 2004, as compared to 2003, was the result of cost management efforts, including savings realized from employee reductions, productivity improvements, lower discretionary spending and asset impairment losses in 2003, partially offset by the revenue decline.

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Direct Checks

        Direct Checks sells checks and related products directly to consumers through direct mail and the internet. We use a variety of direct marketing techniques to acquire new customers in the direct-to-consumer channel, including newspaper inserts, in-package advertising, statement stuffers and co-op advertising. We also use e-commerce strategies to direct traffic to our websites. Direct Checks sells under the Checks Unlimited and Designer Checks brand names.

        The decrease in revenue in 2005, as compared to 2004, was due to lower volume resulting from the continuing decline in check usage, lower consumer response rates to direct mail advertisements, lower customer retention and an increase in financial institutions offering free checks to consumers. We believe that the decline in our customer response rates is attributable to the decline in check usage, an increase in financial institutions providing free checks to consumers, a general decline in direct marketing response rates and a lower number of eligible first-time customers. With a large base of lifetime customers, fewer consumers are eligible for the lower introductory prices we offer first-time customers. Partially offsetting the volume decline was an increase in revenue per order resulting from our efforts to shift mail orders to the internet and phone order channels, which typically result in higher revenue per order. Additionally, Direct Checks reorders, which generate higher revenue per order, have become a larger percentage of total orders.

        The decrease in operating income in 2005, as compared to 2004, was primarily due to the revenue decline, partially offset by productivity improvements, cost management efforts, including savings realized from employee reductions, and a $6.2 million decrease in advertising costs primarily related to new product initiatives in 2004. Additionally, as discussed earlier, the allocation of corporate costs to the NEBS portion of Small Business Services resulted in a $3.8 million benefit to Direct Checks in 2005. Operating income as a percentage of revenue increased compared to 2004 due to the increase in revenue per order and the cost decreases discussed here.

        The decrease in revenue in 2004, as compared to 2003, was due to lower volume resulting from the continuing decline in check usage, lower consumer response rates to direct mail advertisements, longer reorder cycles due to our promotional strategies for multi-box orders and lower customer retention. Partially offsetting the revenue pressures from the volume decline was an increase in revenue per order due to price increases, the improved effectiveness of our selling techniques and continued strength in selling premium-priced licensed and specialty check designs.

        The decrease in operating income in 2004, as compared to 2003, was primarily due to the revenue decline and a $4.7 million increase in advertising expense for new product efforts, partially offset by productivity improvements and cost management initiatives, including savings realized from employee reductions.

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CASH FLOWS

        As of December 31, 2005, we held cash and cash equivalents of $6.9 million. The following table shows our cash flow activity for the last three years and should be read in conjunction with the consolidated statements of cash flows appearing in Item 8 of this report.

        The $129.3 million decrease in cash provided by operating activities in 2005, as compared to 2004, was due to a $54.4 million increase in contract acquisition payments related to new financial institution contracts, higher interest payments due to higher interest rates and our higher debt level, the lower earnings discussed earlier under Consolidated Results of Operations, as well as higher employee profit sharing and pension payments related to our 2004 operating results. These decreases in cash provided by operating activities were partially offset by higher NEBS operating cash flows and lower severance payments.

        The $126.1 million increase in cash provided by operating activities in 2004, as compared to 2003, was due primarily to our cost management initiatives and productivity improvements, lower contract acquisition payments to financial institution clients, lower Direct Checks advertising spend in 2004 and a decrease in employee profit sharing and pension payments. Net cash provided by operating activities in 2004 was negatively impacted by NEBS severance payments, payments due to executive officers under change of control agreements and profit sharing and pension payments related to NEBS pre-acquisition results of operations.

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

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        Primarily because of the NEBS acquisition in 2004, cash used by investing activities in 2005 was $614.9 million lower than 2004. Purchases of capital assets were $11.8 million higher in 2005, as compared to 2004, due to costs incurred in conjunction with the order capture system we intend to implement in 2006. Cash used by financing activities in 2005 was higher than 2004 due to borrowings in 2004 related to financing the acquisition of NEBS, partially offset by the payment of NEBS long-term debt in 2004 and share repurchases in 2004. Net cash provided by discontinued operations in 2005 was $7.0 million higher than 2004 due primarily to the sale of our apparel business which generated net cash proceeds of $15.8 million, partially offset by changes in working capital. The sale of our apparel business will not have a material effect on our cash flows or capital resources.

        Cash used by investing activities in 2004 included payments of $624.9 million for the acquisition of NEBS. Cash provided by financing activities in 2004 was higher than 2003 due to borrowings to finance the acquisition of NEBS. The purchase price for NEBS, net of cash acquired, was $625.8 million. We utilized a bridge financing agreement and commercial paper to finance this purchase. A portion of this debt was refinanced with long-term debt in the fourth quarter of 2004. See Capital Resources for further information regarding our debt.

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

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

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        We believe that the following ratios are important measures of our financial strength: total debt to EBITDA⁽¹⁾, EBIT⁽¹⁾ to interest expense and free cash
flow⁽²⁾ to total debt.

        Total debt to EBITDA was 2.8 times for 2005 and 2004 and 1.6 times for 2003. The 2005 ratio was unchanged from 2004 as the decrease in total debt as of December 31, 2005 was offset by the decrease in EBITDA resulting from our lower earnings in 2005. The increase in 2004, as compared to 2003, was due to the higher total debt level as of December 31, 2004 due to financing of the NEBS acquisition. The comparable ratio of total debt to net income was 7.4 times for 2005, 6.3 times for 2004 and 3.1 times for 2003.

        EBIT to interest expense was 5.4 times for 2005, 10.6 times for 2004 and 16.5 times for 2003. Our committed lines of credit contain covenants requiring a minimum EBIT to interest expense ratio of 3.0 times on a four-quarter trailing basis. A decrease in this ratio in 2005, as compared to 2004, was expected. The decrease was due primarily to higher interest expense resulting from higher interest rates, as well as higher debt levels to fund the acquisition of NEBS in June 2004. The decrease in 2004, as compared to 2003, was primarily due to higher interest expense resulting from higher debt levels to fund the acquisition of NEBS and to fund share repurchases earlier in the year. We believe the risk of violating our financial covenants is low as we expect solid profitability and cash flow to continue. The comparable ratio of net income to interest expense was 2.8 times for 2005, 6.0 times for 2004 and 10.0 times for 2003.

        Free cash flow to total debt was 3.6% for 2005, 15.2% for 2004 and 13.3% for 2003. We calculate free cash flow as cash provided by operating activities less purchases of capital assets and dividends paid to shareholders. The decrease in 2005, as compared to 2004, was due to the decrease in operating cash flow discussed earlier. The increase in 2004, as compared to 2003, was due to the increase in operating cash flow discussed earlier. This impact was partially offset by our higher debt level as of December 31, 2004, due to financing required for the NEBS acquisition. The comparable ratio of net cash provided by operating activities of continuing operations to total debt was 15.3% for 2005, 24.7% for 2004 and 30.5% for 2003.

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CAPITAL RESOURCES

        Our total debt was $1,166.5 million as of December 31, 2005, a decrease of $77.7 million from December 31, 2004. Our equity market capitalization was $1.5 billion as of December 31, 2005, based on the closing stock price of $30.14 and 50.7 million basic shares outstanding, down from $1.9 billion as of December 31, 2004.

Capital Structure

        We are in a shareholders’ deficit position due to the required accounting treatment for share repurchases. We have not repurchased any shares since the second quarter of 2004, and we expect our shareholders’ deficit to continue to decrease in future periods, absent additional share repurchase activity. Share repurchases during the past three years were as follows:

Debt Structure

        Further information concerning our outstanding debt can be found under the caption “Note 13: Debt” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report. We may, from time to time, consider retiring our outstanding debt through cash purchases, privately negotiated transactions or otherwise. Any such repurchases or exchanges, if any, would depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

        During 2004, we entered into $450.0 million of forward starting interest rate swaps to hedge, or lock-in, the interest rate on a portion of the debt we issued in 2004. The termination of the lock agreements in September 2004 yielded a deferred pre-tax loss of $23.6 million. During 2002, we entered into two forward rate lock agreements to effectively hedge, or lock-in, the annual interest rate on a portion of the debt we issued in 2002. The termination of the lock agreements in December 2002 yielded a deferred pre-tax loss of $4.0 million. These losses are reflected, net of tax, in accumulated other comprehensive loss in our consolidated balance sheets and are being reclassified ratably to our statements of income as increases to interest expense over the terms of the related debt.

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        We currently have a $500.0 million commercial paper program in place which is supported by two committed lines of credit. The credit agreements governing the lines of credit contain customary covenants regarding the ratio of EBIT to interest expense and levels of subsidiary indebtedness. No amounts were drawn on these lines of credit during 2005 or during 2004.

        As of December 31, 2005, $287.7 million was available under our committed lines of credit for borrowing or for support of additional commercial paper, as follows:

        Our Canadian subsidiary also has a $5.0 million (Canadian dollars) committed line of credit available for borrowing. No amounts were drawn on this line of credit during 2005, and no amounts were outstanding under this line as of December 31, 2005.

        In January 2006, Moody’s Investors Service downgraded our long-term debt rating to Baa3 from Baa1 and downgraded our short-term debt rating to Prime-3 from Prime-2. Additionally, they have placed a negative outlook on our debt. Moody’s indicated that the downgrades resulted from increased business risk and deterioration in our revenue base due to volume declines and intensifying pricing pressure. Moody’s also indicated that they recognize our plans to offset these pressures by growing our Small Business Services segment, but they perceive execution risk in an unproven business model.

        Also in January 2006, Standard and Poor’s credit rating agency (S&P) lowered our long-term debt rating to BBB- from BBB+ and our short-term debt rating to A-3 from A-2. They also placed a negative outlook on our debt. S&P indicated that the downgrades reflect greater than expected declines in check pricing and volumes due to heightened competitive pressures. S&P also indicated that the ratings reflect our leading market position, good margins and adequate cash flow generation.

        Despite the downgrades in our credit ratings, we intend to issue commercial paper as long as the market is available to us. To the extent the commercial paper market is not available or is not cost effective, we will utilize our $500.0 million committed lines of credit or issue term debt, depending on which alternative is most economical. Our credit facilities do not have covenants or events of default tied to our credit ratings. As the commitment fees for our lines of credit are tied to our credit ratings, these fees will increase in 2006 to 0.175% for the $275.0 million line and 0.225% for the $225.0 million line.

        We believe our future operating cash flows and our available credit capacity are sufficient to support our operations, including capital expenditures, required debt service and dividend payments, for the foreseeable future.

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OTHER CHANGES IN FINANCIAL CONDITION

        Other non-current assets include contract acquisition costs of our Financial Services segment. These costs are recorded as non-current assets upon contract execution and are amortized, generally on the straight-line basis, as reductions of revenue over the related contract term. Changes in contract acquisition costs during 2005 were as follows:

        The number of checks being written has been in decline since the mid-1990’s, which has contributed to increased competitive pressure when attempting to retain or obtain clients. In recent years, both the number of financial institution clients requesting contract acquisition payments and the amount of the payments has increased. Although we anticipate that we will selectively continue to make contract acquisition payments, we cannot quantify future amounts with certainty. The amount paid depends on numerous factors such as the number and timing of contract executions and renewals, competitors’ actions, overall product discount levels and the structure of up-front product discount payments versus providing higher discount levels throughout the term of the contract. When the overall discount level provided for in a contract is unchanged, contract acquisition costs do not result in lower net revenue. The impact of these costs is the timing of cash flows. An up-front cash payment is made as opposed to providing higher product discount levels throughout the term of the contract.

        Liabilities for contract acquisition payments are recorded upon contract execution. Contract acquisition payments due within the next year are included in accrued liabilities in our consolidated balance sheets. These accruals were $3.9 million as of December 31, 2005 and $11.5 million as of December 31, 2004. Accruals for contract acquisition payments included in other non-current liabilities in our consolidated balance sheets were $6.7 million as of December 31, 2005 and $21.9 million as of December 31, 2004.

        Net assets of discontinued operations decreased $19.3 million from December 31, 2004 primarily due to the sale of PremiumWear, the apparel business we had acquired as part of the NEBS acquisition.

OFF-BALANCE SHEET ARRANGEMENTS, GUARANTEES AND CONTRACTUAL OBLIGATIONS

        It is not our general business practice to enter into off-balance sheet arrangements nor 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 such items as product or service defects, intellectual property rights, governmental regulations and/or employment-related matters. Performance under these indemnities would generally be triggered by our breach of terms of the contract. In disposing of assets or businesses, we often provide representations, warranties and/or indemnities to cover various risks including, for example, unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. We do not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, we have no reason to believe that any potential liability under these indemnities would have a material adverse effect on our financial position, annual results of operations or cash flows. We have recorded liabilities for known indemnifications related to environmental matters. Further information can be found under the caption “Note 14: Other commitments and contingencies” of the Notes to Consolidated Financial Statements appearing in Item 8 of this report.

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

        As of December 31, 2005, our contractual obligations were as follows: