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

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____

Commission file number: 1-7945

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

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

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

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

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

The number of shares outstanding of registrant’s common stock, par value $1.00 per share, at November 4, 2003 was 50,542,657.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DELUXE CORPORATION

CONSOLIDATED BALANCE SHEETS
(Unaudited)

	September 30, 2003			December 31, 2002
	(Dollars in thousands, except share par value)
Current Assets:
Cash and cash equivalents	$	3,437		$	124,855
Trade accounts receivable (net of allowance for doubtful
accounts of $2,047 and $1,850, respectively)		32,054			32,925
Inventories and supplies		18,848			20,287
Other current assets		28,814			21,579

Total current assets		83,153			199,646
Long-term Investments		40,484			40,205
Property, Plant, and Equipment (net of accumulated depreciation of
$297,362 and $295,521, respectively)		128,386			140,042
Intangibles (net of accumulated amortization of $163,286 and
$135,201, respectively)		88,069			105,976
Goodwill		82,237			82,237
Other Non-current Assets		135,591			100,867

Total assets	$	557,920		$	668,973

Current Liabilities:
Accounts payable	$	45,503		$	57,857
Accrued liabilities		146,157			155,312
Short-term debt		200,090			—
Long-term debt due within one year		1,212			1,610

Total current liabilities		392,962			214,779
Long-term Debt		355,851			306,589
Deferred Income Taxes		49,964			54,453
Other Long-term Liabilities		30,392			28,836
Shareholders’ (Deficit) Equity:
Common shares $1 par value (authorized: 500,000,000 shares;
issued: 2003 - 51,284,658; 2002 - 61,445,894)		51,285			61,446
Retained (deficit) earnings		(320,228	)		5,380
Unearned compensation		(8	)		(24	)
Accumulated other comprehensive loss		(2,298	)		(2,486	)

Total shareholders’ (deficit) equity		(271,249	)		64,316

Total liabilities and shareholders’ (deficit) equity	$	557,920		$	668,973

See Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Quarter Ended September 30,						Nine Months Ended September 30,
		2003			2002			2003			2002

		(dollars in thousands, except per share amounts)
Revenue		$	314,869		$	319,773		$	941,623		$	977,144
Cost of goods sold			105,974			107,794			322,515			331,449

Gross Profit			208,895			211,979			619,108			645,695

Selling, general and administrative expense			120,914			124,755			368,815			381,746
Asset impairment and net disposition losses (gains)			319			675			108			(35	)


Operating Income			87,662			86,549			250,185			263,984
Other (expense) income			(424	)		(480	)		(858	)		180

Income Before Interest and Taxes			87,238			86,069			249,327			264,164

Interest expense			(4,934	)		(1,203	)		(14,205	)		(3,296	)
Interest income			75			103			308			364

Income Before Income Taxes			82,379			84,969			235,430			261,232

Provision for income taxes			24,197			32,306			82,377			99,304

Net Income		$	58,182		$	52,663		$	153,053		$	161,928


Earnings per Share:	Basic	$	1.10		$	0.85		$	2.74		$	2.56
	Diluted	$	1.09		$	0.83		$	2.71		$	2.53

Cash Dividends per Share		$	0.37		$	0.37		$	1.11		$	1.11

Total Comprehensive Income		$	58,245		$	52,663		$	153,241		$	161,928

See Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended September 30,
		2003			2002

		(dollars in thousands)
Cash Flows from Operating Activities:
Net income		$	153,053		$	161,928
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation			16,445			18,138
Amortization of intangibles			27,696			25,678
Amortization of contract acquisition payments			18,783			11,399
Other non-cash items, net			7,671			4,885
Changes in assets and liabilities:
Trade accounts receivable			871			(8,811	)
Inventories and supplies			1,287			1,739
Other current assets			(5,218	)		(9,583	)
Contract acquisition payments			(44,553	)		(33,514	)
Deferred advertising costs			(10,916	)		3,719
Other non-current assets			(6,444	)		(3,094	)
Accounts payable			(5,579	)		2,806
Accrued liabilities and other long-term liabilities			(2,147	)		2,453

Net cash provided by operating activities			150,949			177,743


Cash Flows from Investing Activities:
Purchases of capital assets			(15,672	)		(26,589	)
Other			(852	)		(3,300	)

Net cash used by investing activities			(16,524	)		(29,889	)


Cash Flows from Financing Activities:
Net borrowings on short-term debt			200,090			39,800
Proceeds from long-term debt, net of debt issuance costs			49,825			—
Payments on long-term debt			(1,326	)		(1,352	)
Change in book overdrafts			(6,775	)		(5,114	)
Payments for common stock repurchased			(453,234	)		(146,961	)
Proceeds from issuing shares under employee plans			17,328			28,612
Cash dividends paid to shareholders			(61,751	)		(70,115	)

Net cash used by financing activities			(255,843	)		(155,130	)


Net Decrease in Cash and Cash Equivalents			(121,418	)		(7,276	)
Cash and Cash Equivalents:	Beginning of Period		124,855			9,571

	End of Period	$	3,437		$	2,295

- -

See Notes to Unaudited Consolidated Financial Statements

DELUXE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Consolidated financial statements

The consolidated balance sheet as of September 30, 2003, the consolidated statements of income for the quarters and nine months ended September 30, 2003 and 2002 and the consolidated statements of cash flows for the nine months ended September 30, 2003 and 2002 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements are included. Adjustments consist only of normal recurring items, except for any discussed in the notes below. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented in accordance with instructions for Form 10-Q, and do not contain certain information included in the consolidated annual financial statements and notes. The consolidated financial statements and notes appearing in this Report should be read in conjunction with the consolidated audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2002.

Certain amounts reported in 2002 have been reclassified to conform to the 2003 presentation. These changes had no impact on previously reported net income or shareholders’ equity.

Note 2: Employee stock-based compensation

As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, we continue to account for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. All options issued under our stock incentive plan allow for the purchase of shares of common stock at prices equal to the stock’s market value at the date of grant. Accordingly, no compensation expense has been recognized for stock options. Additionally, under our current employee stock purchase plan, eligible employees may purchase Deluxe common stock at 85% of the lower of its fair market value at the beginning or end of each six-month purchase period. No compensation expense is recognized for the difference between the employees’ purchase price and the fair value of the stock. We do recognize compensation expense for restricted stock and restricted stock units issued under our stock incentive plan.

The following table presents pro forma net income and earnings per share as if the fair value method of SFAS No. 123 had been applied to all outstanding and unvested awards in each period presented (dollars in thousands, except per share amounts):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

Net income, as reported	$	58,182		$	52,663		$	153,053		$	161,928
Add: Employee stock-based compensation expense included in net income, net of tax		(67	)		424			408			1,541

Deduct: Fair value employee stock-based compensation expense, net of tax		(1,140	)		(1,314	)		(3,548	)		(3,888	)

Pro forma net income	$	56,975		$	51,773		$	149,913		$	159,581


Earnings per share:
Basic - as reported	$	1.10		$	0.85		$	2.74		$	2.56
pro forma		1.08			0.83			2.69			2.53
Diluted - as reported		1.09			0.83			2.71			2.53
pro forma		1.07			0.82			2.67			2.49

Note 3: New accounting pronouncements

In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. We adopted the disclosure requirements of this interpretation in 2002. The recognition provisions of the interpretation are applicable only to guarantees issued or modified after December 31, 2002. Adoption of this interpretation has had no impact on our results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. This interpretation provides guidance on how to identify a variable interest entity and addresses when the assets, liabilities and results of operations of such entities must be included in a company’s consolidated financial statements. This interpretation was effective immediately for variable interest entities created after January 31, 2003 and for variable interest entities in which we obtain an interest after that date. For interests in variable interest entities that were acquired prior to January 31, 2003, we adopted the provisions of this interpretation on July 1, 2003. Adoption of this statement did not result in the consolidation or disclosure of any variable interest entities in which we maintain an interest.

Note 4: Supplementary balance sheet information

Inventories and supplies were comprised of the following (dollars in thousands):

	September 30, 2003		December 31, 2002

Raw materials	$	2,615	$	2,833
Semi-finished goods		5,212		6,065
Finished goods		881		771

Total inventories		8,708		9,669
Supplies		10,140		10,618

Inventories and supplies	$	18,848	$	20,287

Other current assets were comprised of the following (dollars in thousands):

	September 30, 2003		December 31, 2002

Pre-payment to voluntary employee
beneficiary association trust	$	20,719	$	7,285
Other		8,095		14,294

Other current assets	$	28,814	$	21,579

Other non-current assets were comprised of the following (dollars in thousands):

	September 30, 2003		December 31, 2002

Contract acquisition payments, net	$	80,336	$	55,259
Deferred advertising costs		28,174		17,258
Prepaid post-retirement asset		15,941		16,330
Other		11,140		12,020

Other non-current assets	$	135,591	$	100,867

Accrued liabilities were comprised of the following (dollars in thousands):

	September 30, 2003		December 31, 2002

Income taxes	$	46,896	$	27,688
Rebates		25,818		25,900
Employee profit sharing and pension		16,468		49,757
Wages, including vacation pay		12,763		10,809
Other		44,212		41,158

Accrued liabilities	$	146,157	$	155,312

Note 5: Earnings Per Share

The following table reflects the calculation of basic and diluted earnings per share (dollars and shares in thousands, except per share amounts):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002

Earnings per share-basic:
Net income	$	58,182	$	52,663	$	153,053	$	161,928
Weighted average shares outstanding		52,735		62,222		55,769		63,180

Earnings per share-basic	$	1.10	$	0.85	$	2.74	$	2.56


Earnings per share-diluted:
Net income	$	58,182	$	52,663	$	153,053	$	161,928
Weighted average shares outstanding		52,735		62,222		55,769		63,180
Dilutive impact of options		726		814		739		903
Shares contingently issuable		10		46		11		29

Weighted average shares and potential dilutive
shares outstanding		53,471		63,082		56,519		64,112

Earnings per share-diluted	$	1.09	$	0.83	$	2.71	$	2.53

During the quarters and nine months ended September 30, 2003 and 2002, options to purchase 1.2 million common shares were outstanding but were not included in the computation of diluted earnings per share. The exercise prices of the excluded options were greater than the average market price of Deluxe’s common shares during the respective periods.

Note 6: Restructuring charges

During the third quarter of 2003, we recorded restructuring charges of $1.5 million for employee severance related to reductions in selling, general and administrative (SG&A) employees within the Financial Services segment. These reductions are the result of our continuous efforts to manage costs. Cost management is one of our strategic objectives, and we are continually seeking ways to lower our cost structure. The restructuring charges include estimated severance payments for 48 employees, which are payable under our on-going severance benefit plan. We anticipate that these reductions will be completed in the fourth quarter of 2003. The related severance payments are expected to be completed in the first half of 2004, utilizing cash from operations. As of September 30, 2003, no payments had been made. The restructuring charges are reflected as SG&A expense in our consolidated statements of income for the quarter and nine months ended September 30, 2003.

During the second quarter of 2003, we recorded restructuring charges of $1.3 million for employee severance related to the planned closing of our Financial Services check printing facility in Indianapolis, Indiana. By moving this production to other facilities, we expect to enhance efficiencies and more fully utilize existing assets. The expertise we have developed in logistics, productivity and inventory management allows us to reduce the number of production facilities while still meeting client expectations. We anticipate

that this facility will be closed by April 2004. The restructuring charges include estimated severance payments for 136 employees, which are payable under our on-going severance benefit plan. The restructuring charges are reflected as cost of goods sold in our consolidated statement of income for the nine months ended September 30, 2003. The majority of the severance payments are expected to be completed by the third quarter of 2004, utilizing cash from operations.

Restructuring accruals of $2.7 million as of September 30, 2003 and $1.2 million as of December 31, 2002 are reflected in accrued liabilities in the consolidated balance sheets. The accruals related to 2001 and 2002 initiatives encompassed various employee reductions within all three business segments. The status of these restructuring accruals as of September 30, 2003 was as follows (dollars in thousands):

	2001 initiatives						2002 initiatives						2003 initiatives						Total

	Amount			No. of employees affected			Amount			No. of employees affected			Amount			No. of employees affected			Amount			No. of employees affected

Balance, December 31, 2002	$	274			4		$	881			65		$	—			—		$	1,155			69
Restructuring charges		—			—			—			—			2,786			184			2,786			184
Restructuring reversals		(241	)		(4	)		—			—			—			—			(241	)		(4	)
Severance paid		(33	)		—			(881	)		(65	)		(39	)		(3	)		(953	)		(68	)

Balance, September 30, 2003	$	—			—		$	—			—		$	2,747			181		$	2,747			181

Cumulative amounts paid
through September 30, 2003	$	3,707			266		$	1,487			121		$	39			3		$	5,233			390

Note 7: Provision for income taxes

Our effective tax rate was 29.4% for the quarter ended September 30, 2003 and 35.0% for the nine months ended September 30, 2003. Our effective tax rate for the same periods in 2002 was 38.0%. During the third quarter of 2003, we reversed $7.3 million of previously established income tax reserves. 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.

Note 8: Debt

Total debt outstanding was comprised of the following (dollars in thousands):

	September 30, 2003		December 31, 2002

5.0% senior, unsecured notes due December
15, 2012, net of discount	$	298,257	$	298,115
2.75% medium-term notes due September 15, 2006		50,000		—
Long-term portion of capital lease
obligations		7,594		8,474

Long-term debt		355,851		306,589
Commercial paper		200,090		—
Short-term portion of capital lease obligations		1,212		1,610

Total debt	$	557,153	$	308,199

Our short-term debt consists of commercial paper outstanding under a $350.0 million commercial paper program. Our commercial paper program was increased to $350.0 million from $300.0 million during the third quarter of 2003. The average amount of commercial paper outstanding during the first nine months of 2003 was $132.1 million at a weighted-average interest rate of 1.18%. As of September 30, 2003, $200.1 million was outstanding at a weighted-average interest rate of 1.10%. The average amount of commercial paper outstanding during 2002 was $152.9 million at a weighted-average interest rate of 1.77%. As of December 31, 2002, no commercial paper was outstanding.

We have committed lines of credit for $350.0 million which primarily support our commercial paper program. To the extent not needed to support outstanding commercial paper, we may borrow funds under these lines of credit. We have a 364-day line of credit for $175.0 million which expires in August 2004 and carries a commitment fee of seven basis points (.07%). We also have a $175.0 million line of credit which expires in August 2007 and carries a commitment fee of nine basis points (.09%). The credit agreements governing these lines of credit contain customary covenants regarding the ratio of earnings before interest and taxes (EBIT) to interest expense and levels of subsidiary indebtedness. No amounts were drawn on these lines of credit during the first nine months of 2003 or during 2002. As of September 30, 2003, $149.9 million was available under these lines of credit for borrowing or for support of additional commercial paper.

We also have an uncommitted bank line of credit for $50.0 million available at variable interest rates. No amounts were drawn on this line during the first nine months of 2003 or during 2002, and no amounts were outstanding under this line of credit as of September 30, 2003.

In December 2002, we issued $300.0 million of senior, unsecured notes which mature in December 2012 and have a coupon rate of 5.0%. The notes include covenants that place restrictions on the issuance of debt that would be senior to the notes and the execution of certain sale-leaseback arrangements. The fair value of these notes was estimated to be $308.4 million as of September 30, 2003, based on quoted market rates.

On April 30, 2003, we filed a Form S-3 shelf registration statement with the Securities and Exchange Commission. This shelf registration allows for the issuance of debt securities, from time to time, up to an aggregate of $500.0 million. The shelf registration statement became effective on July 8, 2003. In September 2003, we established a $250.0 million medium-term note program under this shelf registration and issued $50.0 million of medium-term notes. These notes mature in September 2006 and have a coupon rate of 2.75%. The notes include covenants that place restrictions on the issuance of debt that would be senior to the notes and the execution of certain sale-leaseback arrangements. The fair value of these notes was estimated to be $50.4 million as of September 30, 2003, based on quoted market rates.

Note 9: eFunds indemnification

In connection with the spin-off of our former eFunds segment on December 29, 2000, we agreed to indemnify eFunds for future losses arising from any litigation based on the conduct of eFunds’ electronic benefits transfer and medical eligibility verification business prior to eFunds’ initial public offering in June 2000, and for certain future losses on identified loss contracts in excess of eFunds’ accrual for contract losses as of April 30, 2000. The maximum contractual amount of litigation and contract losses for which we would indemnify eFunds is $14.6 million. This agreement remains in effect until one year after the termination of the identified loss contracts or until all disputes have been settled. All identified loss contracts are scheduled to expire by 2006. Through September 30, 2003, no amounts have been paid or claimed under this indemnification agreement. This obligation is not reflected in the consolidated balance sheets, as it is not probable that any payment will occur.

Note 10: Shareholders’ equity

Shareholders’ equity declined from $262.8 million as of December 31, 2000 to a deficit of $271.2 million as of September 30, 2003, primarily as a result of the required accounting treatment for our share repurchase programs. In January 2001, our board of directors approved a plan to purchase up to 14 million shares of our common stock. These repurchases were completed in June 2002 at a cost of $463.8 million. In August 2002, our board of directors approved the repurchase of an additional 12 million shares. These repurchases were completed in September 2003 at a cost of $503.2 million. In August 2003, the board authorized the repurchase of up to 10 million additional shares of our common stock. Through September 30, 2003, 0.1 million of these additional shares had been repurchased at a cost of $4.5 million.

Changes in shareholders’ (deficit) equity during the first nine months of 2003 were as follows (dollars in thousands):

	Common shares			Additional paid-in capital			Retained earnings (deficit)			Unearned compensation			Accumulated other comprehensive loss			Total

Balance, December 31, 2002	$	61,446		$	—		$	5,380		$	(24	)	$	(2,486	)	$	64,316
Net income		—			—			153,053			—			—			153,053
Cash dividends		—			—			(61,751	)		—			—			(61,751	)
Common stock issued		761			16,567			—			—			—			17,328
Tax benefit of stock option plans		—			4,232			—			—			—			4,232
Common stock repurchased		(10,880	)		(25,444	)		(416,910	)		—			—			(453,234	)
Other common stock retired		(42	)		(1,732	)		—			—			—			(1,774	)
Stock-based compensation and
related amortization		—			6,377			—			16			—			6,393
Amortization of loss on derivatives		—			—			—			—			188			188

Balance, September 30, 2003	$	51,285		$	—		$	(320,228	)	$	(8	)	$	(2,298	)	$	(271,249	)

Note 11: Business segment information

We operate three business segments: Financial Services, Direct Checks and Business Services. Financial Services sells checks, related products and check merchandising services to financial institutions. Direct Checks sells checks and related products directly to consumers through direct mail and the Internet. Business Services sells checks, forms and related products to small businesses and home offices through financial institution referrals, business alliances and via direct mail and the Internet. All three segments operate only in the United States.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies as presented in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002. Corporate expenses are allocated to the segments based on segment revenues. This allocation includes expenses for various support functions such as executive management, human resources and finance and includes depreciation and amortization expense related to corporate assets. The corresponding corporate asset balances are not allocated to the segments. Corporate assets consist primarily of cash, investments and deferred tax assets related to corporate activities.

We are an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations and the sharing of assets. Therefore, we do not represent that these segments, if operated independently, would report the operating income and other financial information shown.

The following is our segment information as of and for the quarters and nine months ended September 30, 2003 and 2002 (dollars in thousands):

Quarter Ended September 30, 2003 and 2002

		Reportable Business Segments
		Financial Services		Direct Checks		Business Services		Corporate		Consolidated
Revenue from external	2003	$	176,328	$	75,105	$	63,436	$	—	$	314,869
customers:	2002		189,170		75,933		54,670		—		319,773

Operating income:	2003		40,984		24,069		22,609		—		87,662
	2002		46,525		21,517		18,507		—		86,549

Depreciation and	2003		11,332		2,030		1,391		—		14,753
amortization expense:	2002		11,604		1,901		1,038		—		14,543

Total assets:	2003		276,234		147,885		33,245		100,556		557,920
	2002		295,477		142,596		33,128		86,098		557,299

Capital purchases:	2003		1,843		682		206		2,628		5,359
	2002		6,265		589		1,651		885		9,390

Nine Months Ended September 30, 2003 and 2002

		Reportable Business Segments
		Financial Services		Direct Checks		Business Services		Corporate		Consolidated
Revenue from external	2003	$	527,123	$	231,641	$	182,859	$	—	$	941,623
customers:	2002		578,054		236,688		162,402		—		977,144

Operating income:	2003		113,961		78,730		57,494		—		250,185
	2002		147,342		64,656		51,986		—		263,984

Depreciation and	2003		33,974		5,987		4,180		—		44,141
amortization expense:	2002		34,763		5,759		3,294		—		43,816

Total assets:	2003		276,234		147,885		33,245		100,556		557,920
	2002		295,477		142,596		33,128		86,098		557,299

Capital purchases:	2003		6,598		2,002		1,118		5,954		15,672
	2002		19,909		3,065		2,363		1,252		26,589

Note 12: Subsequent events

Also during October 2003, the decision was made to further reduce SG&A employees. Again, this is a result of our on-going cost

management efforts. We are still finalizing the details of these employee reductions and expect to record restructuring charges of approximately $2 million for employee severance in the fourth quarter of 2003.

We continue to evaluate initiatives underway to ensure that they meet our strategic objectives of revenue growth, customer loyalty, talent and diversity in our workforce, cost management or transformation. When evaluating our initiatives we ensure that we allocate our available resources wisely and that the amount of our investments is justified based on expected returns. As a result of these evaluations, we expect to record asset impairment charges in the fourth quarter of 2003. These charges relate to investments in software and manufacturing technology. The impaired assets will be written-down to their fair market values during the fourth quarter of 2003. We are still in the process of determining the fair market values of these assets.

In November 2003, we issued $25.0 million of two-year notes under our $250.0 million medium-term notes program. These notes mature in November 2005 and have an interest rate of 3-month LIBOR plus .05%. The interest rate will be reset on a quarterly basis. The notes include covenants that place restrictions on the issuance of debt that would be senior to the notes and the execution of certain sale-leaseback arrangements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Company Profile

Results of Operations – Quarter Ended September 30, 2003 Compared to the Quarter Ended September 30, 2002

The following table presents, for the periods indicated, the relative composition of selected statement of income data (dollars in thousands):

	Quarter Ended September 30,
	2003				2002
	$		% of Revenue		$		% of Revenue
Revenue from external customers:
Financial Services	$	176,328		56.0%	$	189,170		59.2%
Direct Checks		75,105		23.9%		75,933		23.7%
Business Services		63,436		20.1%		54,670		17.1%

Total	$	314,869		100.0%	$	319,773		100.0%


Gross profit		208,895		66.3%		211,979		66.3%
Selling, general and administrative
expense		120,914		38.4%		124,755		39.0%
Asset impairment and net disposition
losses		319		0.1%		675		0.2%

Operating income:
Financial Services	$	40,984		23.2%	$	46,525		24.6%
Direct Checks		24,069		32.0%		21,517		28.3%
Business Services		22,609		35.6%		18,507		33.9%

Total	$	87,662		27.8%	$	86,549		27.1%


Earnings before interest, taxes,
depreciation and amortization of
intangibles (EBITDA)⁽¹⁾	$	101,991		32.4%	$	100,612		31.5%

See Note 11 to the unaudited, consolidated financial statements included in this Report for discussion of the accounting policies for our reportable business segments.

Revenue — Revenue decreased $4.9 million, or 1.5%, to $314.9 million for the third quarter of 2003 from $319.8 million for the third quarter of 2002. Revenue per unit was down 0.9% as compared to 2002 due to increased competitive pricing pressure within our Financial Services segment, partially offset by the continued strength in selling premium-priced licensed and specialty check designs and additional value-added services. Unit volume was down 0.6% as compared to 2002 resulting from an overall decline in the number of checks being written due to the increasing use of alternative payment methods and the sluggish economy, as well as lower direct mail consumer response rates and lengthening reorder cycles for our Direct Checks segment. These decreases in unit volume were partially offset by the impact of financial institution client gains within our Financial Services and Business Services segments.

⁽¹⁾

EBITDA is not a measure of financial performance under generally accepted accounting principles (GAAP). We disclose EBITDA because it 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 continually evaluate EBITDA, as we believe that an increasing EBITDA depicts increased ability to attract financing and increases the valuation of our business. We do not consider EBITDA to be a substitute for performance measures calculated in accordance with GAAP. Instead, we believe that EBITDA is a useful performance measure which should be considered in addition to those measures reported in accordance with GAAP. EBITDA is derived from net income as follows (dollars in thousands):

	Quarter Ended September 30,
	2003		2002

Net income	$	58,182	$	52,663
Provision for income taxes		24,197		32,306
Interest expense, net		4,859		1,100
Depreciation		5,194		5,887
Amortization of intangibles		9,559		8,656

EBITDA	$	101,991	$	100,612

Gross profit — Gross profit decreased $3.1 million, or 1.5%, to $208.9 million for the third quarter of 2003 from $212.0 million for the third quarter of 2002. Gross margin was flat at 66.3% for the third quarters of 2003 and 2002. The impact of lower revenue per unit and unit volume was offset by productivity improvements and cost management efforts.

Selling, general and administrative (SG&A) expense — SG&A expense decreased $3.9 million, or 3.1%, to $120.9 million for the third quarter of 2003 from $124.8 million for the third quarter of 2002. As a percentage of revenue, SG&A expense decreased to 38.4% for the third quarter of 2003 from 39.0% for the third quarter of 2002. The decrease was primarily due to lower performance-based employee compensation and lower discretionary spending and cost management efforts as we manage through the challenging business and economic environments. These decreases were partially offset by higher commissions for our Business Services segment.

Interest expense — Interest expense increased $3.7 million to $4.9 million for the third quarter of 2003 from $1.2 million for the third quarter of 2002. The increase was due to higher interest rates on long-term notes we issued in December 2002, as well as higher debt levels. In December 2002, we issued $300.0 million of senior, unsecured notes in conjunction with the financial strategy we announced in August 2002. These notes mature in December 2012 and have a coupon rate of 5.0%. During the third quarter of 2003, we had weighted-average debt outstanding of $516.6 million at a weighted-average interest rate of 3.39%. During the third quarter of 2002, we had weighted-average debt outstanding of $168.5 million at a weighted-average interest rate of 1.80%.

Provision for income taxes — Our effective tax rate for the third quarter of 2003 decreased to 29.4% from 38.0% for the third quarter of 2002. During the third quarter of 2003, we reversed $7.3 million of previously established income tax reserves. 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. Excluding these reserve reversals, our effective tax rate for the third quarter of 2003 would have been 38.2%.

Net income — Net income increased $5.5 million, or 10.5%, to $58.2 million for the third quarter of 2003 from $52.7 million for the third quarter of 2002. The increase was primarily due to the lower provision for income taxes and the reduction in SG&A expense discussed earlier.

Diluted earnings per share — Diluted earnings per share increased $0.26, or 31.3%, to $1.09 for the third quarter of 2003 from $0.83 for the third quarter of 2002. The increase was due to the net decrease in average shares outstanding due to our share repurchase programs, as well as higher net income. In August 2002, our board of directors authorized the repurchase of 12 million shares of our common stock and in August 2003, the board authorized the repurchase of up to 10 million additional shares. As of September 30, 2003, 12.1 million shares had been repurchased under these authorizations. 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 $0.17 increase in earnings per share for the third quarter of 2003 as compared to 2002.

As permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, we continue to account for employee stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, our results of operations do not include compensation expense for stock options issued under our stock incentive plan or for shares issued to employees under our current employee stock purchase plan. Had this expense been included in our results, diluted earnings per share would have been $0.02 lower for the third quarter of 2003 and $0.01 lower for the third quarter of 2002. This pro forma impact of stock-based compensation was calculated under a method consistent with that disclosed in the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002.

Results of Operations – Nine Months Ended September 30, 2003 Compared to the Nine Months Ended September 30, 2002

The following table presents, for the periods indicated, the relative composition of selected statement of income data (dollars in thousands):

	Nine Months Ended September 30,
	2003					2002
	$		% of Revenue			$			% of Revenue
Revenue from external customers:
Financial Services	$	527,123		56.0	%	$	578,054			59.2	%
Direct Checks		231,641		24.6	%		236,688			24.2	%
Business Services		182,859		19.4	%		162,402			16.6	%

Total	$	941,623		100.0	%	$	977,144			100.0	%

Gross profit		619,108		65.7	%		645,695			66.1	%
Selling, general and administrative
expense		368,815		39.2	%		381,746			39.1	%
Asset impairment and net disposition
losses (gains)		108		—			(35	)		—
Operating income:
Financial Services	$	113,961		21.6	%	$	147,342			25.5	%
Direct Checks		78,730		34.0	%		64,656			27.3	%
Business Services		57,494		31.4	%		51,986			32.0	%

Total	$	250,185		26.6	%	$	263,984			27.0	%

Earnings before interest, taxes,
depreciation and amortization of
intangibles (EBITDA)⁽²⁾	$	293,468		31.2	%	$	307,980			31.5	%

See Note 11 to the unaudited, consolidated financial statements included in this Report for discussion of the accounting policies for our reportable business segments.

Revenue — Revenue decreased $35.5 million, or 3.6%, to $941.6 million for the first nine months of 2003 from $977.1 million for the first nine months of 2002. Unit volume was down 4.7% as compared to 2002 resulting primarily from an overall decline in the number of checks being written due to the increasing use of alternative payment methods and the sluggish economy. Additionally, lower direct mail consumer response rates and lengthening reorder cycles for our Direct Checks segment and the timing of client gains and losses for our Financial Services segment contributed to the unit decline. Partially offsetting the decrease in unit volume was a 1.1% increase in revenue per unit. The increase in revenue per unit was due to the continued strength in selling premium-priced licensed and specialty check designs and additional value-added services, as well as price increases, partially offset by increased competitive pricing pressure within our Financial Services segment.

Gross profit — Gross profit decreased $26.6 million, or 4.1%, to $619.1 million for the first nine months of 2003 from $645.7 million for the first nine months of 2002. Gross margin decreased to 65.7% for the first nine months of 2003 from 66.1% for the first nine months of 2002. The decrease in gross margin was due primarily to the lower unit volume. Partially offsetting these decreases was the 1.1% increase in revenue per unit discussed earlier, productivity improvements and cost management efforts.

⁽²⁾

See the discussion of EBITDA presented earlier under Results of Operations — Quarter Ended September 30, 2003 Compared to the Quarter Ended September 30, 2002. EBITDA for the first nine months of 2003 and 2002 is derived from net income as follows (dollars in thousands):

	Nine Months Ended September 30,
	2003		2002

Net income	$	153,053	$	161,928
Provision for income taxes		82,377		99,304
Interest expense, net		13,897		2,932
Depreciation		16,445		18,138
Amortization of intangibles		27,696		25,678

EBITDA	$	293,468	$	307,980

Selling, general and administrative (SG&A) expense — SG&A expense decreased $12.9 million, or 3.4%, to $368.8 million for the first nine months of 2003 from $381.7 million for the first nine months of 2002. The decrease in SG&A expense was primarily due to lower performance-based employee compensation, lower discretionary spending and cost management as we manage through the challenging business and economic environments and a $6.5 million decrease in advertising expense for the Direct Checks segment. Approximately $5 million of this decrease in advertising expense was attributable to changes in accounting estimates. Further information concerning these changes in accounting estimates can be found later in the discussion of Critical Accounting Policies. These decreases were partially offset by higher commissions for our Business Services segment. As a percentage of revenue, SG&A expense increased to 39.2% for the first nine months of 2003 from 39.1% for the first nine months of 2002. The slight increase in SG&A expense as a percentage of revenue was primarily due to lower unit volume.

Interest expense — Interest expense increased $10.9 million to $14.2 million for the first nine months of 2003 from $3.3 million for the first nine months of 2002. The increase was due to higher interest rates on long-term notes we issued in December 2002, as well as higher debt levels. In December 2002, we issued $300.0 million of senior, unsecured notes in conjunction with the financial strategy we announced in August 2002. These notes mature in December 2012 and have a coupon rate of 5.0%. During the first nine months of 2003, we had weighted-average debt outstanding of $435.6 million at a weighted-average interest rate of 3.82%. During the first nine months of 2002, we had weighted-average debt outstanding of $161.8 million at a weighted-average interest rate of 1.82%.

Provision for income taxes — Our effective tax rate for the first nine months of 2003 decreased to 35.0% from 38.0% for the first nine months of 2002. During the third quarter of 2003, we reversed $7.3 million of previously established income tax reserves. 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. Excluding these reserve reversals, our effective tax rate for the first nine months of 2003 would have been 38.1%.

Net income — Net income decreased $8.8 million, or 5.5%, to $153.1 million for the first nine months of 2003 from $161.9 million for the first nine months of 2002. The decrease was primarily due to the revenue decrease and the interest expense increase, partially offset by the lower provision for income taxes.

Diluted earnings per share — Despite the decrease in net income, diluted earnings per share increased $0.18, or 7.1%, to $2.71 for the first nine months of 2003 from $2.53 for the first nine months of 2002. The increase was due to the net decrease in average shares outstanding due to our share repurchase programs. In January 2001, our board of directors approved the repurchase of up to 14 million shares of common stock, in August 2002, the board authorized the repurchase of an additional 12 million shares and in August 2003, the board authorized the repurchase of up to 10 million additional shares. As of September 30, 2003, 26.1 million shares had been repurchased under these authorizations. 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 $0.32 increase in earnings per share for the first nine months of 2003 as compared to 2002.

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, we continue to account for employee stock-based compensation in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, our results of operations do not include compensation expense for stock options issued under our stock incentive plan or for shares issued to employees under our current employee stock purchase plan. Had this expense been included in our results, diluted earnings per share would have been $0.04 lower for the nine months ended September 30, 2003 and 2002. This pro forma impact of stock-based compensation was calculated under a method consistent with that disclosed in the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2002.

Segment Disclosures

Financial Services — Financial Services sells 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 and fraud prevention.

The following table shows the results of this segment for the quarters and nine months ended September 30, 2003 and 2002 (dollars in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Revenue	$	176,328	$	189,170	$	527,123	$	578,054
Operating income		40,984		46,525		113,961		147,342
% of revenue		23.2%		24.6%		21.6%		25.5%

Financial Services revenue decreased $12.9 million, or 6.8%, to $176.3 million for the third quarter of 2003 from $189.2 million for the third quarter of 2002. The decrease was primarily due to lower revenue per unit resulting from heightened price competition that resulted in greater product discounts, partially offset by continued strength in selling premium-priced licensed and specialty check designs. Unit volume was up as compared to 2002 due to client gains, partially offset by an overall decline in the number of checks being written due to the increasing use of alternative payment methods and the sluggish economy.

Operating income decreased $5.5 million, or 11.9%, to $41.0 million for the third quarter of 2003 from $46.5 million for the third quarter of 2002. This decrease was a result of the revenue decline and restructuring charges of $1.5 million recorded during the third quarter of 2003. These decreases were partially offset by lower performance-based employee compensation, lower discretionary spending and cost management as we manage through the challenging business and economic environments and production efficiencies. The restructuring charges recorded in the third quarter of 2003 consisted of employee severance related to reductions in SG&A employees within the Financial Services segment. These reductions are the result of our continuous efforts to manage costs. Cost management is one of our strategic objectives, and we are continually seeking ways to lower our cost structure. The restructuring charges include estimated severance payments for 48 employees, which are payable under our on-going severance benefit plan. We anticipate that these reductions will be completed in the fourth quarter of 2003. The related severance payments are expected to be completed in the first half of 2004, utilizing cash from operations. As of September 30, 2003, no payments had been made. The restructuring charges are reflected as SG&A expense in our consolidated statements of income for the quarter and nine months ended September 30, 2003. As a result of these reductions, we expect to realize net cost savings of approximately $2.5 million per year within SG&A expense, beginning in 2004.

Financial Services revenue decreased $51.0 million, or 8.8%, to $527.1 million for the first nine months of 2003 from $578.1 million for the first nine months of 2002. The decrease was due to continuing competitive pricing pressure and lower unit volume resulting from an overall decline in the number of checks being written due to the increasing use of alternative payment methods and the sluggish economy. Additionally, the timing of financial institution client gains and losses impacted this segment. These revenue decreases were partially offset by increased sales of premium-priced licensed and specialty check designs and additional value-added services.

Operating income decreased $33.3 million, or 22.7%, to $114.0 million for the first nine months of 2003 from $147.3 million for the first nine months of 2002. This decrease was primarily a result of the revenue decline, partially offset by lower discretionary spending and cost management efforts as we manage through the challenging business and economic environments, lower performance-based employee compensation and production efficiencies. Additionally, Financial Services recorded restructuring charges in the second and third quarters of 2003 totaling $2.8 million. The third quarter restructuring charges of $1.5 million were discussed earlier in our discussion of Financial Services third quarter results. The second quarter restructuring charges of $1.3 million were for employee severance related to the planned closing of our check printing facility in Indianapolis, Indiana. By moving this production to other facilities, we expect to enhance efficiencies, more fully utilize existing assets and increase profits. The expertise we have developed in logistics, productivity and inventory management allows us to reduce the number of production facilities while still meeting client expectations. We anticipate that this facility will be closed by April 2004. The restructuring charges include estimated severance payments for 136 employees, which are payable under our on-going severance benefit plan. The restructuring charges are reflected as cost of goods sold in our consolidated statement of income for the nine months ended September 30, 2003. The majority of the severance payments are expected to be completed by the third quarter of 2004, utilizing cash from operations. As a result of the closing of this check printing facility, we expect to realize net cost savings of approximately $2 million per year within cost of goods sold, beginning in 2004. Reduced costs consist primarily of labor and facility expenses such as insurance, taxes, depreciation and maintenance. In addition to severance payments, we anticipate spending approximately $2 million prior to April 2004 for costs related to transferring production to other facilities. The majority of this amount will be spent on improvements to the other check printing facilities. These improvements will be capitalized and depreciated over their estimated useful lives.

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 freestanding inserts in newspapers, 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 following table shows the results of this segment for the quarters and nine months ended September 30, 2003 and 2002 (dollars in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Revenue	$	75,105	$	75,933	$	231,641	$	236,688
Operating income		24,069		21,517		78,730		64,656
% of revenue		32.0%		28.3%		34.0%		27.3%

Direct Checks revenue decreased $0.8 million, or 1.1%, to $75.1 million for the third quarter of 2003 from $75.9 million for the third quarter of 2002. Unit volume decreased from 2002 due to lower consumer response rates to direct mail advertisements, longer reorder cycles due to promotional strategies for multi-box orders and an overall decline in the number of checks being written resulting from the increasing use of alternative payment methods and the sluggish economy. Partially offsetting the volume decline was an increase in revenue per unit due to the continued strength in selling premium-priced licensed and specialty check designs and additional value-added services, as well as price increases.

Operating income increased $2.6 million, or 11.9%, to $24.1 million for the third quarter of 2003 from $21.5 million for the third quarter of 2002. This increase was primarily due to efficiencies within the order entry and manufacturing functions, as well as cost management efforts.

Direct Checks revenue decreased $5.1 million, or 2.1%, to $231.6 million for the first nine months of 2003 from $236.7 million for the first nine months of 2002. Unit volume decreased from 2002 due to lower consumer response rates to direct mail advertisements, longer reorder cycles due to promotional strategies for multi-box orders and an overall decline in the number of checks being written resulting from the increasing use of alternative payment methods and the sluggish economy. Partially offsetting the volume decline was an increase in revenue per unit due to the continued strength in selling premium-priced licensed and specialty check designs and additional value-added services, as well as price increases.

Operating income increased $14.0 million, or 21.8%, to $78.7 million for the first nine months of 2003 from $64.7 million for the first nine months of 2002. The increase was due to a $6.5 million decrease in advertising expense, efficiencies within the manufacturing and order entry functions and cost management efforts. Approximately $5 million of the decrease in advertising expense was attributable to changes in accounting estimates. Further information concerning these changes in accounting estimates can be found later in the discussion of Critical Accounting Policies. For the full year, even with these changes in accounting estimates, we anticipate that Direct Checks advertising expense will be comparable to 2002.

Business Services — Business Services sells checks, forms and related products to small businesses and home offices through financial institution referrals, business alliances and via direct mail and the Internet. Through our business referral program, our financial institution clients refer new small business customers by calling us directly at the time of new account opening. Additionally, we are the endorsed provider of business checks and forms for Microsoft® Money and Microsoft Business Solutions. We also use a variety of direct marketing techniques to acquire and retain customers.

The following table shows the results of this segment for the quarters and nine months ended September 30, 2003 and 2002 (dollars in thousands):

	Quarter Ended September 30,				Nine Months Ended September 30,
	2003		2002		2003		2002
Revenue	$	63,436	$	54,670	$	182,859	$	162,402
Operating income		22,609		18,507		57,494		51,986
% of revenue		35.6%		33.9%		31.4%		32.0%

Business Services revenue increased $8.7 million, or 16.0%, to $63.4 million for the third quarter of 2003 from $54.7 million for the third quarter of 2002. The increase was due to higher unit volume resulting from increased financial institution referrals and the

Microsoft relationship, partially offset by the overall decline in the number of checks being written due to the sluggish economy and the increasing use of alternative payment methods. Additionally, revenue per unit was higher due to the continued transformation of our customer care organization from a service to a selling environment, as well as the sale of additional services.

Operating income increased $4.1 million, or 22.2%, to $22.6 million for the third quarter of 2003 from $18.5 million for the third quarter of 2002. The increase was due to the higher revenues, partially offset by higher commissions resulting from increased financial institution referrals and the Microsoft relationship.

Business Services revenue increased $20.5 million, or 12.6%, to $182.9 million for the first nine months of 2003 from $162.4 million for the first nine months of 2002. The increase was due to higher revenue per unit resulting from our improved selling techniques, as well as price increases. Additionally, we saw the benefit of the Microsoft relationship and increased financial institution referrals. Partially offsetting these improvements was the overall decline in the number of checks being written due to the sluggish economy and the increasing use of alternative payment methods.

Operating income increased $5.5 million, or 10.6%, to $57.5 million for the first nine months of 2003 from $52.0 million for the first nine months of 2002. The increase was due to the higher revenues, partially offset by higher commissions resulting from increased financial institution referrals and the Microsoft relationship.

Liquidity, Capital Resources and Financial Condition

As of September 30, 2003, we had cash and cash equivalents of $3.4 million. The following table shows our cash flow activity for the first nine months of 2003 and 2002 and should be read in conjunction with the consolidated statements of cash flows (dollars in thousands):

	Nine Months Ended September 30,
	2003			2002
Net cash provided by operating activities	$	150,949		$	177,743
Net cash used by investing activities		(16,524	)		(29,889	)
Net cash used by financing activities		(255,843	)		(155,130	)

Net decrease in cash and cash equivalents	$	(121,418	)	$	(7,276	)

Net cash provided by operating activities decreased $26.8 million to $150.9 million for the first nine months of 2003 from $177.7 million for the first nine months of 2002. The decrease was due primarily to the lower earnings discussed earlier under Results of Operations, the amount and timing of promotional spending to attract new customers within the Direct Checks segment and higher contract acquisition payments to financial institution clients within the Financial Services segment. These decreases were partially offset by lower income tax payments in 2003 due to our lower earnings and a 2003 tax law allowing us to defer a portion of our third quarter estimated income tax payment to the fourth quarter of 2003.

During the first nine months of 2003, cash inflows generated from operations were utilized primarily to make income tax payments of $59.2 million, contract acquisition payments to financial institution clients of $44.6 million, employee profit sharing and pension contributions of $39.6 million and voluntary employee beneficiary association (VEBA) trust contributions of $32.0 million, as well as to fund changes in deferred advertising costs. The net issuance of $200.1 million of commercial paper, net cash provided by operating activities during the first nine months of 2003 of $150.9 million, cash on hand of $124.9 million at December 31, 2002, net proceeds from the issuance of long-term debt of $49.8 million and cash receipts of $17.3 million from shares issued under employee plans enabled us to spend $453.2 million on share repurchases, to pay dividends of $61.8 million and to purchase capital assets of $15.7 million.

During the first nine months of 2002, cash inflows generated from operations were utilized primarily to make income tax payments of $83.1 million, employee profit sharing and pension contributions of $40.6 million, contract acquisition payments to financial institution clients of $33.5 million and VEBA trust contributions of $25.5 million. Net cash provided by operating activities during the first nine months of 2002 of $177.7 million, the net issuance of $39.8 million of commercial paper, cash receipts of $28.6 million from shares issued under employee plans and cash on hand of $9.6 million at December 31, 2001 enabled us to spend $147.0 million on share repurchases, to pay dividends of $70.1 million and to purchase capital assets of $26.6 million.

We believe that important measures of our financial strength are the ratios of earnings before interest and taxes (EBIT⁽³⁾) to interest expense and free cash flow⁽⁴⁾ to total debt. We calculate free cash flow as cash provided by operating activities less purchases of capital assets and dividends paid to shareholders. EBIT to interest expense was 20.7 times on a four-quarter trailing basis through September 30, 2003 and 68.0 times for the year ended December 31, 2002. Our committed lines of credit contain covenants requiring a minimum EBIT to interest expense ratio on a four-quarter trailing basis of 2.5 times. The decrease in 2003 was primarily due to higher interest expense resulting from the issuance of $300.0 million of long-term, senior, unsecured notes in December 2002. Although this additional interest expense has caused this ratio to decrease, we believe the risk of violating our financial covenants is low. The comparable ratio of net income to interest expense was 12.9 times on a four-quarter trailing basis through September 30, 2003 and 42.2 times for the year ended December 31, 2002. Free cash flow to total debt was 20.8% on a four-quarter trailing basis through September 30, 2003 and 40.1% for the year ended December 31, 2002. The decrease was primarily due to the higher level of debt outstanding as of September 30, 2003 which was utilized to fund share repurchases. The comparable ratio of net cash provided by operating activities to total debt was 41.3% on a four-quarter trailing basis through September 30, 2003 and 83.4% for the year ended December 31, 2002.

As of September 30, 2003, we had $557.2 million of debt outstanding, comprised of $200.1 million of short-term debt and $357.1 million of long-term debt. Our short-term debt consists of commercial paper outstanding under a $350.0 million commercial paper program. Our commercial paper program was increased to $350.0 million from $300.0 million during the third quarter of 2003. Our commercial paper program carries a credit rating of A1/P1. If for any reason we were unable to access the commercial paper markets, we would rely on our committed lines of credit for liquidity. The average amount of commercial paper outstanding during the first nine months of 2003 was $132.1 million at a weighted-average interest rate of 1.18%. As of September 30, 2003, $200.1 million was outstanding at a weighted-average interest rate of 1.10%. The average amount of commercial paper outstanding during 2002 was $152.9 million at a weighted-average interest rate of 1.77%. As of December 31, 2002, no commercial paper was outstanding.

We have committed lines of credit for $350.0 million which primarily support our commercial paper program. To the extent not needed to support outstanding commercial paper, we may borrow funds under these lines of credit. We have a 364-day line of credit for $175.0 million which expires in August 2004 and carries a commitment fee of seven basis points (.07%). We also have a $175.0 million line of credit which expires in August 2007 and carries a commitment fee of nine basis points (.09%). The credit agreements governing these lines of credit contain customary covenants regarding the ratio of EBIT to interest expense and levels of subsidiary indebtedness. We believe the risk of violating our financial covenants is low. No amounts were drawn on these lines during the first

⁽³⁾

EBIT is not a measure of financial performance under GAAP. By excluding interest and income taxes, this measure of profitability can indicate whether a company’s earnings are adequate to pay its debts. We monitor this measure on an on-going basis, as we believe it illustrates our operating performance without regard to financing methods, capital structure or income taxes. We do not consider EBIT to be a substitute for performance measures calculated in accordance with GAAP. Instead, we believe that EBIT is a useful performance measure which should be considered in addition to those measures reported in accordance with GAAP. The measure of EBIT to interest expense illustrates how many times the current year’s EBIT covers the current year’s interest expense. Our committed lines of credit contain covenants requiring a minimum EBIT to interest expense ratio. EBIT is derived from net income as follows (dollars in thousands):

	Twelve Months Ended
	September 30, 2003		December 31, 2002
Net income	$	205,400	$	214,274
Provision for income taxes		109,521		126,448
Interest expense, net		15,367		4,404

EBIT	$	330,288	$	345,126

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Free cash flow is not a measure of financial performance under GAAP. We monitor free cash flow on an on-going basis, as it measures the amount of cash generated from our operating performance after investment initiatives and the payment of dividends. It represents the amount of cash available for interest payments, debt service, general corporate purposes and strategic initiatives. We do not consider free cash flow to be a substitute for performance measures calculated in accordance with GAAP. Instead, we believe that free cash flow is a useful liquidity measure which should be considered in addition to those measures reported in accordance with GAAP. The measure of free cash flow to total debt is a liquidity measure which illustrates to what degree our free cash flow covers our existing debt. Free cash flow is derived from net cash provided by operating activities as follows (dollars in thousands):

	Twelve Months Ended
	September 30, 2003			December 31, 2002
Net cash provided by operating activities	$	230,345		$	257,139
Purchases of capital assets		(29,791	)		(40,708	)
Cash dividends paid to shareholders		(84,575	)		(92,940	)

Free cash flow	$	115,979		$	123,491

nine months of 2003 or during 2002. As of September 30, 2003, $149.9 million was available under these lines of credit for borrowing or for support of additional commercial paper.

In August 2002, our board of directors approved a financial strategy intended to reduce our cost of capital and as a result, increase leverage. This strategy would allow us to increase our debt level up to a maximum of $700 million. The additional debt would be a combination of both long-term and short-term borrowings and would be utilized in part to repurchase shares under a 12 million share repurchase program also approved by our board of directors in August 2002 as part of the financial strategy. As a result of this announcement, our long-term credit rating was downgraded to ‘A’ from ‘A+’ by Standard & Poor’s and was downgraded to ‘A2’ from ‘A1’ by Moody’s Investors Service. We still maintain a strong investment-grade credit rating and expect no impact on our ability to borrow. Our credit facilities do not have covenants or events of default tied to maintaining our credit rating. In connection with this financial strategy, in December 2002, we issued $300.0 million of senior, unsecured notes which mature in December 2012 and have a coupon rate of 5.0%. The proceeds from these notes were used for general corporate purposes, including funding share repurchases, capital asset purchases and working capital. On April 30, 2003, we filed a Form S-3 shelf registration statement with the Securities and Exchange Commission. This shelf registration allows for the issuance of debt securities, from time to time, up to an aggregate of $500.0 million. The shelf registration statement became effective on July 8, 2003. In September 2003, we established a $250.0 million medium-term note program under this shelf registration and issued $50.0 million of medium-term notes. These notes mature in September 2006 and have a coupon rate of 2.75%. In August 2003, our board of directors authorized the repurchase of up to 10 million additional shares of our common stock. As of September 30, 2003, we had completed all repurchases under the 12 million share repurchase program approved by the board in August 2002 and had repurchased 0.1 million shares under the August 2003 authorization. Stock repurchase activities are subject to certain pricing restrictions, stock market forces, management discretion and various regulatory requirements. As a result, we cannot predict the timing or amount of shares that we may repurchase under the current authorization.

Changes in financial condition – Other current assets increased $7.2 million to $28.8 million as of September 30, 2003 from $21.6 million as of December 31, 2002. The increase resulted from contributions made to the VEBA trust which we use to fund employee medical and severance costs. Contributions to the trust are generally made in the first quarter of the year. The trust funds are then used throughout the year to fund employee medical and severance costs. A contribution of $32.0 million was made to the trust in the first quarter of 2003.

Other non-current assets increased $34.7 million to $135.6 million as of September 30, 2003 from $100.9 million as of December 31, 2002. The increase primarily related to contract acquisition payments of $44.6 million made to financial institution clients during the first nine months of 2003. The number of checks being written has been in decline since the mid-1990s, contributing to increased competitive pressure when attempting to retain or obtain clients. Beginning in 2001, as competitive pressures intensified, both the number of financial institution clients receiving contract acquisition payments and the amount of the payments increased. Although we anticipate that we will continue to make contract acquisition payments, we cannot quantify future amounts with certainty. The amount paid is dependent on numerous factors such as the number and timing of contract executions and renewals, the actions of our competitors, overall product discount levels and the structure of up-front product discount payments versus providing higher discount levels throughout the term of the contract. We do anticipate that these payments will continue to be a significant use of cash. Contract acquisition payments are recorded as non-current assets when made and are amortized, generally on the straight-line basis, as reductions of revenue over the related contract term. While these contract acquisition payments affect the timing of product discounts, they do not necessarily result in a reduction of net revenue. The result is only a change in the timing of the product discount (i.e., an up-front cash payment is made as opposed to providing higher product discount levels throughout the term of the contract).

Short-term debt increased to $200.1 million as of September 30, 2003 from zero as of December 31, 2002. This increase was due to the issuance of commercial paper during the first nine months of the year as we continue to implement the financial strategy discussed earlier.

Long-term debt increased $49.3 million to $355.9 million as of September 30, 2003 from $306.6 million as of December 31, 2002. The increase was due to the issuance of $50.0 million of medium-term notes in September 2003 as we continue to implement the financial strategy discussed earlier. These notes mature in September 2006 and have a coupon rate of 2.75%.

Shareholders’ equity decreased $335.5 million to a deficit of $271.2 million as of September 30, 2003 from $64.3 million as of December 31, 2002. The decrease was due to the required accounting treatment for share repurchases. In August 2002, our board of

directors approved the repurchase of up to 12 million shares of our common stock. These repurchases were completed in September 2003 at a cost of $503.2 million. In August 2003, the board authorized the repurchase of up to 10 million additional shares of our common stock. Through September 30, 2003, 0.1 million of these additional shares had been repurchased at a cost of $4.5 million. Given the strength of our financial position, as reflected in our cash flow and coverage ratios such as EBIT to interest expense and free cash flow to total debt, we do not expect any adverse reaction from rating agencies or others that would negatively affect our liquidity or financial condition.

Contractual Obligations

A table of our contractual obligations was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2002. In September 2003, we issued $50.0 million of medium-term notes which mature in September 2006. There were no other significant changes to our contractual obligations during the first nine months of 2003.

Contingent Commitments/Off-balance Sheet Arrangements

Related Party Transactions

We entered into no related party transactions during the first nine months of 2003 or during 2002. 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.

Critical Accounting Policies

A description of our critical accounting policies has been provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2002. Other than the change to deferred advertising accounting estimates discussed below, there were no significant changes to these accounting policies during the first nine months of 2003.

Deferred advertising costs — During the first quarter of 2003, we reviewed our various marketing programs and the related revenues generated from these programs. As a result of this review, we modified the estimated revenue streams over which our deferred advertising costs are amortized. We shortened the amortization periods from an average of 18 months to a maximum of 18 months, and we revised our pattern of amortization to reflect the fact that due to our promotional strategies, a larger proportion of revenues are generated from reorders than from initial orders. Additionally, the increasing use of alternative payment methods, the sluggish economy and our promotional strategies for multi-box orders have resulted in a lengthening of the check reorder cycle. The net impact of these changes in accounting estimates resulted in a decrease in SG&A expense of approximately $2 million during the third quarter of 2003 and approximately $5 million during the first nine months of 2003. For the first nine months of 2003, lower expense due to the revised pattern of amortization and the lengthening reorder cycle was partially offset by the shortened amortization period. For the full year, we anticipate that Direct Checks advertising expense will be comparable to 2002.

Other Matters

During October 2003, we made the decision to close two additional Financial Services check printing facilities located in Pittsburgh, Pennsylvania and Campbell, California. This decision was the result of our continuous efforts to manage costs. Cost management is one of our strategic objectives, and we are continually seeking ways to lower our cost structure. The expertise we have developed in logistics, productivity and inventory management allows us to reduce the number of production facilities while still meeting client expectations. In the fourth quarter of 2003, we expect to record restructuring charges for these facility closures of approximately $3 million. The restructuring charges will include estimated severance payments for approximately 200 employees, which will be payable under our on-going severance benefit plan, and will be reflected as cost of goods sold in our consolidated statement of income for the year ended December 31, 2003. We anticipate that these facilities will be closed by September 2004. The majority of the severance payments are expected to be completed by mid-2005, utilizing cash from operations. As a result of the closing of these check printing facilities, we expect to realize net cost savings of approximately $5 million per year within cost of goods sold, beginning in 2005. Reduced costs consist primarily of labor and facility expenses such as insurance, taxes, depreciation and maintenance. In addition to severance payments, we anticipate spending approximately $2 million prior to September 2004 for costs related to transferring production to other facilities. The majority of this amount will be spent on improvements to the other check printing facilities. These improvements will be capitalized and depreciated over their estimated useful lives.

Also during October 2003, the decision was made to further reduce SG&A employees. Again, this is a result of our on-going cost management efforts. We are still finalizing the details of these employee reductions and expect to record restructuring charges of approximately $2 million for employee severance in the fourth quarter of 2003.

Outlook

We believe current economic and business conditions are having an impact on our results of operations. We have observed a decline in check usage as continued growth in alternative payment methods, economic uncertainty and low consumer confidence translate into fewer checks written. In addition, we continue to operate in a highly competitive industry and have experienced heightened pricing pressure within our Financial Services segment. These factors are expected to continue to impact our business and may result in decreased margins in the future. Our plan is to continue to manage expenses, focus on value and service and invest in our business to reduce operating expenses, increase productivity and profitably increase revenue.

We anticipate a slight decrease in units in 2003 as compared to 2002 due to the decline in check usage and lower consumer response rates to direct mail advertisements and lengthening reorder cycles in our Direct Checks segment. Additionally, the timing of financial institution client gains and losses for Financial Services in the first half of this year contributes to the slight decrease.

However, we expect Business Services to continue benefiting from alliances with Microsoft Money and Microsoft Business Solutions, as well as the continuing success of its financial institution referral program.

As discussed earlier under Other Matters, we anticipate recording approximately $5 million of restructuring charges in the fourth quarter of 2003, as well as asset impairment charges. Additionally, we expect advertising expense for our Direct Checks segment to increase in the fourth quarter. As discussed earlier under Results of Operations, through the first nine months of 2003, Direct Checks advertising expense was $6.5 million less than the same period in 2002. However, we anticipate that Direct Checks advertising expense for the full year will be comparable to 2002 due to the timing of spending for new customer acquisition. Additionally, interest expense will be higher in 2003 due to two recent debt issuances. In December 2002, we issued $300.0 million of senior, unsecured notes which mature in December 2012 and have a coupon rate of 5.0%. In September 2003, we issued $50.0 million of medium-term notes which mature in September 2006 and have a coupon rate of 2.75%. Partially offsetting these expense increases, we expect cost management and productivity improvements to continue. We expect diluted earnings per share to be between $0.72 and $0.76 for the fourth quarter of 2003 and approximately $3.45 for the full year, excluding the impact of additional share repurchases after September 30, 2003.

We have no current plans to change our dividend payout level and anticipate continuing share repurchases. We completed our 12 million share repurchase authorization in September 2003. In August 2003 our board of directors authorized the repurchase of up to 10 million additional shares of our common stock. Our shareholders’ equity will continue to be in a deficit position as a result of the required accounting treatment for share repurchases. Given the strength of our financial position as reflected in our cash flow and coverage ratios such as EBIT to interest expense and free cash flow to total debt, we do not expect any adverse reaction from rating agencies or others that would negatively affect our liquidity or financial condition. Although we do anticipate that our ratio of EBIT to interest expense will continue to decline in the fourth quarter of 2003 due to the increase in interest expense resulting from the issuance of long-term debt, as well as higher overall debt levels, we believe the risk of violating our financial covenants is low.

We expect to spend less than $25 million on purchases of capital assets during 2003, lower than previously anticipated. The reduction is in response to the challenging business and economic environments. Approximately $20 million is expected to be devoted to maintaining our business, with the remainder targeted for strategic initiatives.

We continue to implement initiatives throughout the company that are directly related to our growth strategy. Our growth strategy is to leverage our core competencies of personalization, direct marketing and e-commerce. We intend to add services and expand product offerings, as well as use selling strategies that maximize revenue and profit contribution per customer. One example of this is a line of holiday cards recently introduced by our Business Services segment. Additionally, our Direct Checks segment recently acquired three more licensed checks designs – Dr. Suess’ Cat in the Hat™ ^&©, a new Looney Tunes™ ^&© design and a package featuring four popular board games from Hasbro®.

We will continue to focus on value and service. We are committed to focusing on financial institutions who value high quality, superior service and the best experience for their customers. We believe this approach will allow us to retain business and also attract new clients who want to maximize their check programs.

Cautionary Statement Regarding Forward-looking Statements

The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides companies with a “safe harbor” when making forward-looking statements as a way of encouraging them to furnish their shareholders with information regarding expected trends in their operating results, anticipated business developments and other prospective information. Statements made in this report concerning our intentions, expectations or predictions about future results or events are “forward-looking statements” within the meaning of the Reform Act. These statements reflect our current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, and these variations could be material and adverse. Given that circumstances may change, and new risks to the business may emerge from time to time, having the potential to negatively impact our business in ways we could not anticipate at the time of making a forward-looking statement, you are cautioned not to place undue reliance on these statements, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Some of the factors that could cause actual results or events to vary from stated expectations include, but are not limited to, the following: developments in the demand for our products or services, such as the rate at which the use of checks may decline as consumers’ preferred method of non-cash payment; the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond our control; the terms under which we do business with our major financial institution

clients, customers and suppliers; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services; the impact of governmental laws and regulations, particularly in the area of consumer privacy; and competitive forces. Additional information concerning these and other factors that could cause actual results or events to differ materially from our current expectations are contained in Item 5 of this Report.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We are exposed to changes in interest rates primarily as a result of the borrowing activities used to maintain liquidity and fund business operations. We do not enter into financial instruments for speculative or trading purposes. During the first nine months of 2003, we continued to utilize commercial paper to fund share repurchases and working capital requirements. Additionally, we also utilized the proceeds from the $300.0 million of senior, unsecured notes we issued in December 2002. These notes mature in December 2012 and have a coupon rate of 5.0%. In September 2003, we issued $50.0 million of medium-term notes which mature in September 2006 and have a coupon rate of 2.75%. We also have various lines of credit available and capital lease obligations. As of September 30, 2003, we had $200.1 million of commercial paper outstanding at a weighted-average interest rate of 1.10%. The carrying value of this debt approximates its fair value due to its short-term duration. Based on quoted market rates as of September 30, 2003, the fair value of our $300.0 million notes was estimated to be $308.4 million and the fair value of our $50.0 million notes was estimated to be $50.4 million. The nature and amount of debt outstanding can be expected to vary as a result of future business requirements, market conditions and other factors.

Based on the outstanding variable rate debt in our portfolio, a one percentage point increase in interest rates would have resulted in additional interest expense of $1.0 million for the first nine months of 2003 and $1.2 million for the first nine months of 2002.

During 2002, we entered into two forward rate lock agreements to effectively hedge, or lock-in, the annual interest rate on $150.0 million of the $300.0 million notes issued in December 2002. Upon issuance of the notes, these lock agreements were terminated, yielding a deferred pre-tax loss of $4.0 million, which is reflected in accumulated other comprehensive loss in our consolidated balance sheets. This amount is being reclassified ratably to our statements of income as an increase to interest expense over the ten-year term of the notes.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures: As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequately designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.

(b) Internal Control over Financial Reporting: No change in our internal control over financial reporting identified in connection with such evaluation during the quarter ended September 30, 2003, has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Other than routine litigation incidental to our business, we are not subject to any material pending legal proceedings.

Item 5. Other Information

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (the Reform Act) provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information. We are filing this cautionary statement in connection with the Reform

Act. When we use the words or phrases “should result,” “believe,”“intend,” “plan,” “are expected to,” “targeted,”“will continue,” “will approximate,” “is anticipated,”“estimate,” “project” or similar expressions in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission (the Commission), in our press releases and in oral statements made by our representatives, they indicate forward-looking statements within the meaning of the Reform Act.

We want to caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could cause them to be wrong. Some of these uncertainties and other factors are listed under the caption “Risk Factors” below (many of which have been discussed in prior filings with the Commission). Although we have attempted to compile a comprehensive list of these important factors, we want to caution you that other factors may prove to be important in affecting future operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor or combination of factors may have on our business.

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

RISK FACTORS

The paper check industry overall is a mature industry and if the industry 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 and the principal source of our operating income. 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, total checks written by individuals and small businesses continued to decline slightly in 2002, and the total number of personal, business and government checks written in the United States has been in decline since the mid-1990s. We believe that checks written by individuals and small businesses 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 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.

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 and from sellers of business checks and forms. Additionally, we face competition from check printing software vendors and, increasingly, from Internet-based sellers of checks to individuals and small businesses. The corresponding pricing pressure placed on us has resulted in reduced profit margins and these pressures are expected to continue in the future. 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 margins, loss of customers and an increase in up-front cash payments to financial institutions upon contract execution or renewal.

Economic conditions within the United States could have an adverse effect on our results of operations.

We believe the extended length of the slow-down in the United States economy is having an impact on our results of operations. As an example, we have seen a decline in unit volume as low consumer confidence translates into less spending. As a result, fewer checks are written and check reorder cycles lengthen. A continued weak economy could cause this trend to continue, resulting in revenue shortfalls. There has also been a softening in overall direct mail industry response rates causing some of the cooperative mailers and other businesses we have relied upon to distribute direct mail advertisements to reduce their circulation. This in turn, has had an adverse impact on response rates in our direct-to-consumer businesses and has resulted in an increase in the costs of these advertisements. To offset these impacts, we may have to modify and/or increase our marketing and sales efforts, which could result in increased expense. We may also have to take steps to further decrease our cost structure. We can provide no assurance that we would be able to sustain our current levels of profitability in such a situation.

Our strategic initiatives may cost more than anticipated and may not be successful.

We are developing and evaluating plans and launching initiatives for future growth, including the development of additional products and services and the expansion of Internet commerce capabilities. These plans and initiatives will involve increased levels of investment. There can be no assurance that the amount of this investment will not exceed our expectations and result in materially increased levels of expense. The new products and services we develop may not meet acceptance in the marketplace. Also, Internet commerce initiatives involve new technologies and business methods and serve new or developing markets. There is no assurance that these initiatives will achieve targeted revenue, profit or cash flow levels or result in positive returns on our investment.

Consolidation among financial institutions may adversely affect our ability to sell our products.

Financial institutions have undergone large-scale consolidation in the last few years, causing the number of financial institutions to decline, and this trend may continue. Margin pressures arise from such consolidation as merged entities seek not only the most favorable prices formerly offered to the predecessor institutions, but also additional discounts due to the greater volume represented by the combined entity. This concentration greatly increases the importance of retaining our major financial institution clients and attracting significant additional clients in an increasingly competitive environment. The increase in general negotiating leverage possessed by such consolidated entities also presents a risk that new and/or renewed contracts with these institutions may not be secured on terms as favorable as those historically negotiated with these clients. Although we devote considerable efforts towards 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.

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

From time to time, our representatives make predictions or forecasts regarding our future results, including, but not limited to, forecasts regarding estimated revenues, earnings or earnings per share. 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 available mix of historical and forward-looking information made available by us, and other information affecting us and our products and services, including the risk factors discussed here.

In addition, our representatives may occasionally comment publicly on the perceived reasonableness of published reports by independent analysts regarding our projected future performance. Such comments should not be interpreted as an endorsement or adoption of any given estimate or range of estimates or the assumptions and methodologies upon which such estimates are based. 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 current accuracy of the published estimates of outside analysts. If you are relying on these estimates, you should pursue your own independent investigation and analysis of their accuracy and the reasonableness of the assumptions on which they are based.

Uncertainties exist regarding our share repurchase program.

In August 2003, our board of directors authorized the repurchase of up to 10 million shares of our common stock. Stock repurchase activities are subject to certain pricing restrictions, stock market forces, management discretion and various regulatory requirements. As a result, there can be no assurance as to the timing and/or amount of shares that we may repurchase under this authorization.

Increased marketing, production and delivery costs could adversely affect our operating results.

Increases in production costs such as labor, paper and delivery could adversely affect our profitability. Events resulting in an inability of contractual service providers to perform their obligations, such as extended labor strikes, can also adversely impact our margins by requiring us to secure alternate providers at higher costs. In addition, 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 pressures may inhibit our ability to reflect any of these increased costs in the prices of our products.

We may experience software defects that could harm our business and reputation.

We use sophisticated software and computing systems. We may experience difficulties in installing or integrating our technologies on platforms used by our customers or in new environments, such as the Internet. Errors or delays in the processing of check orders or other difficulties could result in lost customers, delay in market acceptance, additional development costs, diversion of technical and other resources, negative publicity or exposure to liability claims.

We face uncertainty with respect to future acquisitions.

We have acquired complementary businesses in the past as part of our business strategy and may pursue acquisitions of complementary businesses in the future. 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. A significant acquisition could result in the incurrence of contingent liabilities or debt, or additional amortization expense relating to acquired intangible assets, and thus, could adversely affect our business, results of operations and financial condition. Additionally, the success of any acquisition would depend upon our ability to effectively integrate the acquired businesses into ours. The process of integrating acquired businesses may involve numerous risks, including, among others, difficulties in assimilating operations and products, diversion of management’s attention from other business concerns, risks of operating businesses in which we have limited or no direct prior experience, 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.

We depend on a limited source of supply for our printing plate material and the unavailability of this material could have an adverse effect on our results of operations.

Our check printing operations 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. In the event, however, that our current supplier becomes unwilling or unable to supply the required printing plate material at an acceptable price and we are unable to locate a suitable alternative source within a reasonable time frame, we would be forced to convert our facilities to an alternative printing process. Any such conversion would require the unanticipated investment of significant sums and could result in production delays and loss of business.

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 an increasing 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.

Third parties may assert infringement claims against us in the future. In particular, there has been a substantial increase in applications for, and the issuance of, patents for Internet-related systems and business methods, which may have broad implications for all participants in Internet commerce. Claims for infringement of these patents are a common subject of litigation. If we become subject to an infringement claim, we may be required to modify our products, services and technologies or obtain a license to permit our continued use of those rights. We may not be able to do either of these things in a timely manner or upon reasonable terms and conditions. Failure to do so could seriously harm our business, operating results and prospects as a result of lost business, increased expense or being barred from offering our products or implementing our systems or other business methods. In addition, future litigation relating to infringement claims could result in substantial costs and a diversion of management resources. Adverse determinations in any litigation or proceeding could also subject us to significant liabilities and could prevent us from using or offering some of our products, services or technologies.

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

We have entered into agreements with third party providers for the provision of 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 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 requirements of the federal financial modernization law known as the Gramm-Leach-Bliley Act (the Act). The Act requires 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.

The Act does not prohibit state legislation or regulations that are more restrictive on the collection and use of data. 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 and decrease the demand for our products and services. 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.

The Internal Revenue Service (IRS) may treat the spin-off of eFunds as taxable to us and to our shareholders if certain unanticipated events occur.

We received confirmation from the IRS that, for U.S. federal income tax purposes, the December 2000 spin-off of eFunds is tax-free to us and to our shareholders, except to the extent that cash was received in lieu of fractional shares. This confirmation is premised on a number of representations and undertakings made by us and by eFunds to the IRS, including representations with respect to each company’s intention not to engage in certain transactions in the future. The spin-off may be held to be taxable to us and to our shareholders who received eFunds shares if the IRS determines that any of the representations made are incorrect or untrue in any respect, or if any undertakings made are not complied with. If the spin-off is held to be taxable, both Deluxe and our shareholders who received eFunds shares could be subject to a material amount of taxes. eFunds will be liable to us for any such taxes incurred to the extent such taxes are attributable to specific actions or failures to act by eFunds, or to specific transactions involving eFunds following the spin-off. In addition, eFunds will be liable to us for a portion of any taxes incurred if the spin-off fails to qualify as tax-free as a result of a retroactive change of law or other reason unrelated to the action or inaction of either us or eFunds. We cannot be certain of eFunds’ ability to perform its indemnification obligations and such indemnification obligations are only for the benefit of Deluxe and not individual shareholders.

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 is subject to change. In addition, any new operations of these businesses in states where they do not presently 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 check printing plants are subject to many existing and proposed federal and state regulations designed to protect the environment. In some instances, we owned and operated our check printing plants before the environmental regulations came into existence. We have sold former check printing plants to third parties and in some instances have agreed to indemnify the current owner of the facility for on-site environmental liabilities. In order to contain our risk, we have obtained insurance coverage related to the environmental status of these plants. We believe that the coverage is sufficient to avoid the future expenditure of material amounts, but unforeseen conditions could result in additional exposure at lesser levels.

Item 6. Exhibits and Reports on Form 8-K

(a)

The following exhibits are filed as part of this report:

       Exhibit                                                                          Method of
       Number                   Description                                              Filing
       ------                   -----------                                              ------

        3.1        Articles of Incorporation (incorporated by reference to the             *
                   Annual Report on Form 10-K for the year ended December 31,
                   1990)

        3.2        Bylaws (incorporated by reference to Exhibit 3.2 to the                 *
                   Quarterly Report on Form 10-Q for the quarter ended September
                   30, 1999)

        4.1        Amended and Restated Rights Agreement, dated as of January              *
                   31, 1997, by and between the Company and Norwest Bank
                   Minnesota, National Association, as Rights Agent, which
                   includes as Exhibit A thereto, the form of Rights Certificate
                   (incorporated by reference to Exhibit 4.1 to Amendment No. 1
                   on Form 8-A/A-1 (File No. 001-07945) filed with the
                   Commission on February 7, 1997)

        4.2        Amendment No. 1 to Amended and Restated Rights Agreement,               *
                   entered into as of January 21, 2000, between us and Norwest
                   Bank Minnesota, National Association as Rights Agent
                   (incorporated by reference to Exhibit 4.1 to Amendment No. 1
                   to the Quarterly Report on Form 10-Q for the Quarter Ended
                   June 30, 2000)

        4.3        First Supplemental Indenture dated as of December 4, 2002, by           *
                   and between us and Wells Fargo Bank Minnesota, N.A. (formerly
                   Norwest Bank Minnesota, National Association), as trustee
                   (incorporated by reference to Exhibit 4.1 to the Form 8-K
                   filed with the Commission on December 5, 2002)

        4.4        Indenture, dated as of April 30, 2003, by and between us and            *
                   Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank
                   Minnesota, National Association), as trustee (incorporated
                   by reference to Exhibit 4.8 to the Registration Statement on
                   Form S-3 (Registration No. 333-104858) filed with the
                   Commission on April 30, 2003)

        4.5        Credit Agreement dated as of August 19, 2002, among us, Bank            *
                   One, N.A. as administrative agent, The Bank of New York as
                   syndication agent, Wachovia Bank, N.A. as documentation
                   agent and the other financial institutions party thereto,
                   related to a $175,000,000 5-year revolving credit agreement
                   (incorporated by reference to Exhibit 4.5 to the Quarterly
                   Report on Form 10-Q for the quarter ended September 30, 2002)


        4.6        Amended and Restated Credit Agreement dated as of August 14,          Filed
                   2003, among us, Bank One, N.A. as administrative agent,              herewith
                   Credit Suisse First Boston as syndication agent, Wachovia
                   Bank, N.A., Wells Fargo Bank, N.A. and The Bank of
                   Tokyo-Mitsubishi, Ltd., Chicago Branch as documentation
                   agents and the other financial institutions party thereto,
                   related to a $175,000,000 364-day revolving credit agreement

        12.1       Statement re: computation of ratios                                   Filed
                                                                                        herewith

        31.1       CEO Certification of Periodic Report pursuant to Section 302          Filed
                   of the Sarbanes-Oxley Act of 2002                                    herewith

        31.2       CFO Certification of Periodic Report pursuant to Section 302          Filed
                   of the Sarbanes-Oxley Act of 2002                                    herewith

        32.1       CEO and CFO Certification of Periodic Report pursuant to             Furnished
                   Section 906 of the Sarbanes-Oxley Act of 2002                        herewith

        ___________________
        *Incorporated by reference

(b)

Reports on Form 8-K:

A Form 8-K was furnished to the Securities and Exchange Commission on July 17, 2003, reporting results from second quarter, 2003.

A Form 8-K was filed with the Securities and Exchange Commission on September 3, 2003, relating to a distribution agreement we entered into for the public offering of up to $250,000,000 aggregate principal amount of medium-term notes.

SIGNATURES

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

	DELUXE CORPORATION (Registrant)

Date: November 11, 2003	/s/ Lawrence J. Mosner Lawrence J. Mosner Chief Executive Officer (Principal Executive Officer)

Date: November 11, 2003	/s/ Douglas J. Treff Douglas J. Treff Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: November 11, 2003	/s/ Katherine L. Miller Katherine L. Miller Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)

INDEX TO EXHIBITS


   Exhibit No.                        Description                                           Page Number
   -----------                        -----------                                           -----------

         4.6         Amended and Restated Credit Agreement dated as of
                     August 14, 2003, among us, Bank One, N.A. as
                     administrative agent, Credit Suisse First Boston as syndication
                     agent, Wachovia Bank, N.A., Wells Fargo Bank, N.A. and
                     The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch as
                     documentation agents and the other financial institutions
                     party thereto, related to a $175,000,000 364-day revolving
                     credit agreement

        12.1         Statement re: computation of ratios

        31.1         CEO Certification of Periodic Report pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

        31.2         CFO Certification of Periodic Report pursuant to
                     Section 302 of the Sarbanes-Oxley Act of 2002

        32.1         CEO and CFO Certification of Periodic Report pursuant to
                     Section 906 of the Sarbanes-Oxley Act of 2002

FORM 10-Q

Commission file number: 1-7945

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

DELUXE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Consolidated financial statements

Note 2: Employee stock-based compensation

Note 3: New accounting pronouncements

Note 4: Supplementary balance sheet information

Note 6: Restructuring charges

Note 7: Provision for income taxes

Note 8: Debt

Note 9: eFunds indemnification

Note 10: Shareholders’ equity

Note 11: Business segment information

Note 12: Subsequent events

Company Profile

Results of Operations – Quarter Ended September 30, 2003 Compared to the Quarter Ended September 30, 2002

Results of Operations – Nine Months Ended September 30, 2003 Compared to the Nine Months Ended September 30, 2002

Segment Disclosures

Liquidity, Capital Resources and Financial Condition

Contractual Obligations

Contingent Commitments/Off-balance Sheet Arrangements

Related Party Transactions

Critical Accounting Policies

Other Matters

Outlook

Cautionary Statement Regarding Forward-looking Statements

PART II. OTHER INFORMATION

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

RISK FACTORS

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