<PAGE>
THIS DOCUMENT IS A COPY OF THE SCHEDULE 14A FILED ON SEPTEMBER 12, 1994
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NEW ENGLAND BUSINESS SERVICE, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NEW ENGLAND BUSINESS SERVICE, INC.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
* Set forth the amount on which the filing is calculated and state how it
was determined.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1994
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of New England
Business Service, Inc., a Delaware corporation (the "Company"), will be held at
the offices of the Company, 500 Main Street, Groton, Massachusetts, on Friday,
October 28, 1994 at 10:00 a.m., Eastern Daylight Savings Time, for the purpose
of considering and voting upon the following matters:
1. To fix the number of directors and elect a Board of Directors to serve
until the next Annual Meeting of Stockholders and until their successors
are elected and qualified;
2. To approve The NEBS 1994 Key Employee and Eligible Director Stock Option
and Stock Appreciation Rights Plan;
3. To approve the New England Business Service, Inc. Stock Compensation
Plan;
4. To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending June 30, 1995; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on August 31, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at this meeting. Accordingly, only stockholders of record at the close
of business on that date are entitled to vote at the meeting or at any
adjournment thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended June 24, 1994, which contains financial statements and other information
of interest to stockholders, accompanies this Notice and the accompanying Proxy
Statement.
The business matters enumerated above are discussed more fully in the
accompanying Proxy Statement. Whether or not you plan to attend the meeting,
you are urged to study the Proxy Statement carefully and then to fill out, sign
and date the enclosed Proxy. To avoid unnecessary expense, please mail your
Proxy promptly in the enclosed return envelope, which requires no postage if
mailed in the United States.
By order of the Board of Directors
John F. Fairbanks
Secretary
September 9, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND
MAIL PROMPTLY THE ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS. A RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC.
500 MAIN STREET
GROTON, MASSACHUSETTS 01471
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 28, 1994
The Proxy accompanying this Proxy Statement is solicited by the Board of
Directors of New England Business Service, Inc. (the "Company") to be voted at
the Annual Meeting of Stockholders to be held on Friday, October 28, 1994 and
at any adjournment thereof (the "Meeting").
It is expected that copies of the Notice of Meeting, this Proxy Statement and
the enclosed form of Proxy will be mailed approximately September 9, 1994 to
each stockholder entitled to vote at the Meeting. The Company's Annual Report
to Stockholders for the fiscal year ended June 24, 1994 accompanies this Proxy
Statement.
VOTING SECURITIES
Only the record holders of shares of Common Stock ($1.00 par value) of the
Company ("Common Stock") at the close of business on August 31, 1994 may vote
at the Meeting. Each share of Common Stock is entitled to one vote on the
matters to be voted upon at the Meeting.
On August 31, 1994, there were 15,475,550 shares of Common Stock issued and
outstanding. On that date, the following persons were known by the Company to
own beneficially more than 5% of the Company's outstanding shares of Common
Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT
------------------- ----------------------- -------
<S> <C> <C>
Jay R. Rhoads, Jr. ............................. 1,765,200(1) 11.23
New England Business Service, Inc.
500 Main Street
Groton, MA 01471
Richard H. Rhoads............................... 1,160,073(2) 7.38
New England Business Service, Inc.
500 Main Street
Groton, MA 01471
Fidelity Management and Research Corporation.... 2,004,500(3) 12.75
82 Devonshire Street
Boston, MA 02110
Systematic Financial Management, Inc............ 1,891,954(4) 12.03
Two Executive Drive
Fort Lee, NJ 07024
</TABLE>
- --------
(1) Sole voting and investment power with respect to 1,519,432 shares; shared
voting and investment power with respect to 245,768 shares. Excludes
618,085 shares held by members of Mr. Rhoads' family but not beneficially
owned by Mr. Rhoads.
(2) Sole voting and investment power with respect to 986,987 shares; sole
voting power only with respect to 2,562 shares; shared voting and
investment power with respect to 170,524 shares. Includes 60,000 shares
issuable within 60 days upon exercise of options.
(3) Sole investment power with respect to 2,004,500 shares and sole voting
power with respect to 1,992,600 shares.
(4) Shared voting and investment power with respect to 136,880 shares and sole
investment power with respect to 1,755,074 shares.
<PAGE>
On August 31, 1994, the directors, the Chief Executive Officer, the former
Chief Executive Officer, the other three executive officers of the Company and
one additional individual who would be within the latter group but for the fact
that he was not serving as an executive officer at the end of the 1994 fiscal
year beneficially owned the number of shares of Common Stock shown below:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NAME OF DIRECTOR SOLE VOTING AND SHARED VOTING
OR EXECUTIVE OFFICER INVESTMENT POWER AND INVESTMENT POWER TOTAL PERCENT
-------------------- ---------------- -------------------- --------- -------
<S> <C> <C> <C> <C>
Jay R. Rhoads, Jr....... 1,519,432 245,768(1) 1,765,200 11.23
Richard H. Rhoads....... 986,987(8) 173,086(2)(7) 1,160,073 7.38
William C. Lowe......... 75,000(8) 1,000(3) 76,000 *
Peter A. Brooke......... 15,624 12,468(4) 28,092 *
Benjamin H. Lacy........ 15,000 15,000 *
Frank L. Randall, Jr.... 3,000 3,000 *
Robert J. Murray........ 1,000 1,000 *
Robert Ripp............. 1,000 1,000 *
Bartley H. Calder....... 0 724(5) 724 *
Russell V. Corsini, Jr.. 74,509(8) 2,069(6)(7) 76,578 *
Christopher H. Corbett.. 63,585(8) 1,571(7) 65,156 *
Robert S. Brown, Jr. ... 44,420(8) 1,208(7) 45,628 *
All Directors and
Executive Officers
as a Group (11
persons)............... 3,172,295(9) 20.18
</TABLE>
- --------
* Less than one percent
(1) Including 160,000 shares owned by a charitable foundation of which Mr.
Rhoads and his wife are directors and 85,768 shares owned by Mr. Rhoads'
wife, as to all of which Mr. Rhoads disclaims beneficial ownership.
(2) Including 66,000 shares owned by Mr. Rhoads' wife individually and 104,524
shares owned by his wife and a co-trustee of a trust for the benefit of Mr.
Rhoads' children, as to all of which shares Mr. Rhoads disclaims beneficial
ownership.
(3) Shares owned by Mr. Lowe's wife, as to all of which shares Mr. Lowe
disclaims beneficial ownership.
(4) Shares owned by Mr. Brooke's wife, as to all of which shares Mr. Brooke
disclaims beneficial ownership.
(5) Shares owned by Mr. Calder's wife, as to all of which shares Mr. Calder
disclaims beneficial ownership.
(6) Including 40 shares owned by Mr. Corsini's children, as to all of which
shares Mr. Corsini disclaims beneficial ownership.
(7) Shares owned by the following persons and held in an account by the trustee
of The 401(k) Plan for Employees of New England Business Service, Inc.; Mr.
Rhoads, 2,562 shares, Mr. Corsini, 2,029 shares, Mr. Corbett, 1,571 shares,
and Mr. Brown, 1,208 shares.
(8) Includes shares which may be acquired within 60 days through the exercise
of stock options. The persons who have such options and the number of
shares which may be so acquired are as follows: Mr. Rhoads, 60,000; Mr.
Lowe, 71,000; Mr. Corsini, 72,897; Mr. Corbett, 62,269; and Mr. Brown,
42,594.
(9) Including 430,524 shares owned by trusts or custodians for the benefit of
children of officers and directors, by spouses or dependent children of
officers and directors and by the charitable foundation referred to in note
(1) above, as to all of which shares the officers and directors disclaim
beneficial ownership, 246,491 shares which officers owning currently-
exercisable options may aquire pursuant to the NEBS Key Employee Stock
Option and Stock Appreciation Rights Plans of individual option grants and
5,799 shares held for the accounts of officers by the trustee of The 401(k)
Plan for Employees of New England Business Service, Inc.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's By-Laws provide for a Board of Directors of not fewer than
three nor more than nine directors. The persons named as proxies in the
accompanying form of Proxy intend (unless authority to vote therefor is
specifically withheld) to vote to fix the number of directors for the ensuing
year at eight and to vote for the election of the eight persons named below,
being the nominees of the present Board, as directors to hold office until the
next Annual Meeting and until their respective successors are elected and
qualified. All of the nominees were re-elected to their position at the 1993
Annual Meeting. If any of the nominees becomes unavailable to serve as a
director, the persons named as proxies have discretionary authority to vote for
a substitute. The Board of Directors has no reason to believe that any of the
nominees will be unavailable to serve if elected.
NOMINEES FOR ELECTION AS DIRECTORS
Information regarding each nominee is presented below.
Richard H. Rhoads, age 64, joined the Company in 1965 and has been a director
since 1970. From 1975 to 1991, he was Chief Executive Officer. His principal
occupation since 1988 has been his position as Chairman of the Board. Since
January, 1980, he has served as a member and Chairman of the Executive
Committee of the Board. Mr. Rhoads is the brother of Jay R. Rhoads, Jr.
Peter A. Brooke, age 65, has been a director of the Company since 1989. He
also served in that capacity from 1970 to 1983. His principal occupation for
more than five years has been his position as Chairman and Chief Executive
Officer of Advent International Corporation, an international venture capital
management firm. Mr. Brooke is a director of Unitrode Corporation and Wang
Laboratories Co., Inc.
Benjamin H. Lacy, age 68, has been a director of the Company since 1970.
Since 1980, he has served as a member of the Executive Committee. His principal
occupation since November 1, 1990 has been of counsel to the law firm of Hill &
Barlow, a Professional Corporation, which has served as general counsel to the
Company since 1973. Mr. Lacy was a partner of Hill & Barlow, a partnership, for
more than five years prior to November 1, 1990.
William C. Lowe, age 53, has been a director of the Company since 1988, and
President and Chief Executive Officer since January, 1994. His principal
occupation from June, 1991 until January, 1994 was Chairman and CEO of
Gulfstream Aerospace Corporation. From December, 1988 to May, 1991 he was
Executive Vice President of Xerox Corporation. Prior to joining that company,
Mr. Lowe was a Vice President of IBM Corporation and President of its Entry
Systems Division from 1985 to 1988.
Robert J. Murray, age 53, has been a director of the Company since 1991. Mr.
Murray has, since January 1, 1991, been Executive Vice President, Gillette
North Atlantic Group of The Gillette Company. During 1990, he served as Vice
President, Chairman's Office of Gillette and from 1985 to 1989 as Chairman of
the Board of Management of Braun AG, one of Gillette's German subsidiaries. Mr.
Murray is a director of Fleet Bank of Massachusetts and LoJack Corporation.
Frank L. Randall, Jr., age 76, has been a director of the Company since 1980.
His principal occupation for more than five years prior to his retirement in
November, 1982 was his position as Vice Chairman of North American Philips
Corporation. Mr. Randall is a director of B. I. Incorporated.
Jay R. Rhoads, Jr., age 69, has been a director of the Company since its
incorporation in 1955. He served as President from 1965 to 1971 and as Chief
Executive Officer from 1965 to 1975 and as Chairman of the Board from 1971 to
1987. Mr. Rhoads is the brother of Richard H. Rhoads.
3
<PAGE>
Robert Ripp, age 52, was elected a director of the Company in 1992. Mr. Ripp
has, since August, 1994, been Corporate Vice President-Finance of AMP
Incorporated. Mr. Ripp was, from 1989 until 1993, Treasurer of IBM Corporation.
In December, 1991, he was elected a Vice President of IBM. Mr. Ripp is a
director of ACE Limited.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has standing audit, organization and compensation, stock option,
nominating and executive committees of the Board of Directors .
The Audit Committee consists of Messrs. Brooke (Chairman), Murray and Lacy.
The Committee met twice during the last fiscal year. The committee reviewed the
matters raised in the management letter which was submitted to the Company by
its independent public accounting firm, Deloitte & Touche LLP, and discussed
the management letter with representatives of Deloitte & Touche LLP. The Audit
Committee also recommended to the Board of Directors the selection of Deloitte
& Touche LLP to serve as the Company's auditors for the year ending June 30,
1995.
The Organization and Compensation Committee consists of Messrs. Lacy
(Chairman), Brooke and Murray. The Committee met twice in fiscal year 1994 to
discuss the executive organization of the Company and to interview candidates
for the position of President and Chief Executive Officer of the Company and
once shortly after the end of the fiscal year to review the annual evaluation
of the Company's officers, fix their base salaries for fiscal year 1995 and
approve the 1995 Executive Bonus Plan.
The Stock Option Committee, consisting of Messrs. Lacy (Chairman), Brooke and
Murray met twice in fiscal year 1994 to grant stock options to eligible
employees of the Company pursuant to The NEBS 1990 Key Employee Stock Option
and Stock Appreciation Rights Plan.
The Nominating Committee, consisting of Messrs. Randall (Chairman), Ripp and,
until January 27, 1994, Lowe, and thereafter Jay R. Rhoads, Jr., did not have
any meetings during fiscal year 1994. The function of the Nominating Committee
is to recommend to the Board of Directors persons to be nominated for election
as directors by the stockholders at the Annual Meeting of Stockholders or by
the Board of Directors to fill vacancies.
The Executive Committee, consisting of Messrs. Richard H. Rhoads (Chairman),
Lacy, and, until November 30, 1993, Mr. Calder, and, after January 27, 1994,
Mr. Lowe, met or acted by unanimous consent six times in fiscal year 1994.
The Board of Directors met eight times during fiscal year 1994. All of the
directors attended at least 75% of the meetings of the Board of Directors and
committees of the Board on which they served.
CERTAIN BUSINESS RELATIONSHIPS--COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Company's general counsel is Hill & Barlow, a Professional Corporation,
of Boston, Massachusetts, of which Benjamin H. Lacy, a director and chairman of
the Organization and Compensation Committee, is of counsel.
CERTAIN TRANSACTIONS
As required by Securities and Exchange Commission ("SEC") Rules under Section
16(a) of the Securities Exchange Act of 1934, the Company reports that a Form 5
with respect to a charitable gift of 1,000 shares of the Company's Common Stock
by Peter Brooke during the Company's 1993 fiscal year was filed late.
4
<PAGE>
COMPENSATION OF OFFICERS AND DIRECTORS
The following table sets forth all compensation paid by the Company through
August 31, 1994 to the Chief Executive Officer, the former Chief Executive
Officer, each of the other three executive officers of the Company and one
additional individual who would be within the latter group but for the fact
that he was not serving as an executive officer at the end of the 1994 fiscal
year (the "Named Executive Officers") in all capacities during the fiscal year
ended June 24, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- -------------------------------
OTHER
NAME AND ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION NO. OF OPTIONS COMPENSATION (1)
------------------ ---- --------- --------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Rhoads....... 1994 $ 250,000 $ 0 $ 0 0 $ 4,500
Chairman 1993 250,000 0 0 0 4,400
1992 250,000 0 0 0 4,200
William C. Lowe......... 1994 187,500 212,500 110,500(2) 300,000 0
President, CEO 1993 0 0 0 0 0
(1/94 to present) 1992 0 0 0 0 0
Bartley H. Calder....... 1994 290,000 81,300 0 20,088 458,700(3)
President, CEO 1993 280,000 130,500 0 41,762 4,400
(6/93 to 12/93) 1992 260,000 0 0 14,481 4,200
Russell V. Corsini, Jr.. 1994 193,000 72,100 0 10,938 4,500
Vice President, 1993 186,000 57,800 0 22,698 0
Chief Financial Officer 1992 175,000 0 0 7,974 2,500
Christopher H. Corbett.. 1994 193,000 72,100 0 10,938 4,500
Vice President, 1993 186,000 57,800 0 22,698 4,400
Information Systems 1992 166,000 0 0 7,564 4,200
Robert S. Brown, Jr..... 1994 170,000 64,000 0 9,634 4,500
Vice President-- 1993 157,000 48,800 0 19,158 4,400
General Manager, 1992 132,000 0 0 4,678 3,400
Subsidiaries
</TABLE>
- --------
(1) The amounts reported in this column for 1994 include the dollar value of
Company contributions to the account of the named executive officers
pursuant to the terms of The 401(k) Plan for Employees of New England
Business Service, Inc.
(2) Other Annual Compensation for Mr. Lowe consists entirely of relocation
expenses paid by the Company in excess of those available generally to all
salaried employees under the Company's Relocation Policy. Of this amount
$31,250 represents one month's salary paid to Mr. Lowe to cover out-of-
pocket relocation expenses not otherwise covered by the said Policy and
$56,100 represents that portion of a $148,000 fee paid by the Company to a
relocation services firm in connection with the sale to it of Mr. Lowe's
former residence which exceeds the sum of the customary brokerage fee,
attorneys' fees, transfer taxes and other reasonable fees associated with
such sale, all of which are paid generally by the Company for all
relocating salaried employees under the said Policy.
(3) Includes $454,300, representing an accrual of the maximum possible
compensation and outplacement assistance expenses payable to or for Mr.
Calder following his resignation under the terms of his termination
agreement, and $4,400 for the dollar value of Company contributions to Mr.
Calder's account pursuant to The 401(k) Plan for Employees of New England
Business Service, Inc.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS APPRECIATION
NUMBER OF GRANTED EXERCISE FOR OPTION TERM
SHARES TO EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED IN FISCAL YEAR SHARE DATE 5% 10%
---- --------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William C. Lowe......... 300,000(1) 58.59% $16.25 11/12/03 $3,066,000 $7,770,000
Bartley H. Calder....... 20,088 3.92 15.88 12/31/93 0 0
Russell V. Corsini, Jr.. 10,938 2.14 15.88 7/23/03 109,300 276,800
Christopher H. Corbett.. 10,938 2.14 15.88 7/23/03 109,300 276,800
Robert S. Brown, Jr..... 9,634 1.88 15.88 7/23/03 96,200 243,800
</TABLE>
- --------
(1) Mr. Lowe's stock options were awarded pursuant to the terms of his
employment by the Company. They vest annually in four 75,000 share
increments beginning on January 3, 1994 and ending on January 3, 1997,
except that all of such options will vest immediately in case of a change
in control of the Company.
This presentation is intended to disclose the potential value which would
accrue to the option holder if the option were exercised the day before it
would expire and if the per share value had appreciated at the compounded
annual rate indicated above each column. The application of an absolute
mathematical formula results in a higher potential realizable value for options
granted at a time when the market value is relatively high. The assumed rates
of appreciation of 5% and 10% are prescribed by Securities and Exchange
Commission rules on disclosure of executive compensation. The Company does not
advocate or necessarily agree that these rates are indicative of future growth
in the market price of the Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END (1)
------------------------- -------------------------
NUMBER OF
SHARES
ACQUIRED VALUE
AT EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Rhoads....... 0 $ 0 60,000 0 $ 90,000 $ 0
William C. Lowe......... 4,000 18,000 71,000 225,000 213,000 675,000
Bartley H. Calder....... 51,762 156,400 0 0 0 0
Russell V. Corsini, Jr.. 8,448 44,000 61,477 17,717 142,000 67,400
Christopher H. Corbett.. 3,896 19,300 50,849 17,717 114,200 67,400
Robert S. Brown, Jr..... 0 0 34,132 16,413 87,500 63,000
</TABLE>
- --------
(1) In-the-Money options are options having an exercise price not exceeding
current market value.
PENSION PLAN AND TRUST AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Along with other employees of the Company, the Named Executive Officers
participate in the Company's Pension Plan and Trust which is a defined benefit
plan that meets regulatory requirements (the "Pension Plan"). The Named
Executive Officers also participate in the Company's Supplemental Executive
Retirement Plan (the "Supplemental Plan"). Benefits under the Pension Plan,
payable upon normal retirement at age 65 as a life annuity or an actuarial
equivalent thereof, are based upon age, length of service and an average of the
participant's five highest consecutive years of compensation out of the ten
years immediately preceding the normal retirement date or other date of
termination of employment. The Supplemental Plan provides for making payments
concurrently with payments made under the Pension Plan in amounts equal to the
difference between the amount received by an executive (or his contingent
beneficiary)
6
<PAGE>
under the Pension Plan and the amount which would be receivable in accordance
with the Pension Plan's formula (as illustrated by the following Retirement
Benefit Table) if the annual earnings taken into account in determining the
amount payable to any Participant as a pension under the Pension Plan were not
subject to the maximum dollar limitations under the Pension Plan.
RETIREMENT BENEFIT TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE -------------------------
ANNUAL EARNINGS 15 20 25
--------------- ------- -------- --------
<S> <C> <C> <C>
$ 25,000........................................ $ 5,000 $ 7,000 $ 8,000
50,000........................................ 10,000 14,000 17,000
100,000........................................ 25,000 34,000 42,000
150,000........................................ 40,000 54,000 67,000
200,000........................................ 55,000 74,000 92,000
250,000........................................ 70,000 94,000 117,000
300,000 and over............................... 85,000 114,000 142,000
</TABLE>
COMPENSATION OF DIRECTORS
Directors of the Company generally receive as compensation for all services
as directors $12,000 per year plus $1,000 for each Board meeting and each
meeting (not held on the same day as a Board meeting) of any Committee of the
Board which they attend.
Directors of the Company will be granted stock options pursuant to The NEBS
1994 Key Employee and Eligible Director Stock Option and Stock Appreciation
Rights Plan, if approved by the Stockholders, in an initial grant of options
for 3,000 shares for each director elected at the 1994 Annual Meeting of
Stockholders, with an exercise price determined by the market value of the
Company's Common Stock on the tenth day following such Annual Meeting, and
1,000 shares per year upon each subsequent election, under similar terms,
except that any newly elected director will be granted an option to acquire
3,000 shares in the initial year of service and 1,000 shares for each year of
re-election thereafter. Richard H. Rhoads and William C. Lowe receive no
compensation for their services as directors.
The Company has established The NEBS Deferred Compensation Plan for Outside
Directors, pursuant to which any director who is not an employee of the Company
may elect to defer until after his or her retirement as a director or after his
or her 70th birthday any or all of the compensation payable by the Company for
all services as a director. They may elect to be paid in a lump sum on the
first day of the first fiscal year beginning after such date or in quarterly
installments over a period of not to exceed ten years. Interest is credited to
each director's account quarterly at the so-called "base rate" of interest of
The First National Bank of Boston on the last preceding June 30th and December
31st. No such elections are presently in effect.
7
<PAGE>
REPORT OF ORGANIZATION AND COMPENSATION
COMMITTEE AND STOCK OPTION COMMITTEE
POLICIES
In providing for the compensation of the Named Executive Officers, it is the
policy of the Organization and Compensation Committee (the "Committee") to
recommend base salaries for each of them within salary ranges, the midpoints of
which are in general at about the 60th percentile of the base salaries of
officers in similar positions in a representative group of non-durable goods
manufacturing companies of comparable size, as determined by a nationally
recognized compensation and benefits consultant. In addition, annual bonuses
are provided for, the payment and the amount of which will depend upon the
Company's degree of attainment of pre-established sales and earnings targets
and, commencing in fiscal year 1995, in some instances, upon the attainment of
pre-established individual objectives. Long-range compensation is tied directly
to the increase in value of the Company's Common Stock and, hence, takes the
form of the award of stock options, with option prices equal to 100% of current
market value, in amounts reflecting the level of responsibility of the grantees
for the Company's long-range success.
In determining its executive compensation policies from year to year, the
Company expects to take appropriate measures to prevent the employee
remuneration paid by it from being rendered non-deductible by operation of the
terms of Section 162(m) of the Internal Revenue Code of 1986, as amended. Such
measures may include (i) limiting the amount of non-performance-based
compensation paid to any employee, and (ii) complying with the statutory
requirements for exempting performance-based compensation from non-
deductibility by obtaining stockholder approval of qualified performance-based
compensation plans.
IMPLEMENTATION
1. Salaries. The individual salaries of the Named Executive Officers other
than William C. Lowe for fiscal year 1994 were recommended by the Committee and
approved by the Board at the beginning of the year. Mr. Lowe's salary was
similarly recommended and approved in November, 1993, in connection with his
employment as the Company's new President and Chief Executive Officer. The
salary ranges established for each of the Named Executive Officers other than
Mr. Rhoads were based upon data compiled by a nationally recognized
compensation and benefits consultant concerning the base salaries paid to
comparable officers of like-sized non-durable goods manufacturers. The
Committee believes that the compensation paid to officers within this broad
group of manufacturers is more representative of the competition the Company
must meet in hiring and retaining its executives than the small group of
companies, mostly of substantially larger size than the Company, forming the
peer group with which the Company's results are compared in the graph on page
10 below. Within these ranges, the actual salaries fixed for the officers were
recommended by the Committee after consideration of individual performance
review reports prepared by the Chairman of the Board with respect to Bartley C.
Calder, who served as President and Chief Executive Officer until December 31,
1993 and by Mr. Calder with respect to the other Named Executive Officers other
than Mr. Rhoads and Mr. Lowe. The Committee also discussed with Mr. Calder the
performance of the Company during fiscal year 1993 and the contribution of the
individual Named Executive Officers other than Mr. Lowe to that performance.
Richard H. Rhoads, Chairman of the Board, who retired as Chief Executive
Officer in July, 1991, but continued during fiscal year 1994 to devote a major
part of his time to the business of the Company, received a fixed salary of
$250,000 (and no bonuses or stock options).
2. Annual Bonuses. At the beginning of fiscal year 1994, all of the Named
Executive Officers other than Mr. Rhoads and Mr. Lowe were designated as
participants in the Company's 1994 Executive Bonus Plan (the "Bonus Plan") and
target bonuses of 60% of base salary for the Chief Executive Officer and 40% of
base salary for the other Named Executive Officers were established. In
accordance with the Bonus Plan, after the close of fiscal year 1994 cash
bonuses were paid, the amounts of which were based entirely on the Company's
performance for the year versus budgeted net sales and earnings per share. On
this basis, each of the Named Executive Officers other than Mr. Rhoads, Mr.
Calder and Mr. Lowe received a bonus equal to
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93.4% of his target bonus. In accordance with the terms of his employment,
Mr. Lowe received an annual bonus equal to 30% of his annual salary rate of
$375,000. In connection with his separation from the Company, Mr. Calder
received an annual bonus equal to one half of the bonus which he would have
received had he served as President and Chief Executive Officer for the entire
year.
3. Stock Options. At the beginning of fiscal year 1994, the Stock Option
Committee (the membership of which was the same as that of the Committee)
authorized the granting of a stock option to Mr. Calder covering shares with a
market value on the date of the grant equal to 110% of his 1994 base salary.
The options granted to the other Named Executive Officers other than Mr. Rhoads
and Mr. Lowe were for shares with a market value of 90% of their respective
1994 base salaries. These awards represented a 50% decrease (in percentage of
base salary) from the awards made to such Named Executive Officers in the prior
fiscal year and were recommended by management and found by the Committee to be
appropriate in view of the Company's performance during fiscal year 1993. In
accordance with the terms of the NEBS 1990 Key Employee Stock Option and Stock
Appreciation Rights Plan, Mr. Calder's options lapsed upon the termination of
his employment. Mr. Lowe received a stock option to purchase 300,000 shares for
$16.25 per share (their then market value) on November 12, 1993 in accordance
with the terms of his employment by the Company.
4. Mr. Calder's Compensation. The process by which the compensation of
Bartley H. Calder as President and Chief Executive Officer of the Company was
arrived at in fiscal year 1994 was as stated above and differed in no material
way from that employed with respect to the other Named Executive Officers
(other than Mr. Rhoads and Mr. Lowe). Mr. Calder was given no fringe benefits
other than those available to all officers of the Company. Upon the termination
of his employment on December 31, 1993, the Company, in recognition of his long
and valuable service and in consideration of certain covenants given by him to
the Company, agreed to continue Mr. Calder's salary for a period of 12 months
and thereafter for up to an additional 12 months or until he becomes employed,
whichever event occurs earlier.
5. Mr. Lowe's Compensation. In connection with his employment as President
and Chief Executive Officer in November, 1993, in addition to the base salary,
bonus and stock option benefits discussed above, the Company agreed to pay Mr.
Lowe a one-time signing bonus of $100,000 and to pay certain relocation
expenses on his behalf in addition to those customarily paid on behalf of all
salaried employees. See the Summary Compensation Table, including footnote 2
thereto, on page 5 above. The Committee is of the opinion that Mr. Lowe's
compensation was reasonable and appropriate in the context of his prior
employment as a Vice President of IBM, an Executive Vice President of Xerox,
and as Chairman and CEO of Gulfstream Aerospace, the compensation earned by him
in those positions, and the desirability of obtaining the services of a person
of his stature and ability as the President and Chief Executive Officer of the
Company.
ORGANIZATION AND COMPENSATION COMMITTEE
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
9
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PERFORMANCE GRAPH
The following chart compares the value of $100 invested in NEBS Common Stock
from June 30, 1989 through June 24, 1994 with a similar investment in the
NASDAQ Composite and with a peer group consisting of the eight publicly held
companies listed below which are in the same industry as the Company.
Data Points for NEBS Performance Graph
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEBS 100 83.16 98.93 93.52 98.02 120.06
NASDAQ 100 107.84 114.21 137.08 172.34 173.02
Peer Group 100 98.94 92.92 83.57 97.11 108.25
- --------------------------------------------------------------------------------
</TABLE>
PEER GROUP COMPANIES:
American Business Moore Corporation, Ltd. The Standard Register
Products, Inc. Paris Business Forms, Company
Duplex Products, Inc. Inc. Wallace Computer
Ennis Business Forms, The Reynolds & Reynolds Services, Inc.
Inc. Company
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PROPOSAL TWO
APPROVAL OF THE NEBS 1994 KEY EMPLOYEE AND ELIGIBLE
DIRECTOR STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN
INTRODUCTION
On July 22, 1994 the Board of Directors voted to adopt The NEBS 1994 Key
Employee and Eligible Director Stock Option and Stock Appreciation Rights Plan
(the "1994 Plan"), subject to ratification by the Stockholders. The 1994 Plan
must be ratified and approved by a majority of the Company's outstanding and
voting stock represented and voting at a meeting at which a quorum is present,
and no option granted under the 1994 Plan will become exercisable until it is
so approved. The persons named as proxies in the accompanying form of Proxy
intend (unless the authority to vote therefor is specifically withheld) to vote
to approve the 1994 Plan.
The purpose of the 1994 Plan is to provide a means whereby the Company, by
granting options to purchase shares of its Common Stock, par value $1.00 per
share (the "Stock") and stock appreciation rights ("SARs") in connection with
such options, can attract and retain persons of ability as key employees and
directors for the Company and its subsidiaries. It is also the purpose of the
1994 Plan to provide key employees with a performance incentive and to
encourage stock ownership in the Company.
In 1990, the Company adopted a stock option and stock appreciation rights
plan (the "1990 Plan") similar in many respects to the 1994 Plan. The total
number of shares available under the 1990 Plan was 1,000,000 shares. As of
August 31, 1994 options had been granted for 1,011,731 shares, of which options
for 99,211 shares had been canceled or had expired and options for 87,135
shares had been exercised, leaving only a total of 87,480 shares available for
option grants under the 1990 Plan. The Company believes that additional option
shares must be made available to give the Company reasonable flexibility in
providing appropriate incentives to its employees. Upon stockholder approval,
1,200,000 shares will be available under the 1994 Plan.
SUMMARY OF THE 1994 PLAN
The 1994 Plan is to be administered and interpreted by a committee (the
"Committee") appointed by the Board of Directors, consisting of not less than
two members of the Board of Directors, none of whom while serving as such may
be, or during the year prior to such service may have been, eligible for
selection as a person to whom a stock option or SAR (other than non-
discretionary grants to directors of 3,000 shares in the first year of
service--fiscal year 1995 for directors first elected prior to adoption of the
1994 Plan--and 1,000 shares per year thereafter) may be granted pursuant to the
1994 Plan or any other plan of the Company or any of its affiliates. The
Committee will determine the employees to whom discretionary options will be
granted, the number of shares as to which options will be granted to each
employee, whether or not any options will contain SARs and the expiration date
and other terms and conditions of each option agreement.
The total number of shares as to which options may be granted under the 1994
Plan shall not exceed 1,200,000 subject to adjustment to reflect stock splits
or combinations, stock dividends or reclassifications, or other actions or a
similar nature. The 1994 Plan provides for the granting of Incentive Stock
Options ("ISOs"), within the meaning of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), and Non-Incentive Stock Options
("NISOs"), as determined by the Committee in its sole discretion.
ELIGIBILITY
All employees and directors of the Company, or of any company of which a
majority of the voting stock is owned by the Company, are eligible to
participate in the 1994 Plan, except that no employee or director will be
granted an ISO if, immediately after the grant, such employee or director would
own stock, and/or hold outstanding options to purchase stock, which represent
ten percent (10%) or more of the total of all
11
<PAGE>
shares of the Stock then outstanding plus all shares of the Stock which are
then the subject of outstanding stock options, issued under the 1994 Plan or
otherwise. Officers of the Company who are full-time employees of the Company
and otherwise meet the foregoing terms of eligibility and Directors (to the
limited extent described above) will be eligible to participate in the 1994
Plan.
Because participants in the 1994 Plan and the number of shares for which
options may be granted are to be determined by the Committee, in its sole
discretion, it is impossible to state the names of the employees who are to
receive options or the number of shares as to which options may be granted to
any specific employee. Directors of the Company will receive as part of their
compensation for service as directors non-discretionary option grants for 3,000
shares in their first year of service (commencing in 1994 for directors first
elected prior to adoption of the 1994 Plan) and 1,000 shares in each year of
service as a director thereafter.
The option price per share will be the fair market value of a share of the
Stock on the day the option is granted, as determined (a) by the closing sales
price per share of the Stock as last reported on the NASDAQ National Market
System prior to the date on which such option is granted, or (b) in certain
circumstances by a principal market maker for the Stock designated by the
Committee. The last price of the Stock, as reported on the NASDAQ National
Market System for August 31,1994 was $18.00.
Employees and directors who exercise options to purchase securities under the
1994 Plan will pay cash in the full amount of the option price at the time of
exercise and/or shall deliver other shares of Common Stock of a fair market
value equal to the exercise price of the optioned shares to be purchased.
Any option agreement may provide, if the Committee so determines, that the
option holder shall have the right, at any time while the option is
exercisable, to surrender the option in whole or in part, to the extent then
exercisable, for an appreciation distribution by the Company in an amount equal
to the difference between the fair market value, on the date of the option
surrender, of the shares of Stock subject to the surrendered option (or the
surrendered portion thereof) and the option price for such shares. Any such
appreciation distribution will be made in the form of shares of Stock, unless
the Committee, in its sole discretion, decides to discharge the Company's
obligation in whole or in part by the payment of cash.
No option or SAR will be assignable or transferable except by will or by the
laws of descent and distribution. If an optionee ceases to be an employee of
the Company or subsidiary other than by reason of retirement or death, any
option held by such employee will expire upon the cessation of his or her
employment. If an employee retires, or a non-employee Director ceases to serve
as such, while holding an unexpired option, such option will be exercisable
during the remainder of the term thereof or during the three months following
such retirement or cessation, whichever period is shorter. Unexpired options
may be exercised by the personal representative of a deceased employee or
deceased retired employee or deceased non-employee Director or former Director
during the remainder of the term thereof or during the 12 months following the
date of such person's death, whichever period is shorter.
If the Company combines or splits the Stock or declares thereon any dividend
payable in shares of Stock, or reclassifies or takes any other action of a
similar nature affecting the Stock, then the number and class of shares of
Stock as to which options may thereafter be granted (in the aggregate and to
any participant) shall be adjusted accordingly, and, in the case of each option
outstanding at the time of any such action, the number and class of shares
which may thereafter by purchased pursuant to such option and the option price
per share shall be adjusted to such extent as may be determined by the Board,
upon recommendation of the Committee, to be necessary to maintain unimpaired
the rights of the holder of such option.
Upon a change in control of the Company, all outstanding unvested options
granted under the 1994 Plan will become immediately exercisable.
The Board of Directors may alter, amend, or suspend the 1994 Plan and may
alter and amend all option agreements granted thereunder, except that without
approval of the stockholders, the Board of Directors may
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<PAGE>
not increase or decrease the number of shares of Stock which may be reserved
for issuance under the 1994 Plan, fix the option price at less than the fair
market value of the Stock on the date an option is granted or extend the period
during which an option may be exercised. No amendment may adversely affect the
rights of an option holder without such option holder's consent.
The 1994 Plan will terminate on July 22, 2004. The expiration date of each
option agreement will be no later than ten (10) years from the date it is
granted.
FEDERAL INCOME TAX CONSIDERATIONS
It is intended that ISOs granted under the 1994 Plan shall be "incentive
stock options" within the meaning of Section 422A of the Code and terms of the
1994 Plan and the options granted thereunder are to be construed accordingly.
Persons receiving ISOs granted under the 1994 Plan generally will not realize
compensation income for regular federal income tax purposes on the date the ISO
is granted or on the date the option is exercised. Such persons will, however,
generally realize an item of tax preference income for purposes of the federal
alternative minimum tax to the extent that the fair market value of the shares
purchased upon exercise of the ISO exceeds the option price for the share (the
"spread amount"). For purposes of the alternative minimum tax only, the amount
of the item of tax preference described above will be added to the option price
in determining basis in the stock and thus gain or loss on the sale of shares
acquired under such ISOs. A credit for any net alternative minimum tax paid by
an ISO holder on exercise may be available to offset such person's regular
income tax in subsequent years, including any tax on the capital gain described
in the following sentence. Generally, such persons are also expected to realize
capital gain for federal income tax purposes on the date they sell the shares
acquired upon the exercise of ISOs in an amount equal to the excess of the
amount received from the sale of such shares over the amount paid for such
shares.
If an ISO holder disposes of shares acquired upon exercise of the ISO within
two years from the date of the ISO grant or within one year from the date of
exercise of the ISO, such disposition will disqualify the shares from incentive
stock option treatment under the Internal Revenue Code (and is therefore
referred to as a "disqualifying disposition"). Such person would then have
compensation income for federal income tax purposes in the year of such
disqualifying disposition, generally in the amount (if any) by which the lesser
of the fair market value of the shares on the date of the ISO exercise or the
price at which the shares are disposed of exceeds the ISO exercise price and
capital gain in the amount (if any) by which the sale price exceeds the fair
market value on the date of exercise.
Although the Company ordinarily is not entitled to a deduction upon the grant
or exercise of ISOs under the 1994 Plan or upon the sale of shares thereby
acquired, the Company is entitled to take a deduction in the Company's tax year
in which any disqualifying disposition occurs. The deduction is equal to the
compensation income realized by the person making such disposition.
Persons receiving NISO grants under the 1994 Plan generally will not realize
compensation income for regular federal income tax purposes on the date the
NISO is granted if the NISO has no readily ascertainable fair market value when
it is granted, but will realize such income on the date the NISO is exercised.
The amount of compensation income realized for federal income tax purposes will
be the amount (if any) by which the fair market value of the shares on the date
of the NISO exercise exceeds the option exercise price. The Company will be
allowed corresponding federal tax deductions in the amount of the compensation
income realized by the persons exercising the NISOs, generally in the Company's
tax year in which the NISOs are exercised. For purposes of determining capital
gain or loss upon the later sale of such shares, persons exercising NISOs will
obtain a basis in the shares purchased equal to the fair market value of the
shares at the time the NISO is exercised. (That is, a person's basis will be
equal to the sum of the option exercise price plus the amount of compensation
income realized by the person.) The Company must withhold federal and any
applicable state and local income taxes and other applicable employment taxes
with respect to the
13
<PAGE>
compensation income realized upon the exercise of NISOs by employees. The 1994
Plan therefore provides that no share of stock will be delivered unless
arrangements satisfactory to the Company have been made for any required
federal, state or local income tax or other withholdings.
A person surrendering options for an SAR distribution will realize
compensation income in the full amount of such distribution. The Company will
be allowed a corresponding deduction of the amount of the distribution (the
excess of the fair market value of shares underlying such options over the
option price of such shares), generally in the Company's tax year in which such
surrender occurs. Such person will obtain a basis in any shares distributed in
satisfaction of SARs equal to the fair market value of such shares at the time
of such surrender (which is also the amount of compensation income realized),
for purposes of determining capital gain or loss upon the later sale of such
shares. The Company must withhold federal and applicable state and local income
taxes with respect to an SAR distribution. For SAR distributions made in shares
of the Company's stock, withholding will be applied against other compensation
payable from the Company.
PROPOSAL THREE
APPROVAL OF THE NEW ENGLAND BUSINESS SERVICE, INC.
STOCK COMPENSATION PLAN
INTRODUCTION
On July 22, 1994 the Board of Directors voted to adopt The New England
Business Service, Inc. Stock Compensation Plan (the "Plan"), subject to
ratification by the Stockholders. The Plan must be ratified and approved by the
holders of a majority of the Company's outstanding voting stock represented and
voting at a meeting at which a quorum is present, and no Stock will be issued
under the Plan until it is so approved. The persons named as proxies in the
accompanying Proxy intend (unless the authority to vote therefor is
specifically withheld) to vote to approve the Plan.
The purpose of the Plan is to provide for the mandatory or voluntary receipt
of shares of the Company's Common Stock ("Stock"), valued at full market value
as of the date of grant, in lieu of an equivalent amount of cash, in payment in
whole or in part for certain types of regular, bonus or other special
compensation payable to directors of the Company and officers and other key
employees of the Company and its subsidiaries, thereby creating, encouraging
and facilitating increased ownership of Stock by such directors and key
employees and, through such ownership, enhancing the mutual interest between
them and the Company's stockholders.
SUMMARY OF THE PLAN
Administration. The Plan is to be administered and interpreted by a Board
designated committee (the "Committee"), consisting of not less than two members
of the Board, each of whom must be a "disinterested person" as defined under
Rule 16b-3 under the Securities Exchange Act of 1934 and an "outside director"
as defined in the proposed Regulations under Section 162(m) of the Code.
Stock Subject to the Plan. The total number of shares of Stock which may be
issued under the Plan shall not exceed 300,000 subject to adjustment to reflect
stock splits or combinations, stock dividends or reclassifications, or other
actions of a similar nature.
Eligibility. All directors of the Company and all officers and salaried
employees of the Company and any designated subsidiaries of the Company may be
designated as Participants in the Plan.
The Company and its subsidiaries had a total of 512 directors, officers and
salaried employees on August 31, 1994. Because the Participants in the Plan are
to be designated by the Committee, in its sole discretion,
14
<PAGE>
over a period of years, it is impossible to approximate the total number of
persons who will be so designated. It is presently anticipated that about 20
officers and salaried employees of the Company and designated subsidiaries will
be designated as Participants who may receive Awards on the basis of their
performance during fiscal year 1995 and that about 6 outside directors of the
Company will be eligible to accept Awards of Stock in lieu of cash payment for
all or part of their retainers or meeting fees payable from time to time
following the 1994 Annual Meeting.
Awards. All Stock issued pursuant to Awards shall be issued in lieu of cash
compensation equal in value to the fair market value of such Stock on the date
of the Award. The Committee may impose on any Award such additional terms and
conditions, not inconsistent with the provisions of the Plan, as the Committee
may determine.
(i) Performance Awards. The Committee may grant Performance Awards to
Participants who are employees of the Company in lieu of cash compensation
upon the achievement of performance criteria determined by the Committee.
Such Awards to "covered employees" as defined in Section 162(m) of the
Code, i.e. the Chief Executive Officer and the other four most highly
compensated officers for any taxable year of the Company, are intended to
be qualified performance-based compensation and will be paid solely on
account of pre-established performance goals determined by the Committee.
(ii) Awards of Stock in Payment of Directors' Compensation. The Plan also
authorizes the issuance of Stock to members of the Board of Directors who
elect to receive Stock in lieu of cash for all or part of their retainers
or meeting attendance fees by irrevocable elections made at least six
months prior to the award of such Stock.
(iii) Other Awards. The Committee is authorized to grant to Participants
such other Awards as are deemed by the Committee to be consistent with the
purposes of the Plan.
Certain Provisions and Restrictions. Awards granted under the Plan may, in
the discretion of the Committee, be granted either alone, as a part of or in
tandem with, or in substitution for, any award granted under any other plan of
the Company or any subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Unless a Participant could
otherwise transfer Stock without incurring liability under Section 16(b) of the
Securities Exchange Act of 1934, Stock issued under the Plan shall be held for
at least six months from the date of acquisition. It is the intent of the
Company that the Plan comply in all respects with Rule 16b-3 in connection with
any Award granted to a person who is subject to Section 16 of the Securities
Exchange Act of 1934. The Company shall not be obligated to distribute any
Stock with respect to any Award in a transaction subject to regulatory
approval, registration, or any other applicable requirement of federal or state
law, or subject to a listing requirement under any listing or similar agreement
between the Company and any national securities exchange, until such laws,
regulations, and contractual obligations of the Company have been complied with
in full, although the Company shall be obligated to use its best efforts to
obtain any such approval and comply with such requirements as promptly as
practicable.
Provisions Applicable to Awards. The board may amend, alter, suspend,
discontinue or terminate the Plan without the consent of stockholders or
Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's stockholders within one year after such Board action if such
stockholder approval is required by any federal or state law or regulation or
the rules of the NASDAQ National Market System or any stock exchange on which
the Stock may be listed, or if the Board in its discretion determines that
obtaining such stockholder approval is for any reason advisable.
FEDERAL INCOME TAX CONSIDERATIONS
Participants must generally recognize ordinary income equal to the fair
market value of Stock received pursuant to Awards made to them under the Plan.
The Company will be entitled to a deduction for the same amount. The deduction
available to the Company may be limited, however, by Section 162(m) of the
Code,
15
<PAGE>
which places a $1 million limit on the deduction that may be taken for
compensation paid to any "Covered Employee" unless such compensation is based
on the attainment of "objective" performance goals established in advance by a
committee of two or more outside directors, and paid pursuant to a plan
approved by stockholders. The Plan is designed to enable the Corporation to
meet the requirements for deductibility as to Performance Awards, if one or
more such plans are hereafter approved by the stockholders.
PROPOSAL FOUR
ELECTION OF AUDITORS
Upon the recommendation of its Audit Committee, the Board of Directors
selected the firm of Deloitte & Touche LLP as auditors of the Company for the
fiscal year ending June 30, 1995, subject to ratification by a vote of the
holders of a majority of the shares of Common Stock voting thereon at the
Annual Meeting. A representative of Deloitte & Touche LLP, which served as
auditors for fiscal year 1994, is expected to be present at the Meeting, with
the opportunity to make a statement if he or she desires to do so, and to be
available to respond to appropriate questions.
The persons named as proxies in the accompanying form of Proxy intend (unless
specific contrary instructions are given) to vote for ratification of the
selection of Deloitte & Touche LLP as auditors for the 1995 fiscal year.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1995 Annual Meeting
of Stockholders must be received by the Company, at its offices at 500 Main
Street, Groton, Massachusetts 01471, no later than May 12, 1995, in order to be
considered for inclusion in the Proxy Statement and form of proxy relating to
that meeting.
OTHER MATTERS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that shown above. However, if any other
proper business should come before the Meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the Proxies with respect to
any such business in accordance with their best judgment. Matters with respect
to which the enclosed form of Proxy confers such discretionary authority are as
follows: (i) matters which the Board of Directors does not know of a reasonable
time before the mailing of this Proxy Statement are to be presented at the
Annual Meeting; (ii) approval of the minutes of the prior meeting of
stockholders, such approval not constituting ratification of the action taken
at such meeting; (iii) election of any person as a director if any of the
nominees named herein are unable to serve or for good cause will not serve; and
(iv) matters incident to the conduct of the meeting.
The cost of preparing, assembling and mailing the proxy material will be
borne by the Company. In addition to the use of the mails, certain officers and
regular employees of the Company, without additional compensation, may use
their personal efforts, by telephone or otherwise, to obtain Proxies. The
Company will also request brokerage houses, custodians, nominees and
fiduciaries to forward copies of the proxy material to those persons for whom
they hold shares and to request instruction for voting the Proxies. The Company
will reimburse such brokerage houses and other persons for their reasonable
expenses in connection therewith.
Any stockholder giving a Proxy in the accompanying form retains the power to
revoke it, by appropriate written notice to the Secretary of the Company or by
the giving of a later-dated Proxy, at any time prior to
16
<PAGE>
the exercise of the powers conferred thereby. Attendance in person at the
Meeting will not in itself be deemed to revoke a Proxy unless the stockholder
gives an affirmative notice at the Meeting that the stockholder intends to
revoke the Proxy and to vote in person.
The shares represented by a Proxy will be voted as directed by the
stockholder giving the Proxy.
IF NO CONTRARY INSTRUCTIONS ARE GIVEN, THE PROXY WILL BE VOTED (1) TO FIX THE
NUMBER OF DIRECTORS AT EIGHT AND TO ELECT THE PERSONS NAMED UNDER "ELECTION OF
DIRECTORS," (2) TO APPROVE THE NEBS 1994 KEY EMPLOYEE AND ELIGIBLE DIRECTOR
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN, (3) TO APPROVE THE NEW ENGLAND
BUSINESS SERVICE, INC. STOCK COMPENSATION PLAN, (4) TO RATIFY THE SELECTION OF
DELOITTE & TOUCHE LLP AS AUDITORS FOR FISCAL YEAR 1995, AND (5) IN THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS WHICH MAY PROPERLY COME
BEFORE THE MEETING.
17
<PAGE>
NEW ENGLAND BUSINESS SERVICE, INC.
Meeting of Stockholders -- October 28, 1994
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P OF NEW ENGLAND BUSINESS SERVICE, INC.
R
The undersigned stockholder in New England Business Service, Inc. (the
O "Company") hereby appoints Richard H. Rhoads, William C. Lowe and Russell V.
Corsini, Jr. and each of them, attorneys, agents and proxies, with power of
X substitution to each, to vote all shares of Common Stock that the undersigned
is entitled to vote at the Annual Meeting of Stockholders of the Company to
Y be held at the offices of the Company, 500 Main Street, Groton, Massachusetts
on October 28, 1994 at 10:00 a.m., Eastern Daylight Savings Time, and any
adjournments thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
------------------
SEE REVERSE SIDE
------------------
<PAGE>
[X]Please mark votes as in this example. +
- +
+
++++++++
The shares represented by this proxy will be voted as directed by the
undersigned, IF NO CONTRARY INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE
VOTED IN FAVOR OF ALL PROPOSALS IN THE PROXY STATEMENT.
1. To fix the number of persons constituting the full Board of Directors at
eight and to elect the following nominees as directors: Richard H. Rhoads,
Peter A. Brooks, Benjamin H. Lacy, William C Lowe, Robert J. Murray, Frank L.
Randall, Jr., Jay R. Rhoads, Jr., and Robert Ripp
FOR WITHHELD MARK HERE IF YOU
[_] [_] PLAN TO ATTEND THE [_]
MEETING
MARK HERE FOR
ADDRESS CHANGE AND [_]
NOTE BELOW
[ ]
- -----------------------------------------------
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. To approve the NEBS 1994 Key Employee and
Eligible Director Stock Option and Stock
Appreciation Rights Plan. [_] [_] [_]
3. To approve the New England Business Service,
Inc. Stock Compensation Plan. [_] [_] [_]
4. To ratify the selection of Deloitte & Touche
LLP as independent auditors of the Company
for the current fiscal year ending June 30,
1995. [_] [_] [_]
5. And to vote and act upon any other business which may properly come before
the meeting or any adjournment thereof.
Please sign exactly as your name is printed opposite. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please give
title. If stock is held in joint names, all named stockholders should sign.
Signature: Date
--------------------------------------------- -------------------
Signature: Date
--------------------------------------------- -------------------
<PAGE>
THIS DOCUMENT IS A COPY OF THE ANNUAL REPORT TO STOCKHOLDERS, FILED ON
SEPTEMBER 12, 1994 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
[LOGO OF NEBS APPEARS HERE]
ANNUAL
REPORT
1994
THE NATION'S
LEADING SUPPLIER
OF BUSINESS FORMS
FOR SMALL BUSINESS
(PHOTO)
NEBS Customers: Jane and Gene Behrens Avenida Art Gallery Calgary, Alberta
<PAGE>
ABOUT NEBS
NEBS is the nation's leading supplier of business forms and other printed
and related products for small businesses. The Company's primary method for
reaching its market is by mail direct to the end user. During 1994, 1,285,000
small businesses purchased one or more NEBS products.
The NEBS product line is comprised of standardized and customized business
forms, stationery and related products for both manual and computer
applications. In addition, the Company markets a broad line of printed
promotional materials and proprietary accounting software targeted to small
businesses.
In a typical week, the Company's seven production facilities located in the
US, Canada and the UK receive and process approximately 50,000 orders with
an average order value of approximately $100.
NEBS has retained its long standing market leadership by providing the
products small businesses need, at low prices, with high quality and
outstanding service to its customers.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts)
- ----------------------------------------------------------------------
For the Fiscal Year Ended June 24, 1994 (A) June 25, 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Net Sales $251,253 $237,144
Income Before Income Taxes 27,599 24,090
Net Income 15,563 14,217
Earnings Per Share $ 1.01 $ .93
Dividends Per Share .80 .80
- ----------------------------------------------------------------------
Operating Statistics
- ----------------------------------------------------------------------
Return on Stockholders' Equity 15.6% 15.0%
Income Before Income Taxes
as a Percent of Sales 11.0% 10.2%
Net Income as a Percent of Sales 6.2% 6.0%
Working Capital $ 55,196 $ 43,673
Stockholders' Equity 99,479 94,668
Book Value Per Share $ 6.43 $ 6.19
- ----------------------------------------------------------------------
</TABLE>
(A) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per
share, related to a restructuring program.
(PHOTO)
<PAGE>
(PHOTO)
Avenida Art Gallery...
Portrait of a Successful NEBS Customer
When Jane Behrens started a modest gallery and framing shop from her home in
1989, she never dreamed that one day her husband, Gene, would join her full
time and they would employ more than 15 people.
Over the past five years there have been a number of improvements in how they
do business. The one constant, however, has been their reliance on NEBS to
help project an artistic, tasteful image. We asked the Behrenses to explain.
"NEBS helped us develop a personalized image that fits our business. Our
custom labels, which we adhere to the back of every frame, present a
professional look and help us bring in repeat business. We also use our
logo on NEBS invoices for a coordinated look which, in our business, is
important to project."
Responding to why they've become loyal NEBS customers, the Behrenses cited
the quality, accuracy and the speed with which NEBS handles every order.
"We'll stay with NEBS because we know they'll always get our order right
and on time!"
About this year's Annual Report...
In this year's Annual Report, we would like to share with you some of the
many ways we have applied innovative technology to help us meet and even
exceed our customers' expectations.
From our electronic storage of logo images which guarantees quality
reproductions to our powerful new computer and telephone systems which
improve customer service to the ultra-fast turnaround and competitive
pricing new technology supports, we invite you to explore how NEBS technology
responds.
1
<PAGE>
TO OUR STOCKHOLDERS
FINANCIAL PERFORMANCE We are pleased to report the Company's financial
performance strengthened for the year. Sales increased 6% to a record
$251,253,000 and represented the strongest year-over-year performance since
1989. Earnings increased 9.5% to $15,563,000 while earnings per share
increased to $1.01 from last year's $.93. Earnings for the year were
impacted by a $.21 restructuring charge while those of the final quarter
reflected the full benefit of the related cost savings.
The Company's financial condition remained strong. Cash and short term
investments increased 46% to $40,988,000, an increase of $12,870,000 over
the prior year. Return on stockholders' equity increased to 15.6% and
dividends were paid for the 31st consecutive year.
THE HIGHLIGHTS 1994 was a rewarding year for the Company. Sales
strengthened and customers served increased 6% to 1,285,000. Earnings,
at the fourth quarter run rate, rebounded significantly from recent years.
The primary factors which drove these favorable results are highlighted
below.
BASE BUSINESS STABILIZED Following several difficult years, sales of the
Company's standardized manual forms and checks, labels, stationery and
related product lines stabilized during the year. The gradually improving
domestic small business economy was one of the key forces driving this
improvement. Additionally, effective product line management, new product
introductions and more targeted direct mail and dealer promotional programs
were important contributing factors to the improved performance of these
important product lines.
COMPUTER PRODUCTS GROWTH Sales of the Company's computer forms, checks,
One-Write Plus(R) and other NEBS proprietary small business accounting software
and related products continued their strong record of growth. During the year,
these computer related products were sold directly by mail and indirectly
through the Company's dealer network and others to over 350,000 small
businesses.
OPERATIONS ENHANCED The Company takes great pride in its ability to respond
to the 45,000 customers who order weekly with fast service at low cost.
During the year, customer service was further enhanced through a variety of
programs which shortened order cycle time and improved customer access
through the Company's toll-free telephone lines. Technology played a key
role in these gains which included the implementation of a direct to plate
imaging system, the installation of call routing technology, an integrated
PC and mainframe sales system in telemarketing and the completion of a new
electronic storage system for customer artwork.
COST STRUCTURE IMPROVED Earnings for the year grew well in excess of the
growth in sales. Contributing to the increased profitability were more
effective marketing programs, stable material costs and the leverage of
additional sales on fixed costs. In addition, the margin improvement was
supported by the successful restructuring program. A number of cost
reduction measures were taken including the realignment of the Company's
marketing and manufacturing organizations.
THE SUBSIDIARIES The sales performance of the Company's Canadian and UK
subsidiaries was impacted by the continuing weak economies in both countries.
However, with the introduction of new products and other marketing programs,
we are anticipating improved sales results in these units. SYCOM, the
Company's domestic subsidiary, refocused its marketing efforts which
enhanced its profitability considerably.
In summary, the improved financial performance for the year reflected the
favorable results of a broad array of marketing initiatives and cost
reduction programs against the backdrop of a gradually improving domestic
small business economy. The benefits of these initiatives and programs will
continue to support the Company's performance as it goes forward.
2
<PAGE>
THE FUTURE Looking to the future, opportunity is emerging from the ever
changing needs and preferences of the small business market as well as from
new printing and related technologies. The Company's customer base of
1,285,000 small businesses positions it well to capitalize on these dynamics.
Further, the magnitude of the Company's market is significant. Small
businesses are estimated to consume in excess of $10 billion of short-run
printed products annually. The Company's short-run printing and order
fulfillment capability will be extended to target new segments of this large
market.
Computerization of the small business represents a large and growing market
for the Company's computer forms, software and related product lines and
services. Although computerization and related technologies will continue
to influence the demand for selected manual forms, the overall impact of
technology on the Company's product lines and operations is anticipated to
be a positive one.
Another important market trend relates to the fact that small businesses
are becoming increasingly discerning, sophisticated and desirous of creating
and promoting their own distinctive images. New design, composition and
printing technologies are facilitating the fulfillment of these emerging
customer needs. We believe this growing interest in image-conveying
products has the potential to be significant and we plan to make the
required investments in equipment, systems and skills to capitalize upon it.
GOALS FOR 1995 Looking ahead to 1995, our goals for the year are to
continue to make important investments in the future development of the
business, to achieve continued growth in earnings and a record level of
sales. The Company's 1994 financial performance and the many successful
initiatives implemented during the year provide us with confidence that
these objectives can and will be achieved.
WORDS OF THANKS What provides us with our greatest promise for the future
is the talent and dedication of the Company's 2,083 employees located in the
US, Canada and the UK. Their unhesitating willingness to always go the extra
mile has made and will continue to make a real and positive difference. We
are proud to be associated with them.
Finally, we thank you our Stockholders for your continued support of and
interest in this business. Serving your best long term interests always has
been and continues to be our primary objective.
(PHOTO) (PHOTO)
/s/ Richard H. Rhoads /s/ William C. Lowe
Richard H. Rhoads William C. Lowe
Chairman President, Chief Executive Officer
September 9, 1994
3
<PAGE>
THE NEBS STORY
OVERVIEW NEBS, founded over 40 years ago, is the nation's leading supplier
of business forms and products designed to satisfy the highly specialized
needs of the vast small business market. The Company's primary method of
distribution is mail order direct to the ultimate small business user.
During 1994, NEBS served 1,285,000 small businesses in the United States,
Canada, and the United Kingdom.
FINANCIAL RECORD Over the past ten years, NEBS consolidated sales grew from
slightly over $125,000,000 to a record level of $251,253,000 in 1994. The
Company enjoys strong profit margins, return on equity and cash flow. Cash
dividends have been paid for 31 consecutive years.
NEBS PRODUCT LINE The NEBS product line consists primarily of standardized
business forms such as invoices, statements, checks and purchase orders used
by most small businesses. Many of these forms are available on recycled
paper. NEBS also markets an array of other printed products including
greeting crds, stationery, business cards, advertising and mailing labels
and other promotional products.
In addition to the standardized forms used by most businesses, the Company
markets highly targeted forms and related products designed to meet the needs
of specific small business segments. Examples include repair tags for
bicycle shops, estimating forms for electrical contractors, appraisal forms
for jewelry stores, greeting cards for realtors and insurance agents, as well
as important companion products such as portable registers, envelopes and
drawing boards.
(continued)
(PHOTO)
"Competitive prices on the forms we need. That's why my grandmother chose NEBS
and why 2 generations later we're still loyal"
Dan Wolfe,
West Point Lumber & Hardware,
Valley Station, Kentucky
4
<PAGE>
(PHOTO)
NEBS Technology Responds...
Providing businesses like Dan's with the same old fashioned value today requires
some high-tech thinking especially for low quantity needs.
The solution -- employ high-speed, long-run printing presses for the base form
and specialized short-run equipment for personalized imprinting. This cutting-
edge equipment customized by our team of engineers promises NEBS will be the
supplier of choice for generations to come.
5
<PAGE>
THE NEBS STORY
NEBS also markets a full line of products for the growing number of small
businesses computerizing one or more of their business functions. NEBS computer
forms (invoices, statements, and checks) are compatible with all the major
accounting software packages used by small businesses. The Company also offers
a full line of proprietary software to help computer users fill out a broad
range of NEBS forms and related products. Additionally, the Company markets the
NEBS One-Write Plus software package designed specifically to meet the
accounting needs of small businesses.
Further, NEBS offers customized business forms for both manual and computer
applications. Customized manual forms allow the Company to offer products to
businesses when their needs or preferences are unique. Continuous custom forms
provide small businesses with forms compatible with virtually any software
package they use.
Significantly, the Company's product line is both critical for the functioning
of the customer's business and consumable. Therefore, the initial installation
of most of the Company's products tends to provide a continuing revenue stream
as the initial order is consumed and subsequent reorders are placed. As selling
expenses for reorders are minimal, they are far more profitable than initial
orders. Over 80% of the Company's sales originate from customers who previously
have purchased from NEBS.
NEBS Small Business Market NEBS focuses primarily on the small end of the
overall business market, i.e. those businesses with 20 or fewer employees. NEBS
customers include small retail shops, auto
(continued)
(PHOTO)
"Excellent products and delivery. Sometimes it surprises us how fast NEBS can
get products to us."
Richard & Wilma Hinderleiter,
Valley Pie Company,
Phoenix, Arizona
6
<PAGE>
(PHOTO)
NEBS Technology Responds...
Customers like Richard and Wilma are in for more surprises. With our new auto-
sequencing presses we've reduced the time it takes to produce an order.
With interactive voice technologies customers can call for automated information
about their order, right down to the expected delivery time.
And, best of all, our new electronic systems bypass labor-intensive manual steps
so we can keep prices down and speed delivery even more.
7
<PAGE>
THE NEBS STORY
service stations, contractors, photographers and florists, the offices of
doctors and dentists as well as small manufacturers and wholesalers.
There are an estimated 10,000,000 small businesses within the three countries in
which the Company operates (US, Canada, UK). During 1994, the Company sold one
or more of its products to 1,285,000 of these businesses.
Important aspects of the Company's small business market are the large number of
prospective customers it provides, as well as its diversity, both geographically
and by type of business. Further, as each individual customer has relatively
minimal forms requirements, no one customer is critical to the Company's overall
sales performance.
NEBS Marketing and Distribution Channels The major portion of the Company's
sales are generated by mail order catalogs and other promotional materials
mailed by the Company to its customers and prospective customers. During a
typical year, the Company mails over 50,000,000 catalogs and other promotional
materials. At any one time there can be as many as 20 different NEBS catalogs in
circulation.
The Company compiles and maintains a database of over 8,000,000 small businesses
in its national and international markets. These lists are segmented in a
multitude of ways to ensure the most effective mailings. In addition, the
Company rents lists from outside sources.
The Company maintains a staff of over 200 knowledgeable telephone sales
representatives who receive incoming
(continued)
(PHOTO)
"I faxed my check order for the first time and couldn't believe it. Why, in 3
days it was at my door!"
Karen Lautzenheiser,
Dixie Vac Service, Inc.,
Louisville, Kentucky
8
<PAGE>
(PHOTO)
NEBS Technology Responds...
We still manage to amaze and please even 20 year customers like Karen simply by
keeping abreast with the latest technological advances. Utilizing state-of-the-
art fax technology customers can now reach us at their convenience, 24 hours a
day. What's more, within one hour after their fax arrives, their order can be on
its way to electronic processing. For most products, imprinting and shipping
takes place the very next day making NEBS the leader in speed and delivery of
imprinted products.
9
<PAGE>
THE NEBS STORY
telephone orders and place outgoing sales calls to current and prospective
customers.
The Company's DFS unit markets a specifically designed version of its product
line through a broad array of dealers including local printers, business forms
dealers and computer stores. The Company also has access to the One-Write Plus
network of software distributors and retailers.
The Company believes its current three methods of distribution (mail order,
phone, dealers) enable it to serve its customers effectively however and
wherever they prefer to do business. However, the Company continually evaluates
alternative marketing and distribution channels to better serve its market.
Operations In a typical week, NEBS receives, processes, prints and ships
approximately 50,000 orders from its seven production facilities. The Company's
policy is to ship most orders within two working days. Next day shipment service
and express delivery are available upon request for most product lines.
To provide its customers with business forms and other printed products in small
quantities at low prices, NEBS employs high-speed, long-run printing presses for
the base forms and specialized short-run equipment for personalized imprinting
and other customer required variable data. Much of the imprinting equipment is
designed or modified by the Company's engineers for its specialized
applications.
The Company's commitment to creating customer goodwill drives its continual
search for ways to reduce costs, improve quality and speed delivery, all backed
by a 100% guarantee of satisfaction.
(continued)
(PHOTO)
"NEBS One-Write Plus. It's great! Easier than any other software we've ever
tried!"
James and Jenna Auxier,
Lawnmower Headquarters,
West Palm Beach, Florida
10
<PAGE>
(PHOTO)
NEBS Technology Responds...
The Auxiers, NEBS customers since 1982, are putting the power of the computer to
work for their business. They've chosen NEBS software because it helps them
perform all their accounting functions faster and easier than ever before.
Technology is at work for us and now through our software it is working just as
hard for our customers.
11
<PAGE>
THE NEBS STORY
The Future The needs and preferences of the small business market always have
been and continue to be in a state of evolution and transition. One constant,
however, has been the need of small businesses to find new ways to prosper in
their increasingly competitive marketplace.
NEBS challenge is not only to keep up with, but also to foresee, these changing
needs and preferences. The Company is committed to doing so and believes its
over 40 years of accumulated insight into this market together with the
application of emerging technologies will enable it to meet this challenge. Most
critically however, the Company will continue to capitalize on its two most
significant strengths . . . its talented group of 2,083 employees and the
goodwill of its over 1,285,000 small business customers located throughout the
United States, Canada and the United Kingdom.
(PHOTO)
"The best value for computer checks. And so easy to reorder! I call, mention my
name and they do the rest."
Elaine Warner,
Skillins Green House,
Falmouth, Maine
12
<PAGE>
(PHOTO)
NEBS Technology Responds...
Offering value and service are the ways Skillins, a fourth generation business,
stays successful and competitive.
Value and service are also key at NEBS. That's why we've invested in powerful PC
telemarketing workstations. At the touch of a key, our order-entry reps can call
up the customer's sales history, product illustrations, even a list of
compatible products.
13
<PAGE>
ELEVEN YEAR SUMMARY
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts and other statistics)
- --------------------------------------------------------------------------------------------------------------------
For the Fiscal Year Ended June 24, 1994 (B) June 25, 1993 June 26, 1992 June 28, 1991 June 29, 1990
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATISTICS (A)
Net Sales $251,253 $237,144 $232,435 $231,838 $233,113
Income before income taxes
and accounting changes 27,599 24,090 24,862 34,095 33,415
Percent of sales 11.0% 10.2% 10.7% 14.7% 14.3%
Taxes on income 12,036 9,873 8,925 13,765 12,792
Percent of sales 4.8% 4.2% 3.8% 5.9% 5.5%
Income from continuing operations
before accounting changes 15,563 14,217 15,937 20,330 20,623
Percent of sales 6.2% 6.0% 6.9% 8.8% 8.8%
Percent of stockholders' equity 15.6% 15.0% 16.9% 18.9% 19.9%
Per common share 1.01 0.93 1.02 1.24 1.23
Net Income 15,563 14,217 15,471 20,330 21,148
Percent of sales 6.2% 6.0% 6.7% 8.8% 9.1%
Percent of stockholders' equity 15.6% 15.0% 16.4% 18.9% 20.4%
Per common share 1.01 0.93 0.99 1.24 1.26
Dividends per common share 0.80 0.80 0.80 0.80 0.76
- ------------------------------------------------------------------------------------------------------------------
BALANCE SHEET STATISTICS
Current assets 85,288 68,966 74,784 87,468 84,311
Current liabilities 30,092 25,293 25,649 24,094 21,596
Working capital 55,196 43,673 49,135 63,374 62,715
Current Ratio 2.8 2.7 2.9 3.6 3.9
Total Assets 131,691 120,624 121,056 133,602 130,280
Long-term debt 0 0 0 0 3,319
Stockholders' equity 99,479 94,668 94,124 107,802 103,858
Average common shares outstanding 15,364 15,269 15,664 16,342 16,835
Book value per common share 6.43 6.19 6.18 6.61 6.17
- ------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL STATISTICS
Capital expenditures 6,054 6,475 9,669 9,166 8,818
Depreciation and amortization 11,623 9,953 9,531 9,001 8,689
Profit sharing contribution 3,133 2,891 3,296 4,273 4,271
- -------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS (A)
Number of employees 2,083 2,217 2,180 2,045 2,154
Number of stockholders 5,700 5,400 4,100 3,700 3,600
Number of active customers 1,285,000 1,210,000 1,195,000 1,173,000 1,179,000
Facilities (in square feet) 794,000 793,000 768,000 765,000 765,000
</TABLE>
Average common shares outstanding have been retroactively adjusted for stock
splits of 2-for-1 in November 1983, and 2-for-1 in November 1986.
(A) Years from 1984 through 1989 have been restated to eliminate a discontinued
operation.
(B) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per
share, related to a restructuring program.
14
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
For the Fiscal Year Ended June 30, 1989 June 24, 1988 June 26, 1987 June 27, 1986 June 28, 1985 June 29, 1984
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATISTICS (A)
Net Sales $225,931 $202,423 $172,574 $158,927 $142,765 $127,309
Income before income taxes
and accounting changes 39,109 36,804 36,852 32,009 22,782 24,981
Percent of sales 17.3% 18.2% 21.4% 20.1% 16.0% 19.6%
Taxes on income 15,074 14,500 17,936 15,654 10,630 12,600
Percent of sales 6.7% 7.2% 10.4% 9.8% 7.4% 9.9%
Income from continuing operations
before accounting changes 24,035 22,304 18,916 16,355 12,152 12,381
Percent of sales 10.6% 11.0% 11.0% 10.3% 8.5% 9.7%
Percent of stockholders' equity 23.6% 22.8% 22.7% 23.7% 21.6% 26.4%
Per common share 1.40 1.29 1.10 0.96 0.72 0.73
Net Income 22,189 22,431 19,130 16,893 12,979 13,034
Percent of sales 9.8% 11.1% 11.1% 10.6% 9.1% 10.2%
Percent of stockholders' equity 21.8% 22.9% 23.0% 24.5% 23.1% 27.8%
Per common share 1.29 1.30 1.12 0.99 0.76 0.77
Dividends per common share 0.66 0.54 0.44 0.29 0.25 0.22
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET STATISTICS
Current assets 84,398 80,256 69,956 62,321 48,141 43,998
Current liabilities 20,020 17,949 18,718 17,524 14,175 13,614
Working capital 64,378 62,307 51,238 44,797 33,966 30,384
Current Ratio 4.2 4.5 3.7 3.6 3.4 3.2
Total Assets 130,238 123,566 111,009 94,057 81,723 74,756
Long-term debt 6,688 5,720 6,938 6,099 9,879 13,598
Stockholders' equity 101,897 97,995 83,340 68,900 56,163 46,936
Average common shares outstanding 17,193 17,265 17,138 17,056 16,996 16,928
Book value per common share 5.93 5.67 4.84 4.04 3.30 2.77
- -------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL STATISTICS
Capital expenditures 11,123 9,366 3,699 2,876 10,085 9,011
Depreciation and amortization 8,195 7,109 5,233 4,722 3,514 2,395
Profit sharing contribution 4,792 4,245 3,618 3,236 2,395 2,260
- -------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS (A)
Number of employees 2,002 1,928 1,797 1,632 1,745 1,636
Number of stockholders 3,600 2,700 2,600 2,500 2,200 983
Number of active customers 1,125,000 1,064,000 977,000 916,000 909,000 856,000
Facilities (in square feet) 748,000 689,000 679,000 623,000 623,000 510,000
</TABLE>
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
June 24, 1994 and June 25, 1993 (in thousands except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Assets Notes June 24, 1994 June 25, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents 1 $ 3,456 $ 10,061
Short-term investments - at cost 1 37,532 18,057
Accounts receivable (less allowance for doubtful accounts of $3,012 in 1994 and $2,944 in 1993) 1 27,963 26,707
Inventories 1 7,740 8,663
Direct mail advertising materials 1 1,698 1,391
Prepaid expenses 1,439 1,925
Deferred income tax benefit 1,10 5,460 2,162
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 85,288 68,966
- -----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment: 1,3
Land and buildings 38,417 37,778
Less accumulated depreciation 18,849 17,144
- -----------------------------------------------------------------------------------------------------------------------------------
Net 19,568 20,634
- -----------------------------------------------------------------------------------------------------------------------------------
Equipment 66,648 64,621
Less accumulated depreciation 48,525 44,145
- -----------------------------------------------------------------------------------------------------------------------------------
Net 18,123 20,476
- -----------------------------------------------------------------------------------------------------------------------------------
Property and equipment - net 37,691 41,110
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets (less accumulated amortization of $9,057 in 1994 and $6,719 in 1993) 1,2 8,712 10,548
- -----------------------------------------------------------------------------------------------------------------------------------
Total $131,691 $120,624
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
June 24, 1994 and June 25, 1993 (in thousands except share data)
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity Notes June 24, 1994 June 25, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable 3 $ 6,702 $ 7,039
Federal and state income taxes 1,10 2,519 1,580
Accrued profit-sharing distribution 6 2,627 2,114
Accrued payroll expense 5,466 5,454
Accrued employee benefit expense 7,8 5,637 5,237
Deferred revenue 1 1,233 753
Accrued restructuring charge 9 1,887
Other accrued expenses 4,021 3,116
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 30,092 25,293
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Grants 1 326 317
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 1,10 1,794 346
- -----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies 3
Stockholders' Equity:
Preferred stock 4
Common stock, par value, $1 per share -- authorized, 40,000,000 shares; issued,
15,571,803 shares in 1994 and 15,408,979 shares in 1993 4,5 15,572 15,409
Additional paid-in capital 9,480 7,090
Cumulative foreign currency translation adjustment 1 (2,152) (1,057)
Retained earnings 78,306 75,033
- -----------------------------------------------------------------------------------------------------------------------------------
Total 101,206 96,475
- -----------------------------------------------------------------------------------------------------------------------------------
Less treasury stock, at cost -- 105,584 shares in 1994 and 117,795 shares in 1993 4 (1,727) (1,807)
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (outstanding, 15,466,219 shares in 1994 and 15,291,184 shares in 1993) 99,479 94,668
- -----------------------------------------------------------------------------------------------------------------------------------
Total $131,691 $120,624
===================================================================================================================================
</TABLE>
17
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------------------------
Notes 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES 1 $ 251,253 $237,144 $232,435
OPERATING EXPENSES: 1
Cost of sales including shipping costs 92,166 90,370 87,164
Selling and advertising 67,685 70,957 71,266
General and administrative 6,7,8 59,607 53,016 51,290
Restructuring charge 9 5,450
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 224,908 214,343 209,720
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 26,345 22,801 22,715
- -------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Investment income 1,254 1,307 2,421
Interest expense (18) (274)
- -------------------------------------------------------------------------------------------------------------------------
Total other income 1,254 1,289 2,147
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 27,599 24,090 24,862
PROVISION FOR INCOME TAXES 1,10 12,036 9,873 8,925
- -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 15,563 14,217 15,937
CUMULATIVE EFFECT OF ACCOUNTING CHANGE -- NET OF TAXES 1,8 (466)
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 15,563 $ 14,217 $ 15,471
=========================================================================================================================
PER SHARE AMOUNTS: 1
Income Before Cumulative Effect of Accounting Change $ 1.01 $ .93 $ 1.02
Cumulative Effect of Accounting Change -- Net of Taxes (.03)
- -------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.01 $ .93 $ .99
=========================================================================================================================
Dividends $ .80 $ .80 $ .80
=========================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1 15,364 15,269 15,664
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Cumulative
------------------- Foreign
Number At Par Additional Currency
of Value Paid-In Treasury Translation Retained
Notes Shares Amount Capital Stock Adjustment Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 28, 1991 16,320 $16,320 $ 5,822 $ (20) $ 1,147 $84,533
Issuance of common stock to employees
pursuant to stock plans 5,6 77 77 1,086 122
Dividends paid (12,631)
Acquisition of treasury stock 4 (17,841)
Retirement of treasury stock 4 (1,000) (1,000) 15,340 (14,340)
Foreign currency translation adjustment 38
Net income 15,471
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1992 15,397 15,397 6,908 (2,399) 1,185 73,033
Issuance of common stock to employees
pursuant to stock plans 5,6 12 12 182 592
Dividends paid (12,217)
Foreign currency translation adjustment (2,242)
Net income 14,217
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 25, 1993 15,409 15,409 7,090 (1,807) (1,057) 75,033
Issuance of common stock to employees
pursuant to stock plans 5,6 163 163 2,390 80
Dividends paid (12,290)
Foreign currency translation adjustment (1,095)
Net income 15,563
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 24, 1994 15,572 $15,572 $ 9,480 $ (1,727) $ (2,152) $78,306
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 24, 1994, JUNE 25, 1993 AND JUNE 26, 1992 (IN THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,563 $14,217 $15,471
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 11,623 9,953 9,531
Deferred income taxes (1,946) (540) (478)
Restructuring charge 1,887
Provision for losses on accounts receivable 2,799 2,815 3,404
Provision for pension cost 403 300 303
Provision for postretirement benefits 62 70 818
Deferred grants (6) (73) 72
Changes in assets and liabilities:
Accounts receivable (4,630) (3,207) (3,777)
Inventories and advertising material 462 2,293 (159)
Prepaid expenses 376 535 (367)
Accounts payable (277) (223) 727
Income taxes payable 928 (845) 2,330
Other accrued expenses 2,417 (375) 520
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,661 24,920 28,395
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (6,054) (6,475) (9,669)
Acquisition of product line (334) (9,750)
Short-term investments (20,093) 2,141 15,808
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (26,481) (14,084) 6,139
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing 10,181
Repayment of debt (41) (123) (13,324)
Proceeds from issuing common stock 2,633 786 1,285
Purchase of treasury stock (17,841)
Dividends paid (12,290) (12,217) (12,631)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (9,698) (11,554) (32,330)
- --------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH (87) (157) 38
- --------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,605) (875) 2,242
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,061 10,936 8,694
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,456 $10,061 $10,936
================================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid $13,425 $10,995 $ 7,652
================================================================================================================================
Interest paid $ 0 $ 118 $ 191
================================================================================================================================
On January 15, 1993, the Company purchased the One-Write Plus product line and assumed
certain liabilities of MECA Software, Inc. for $9,750 cash.
In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired:
Tangible assets $ 859
Other assets 9,975
Deferred revenue on support contracts (791)
Cash paid (9,750)
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities assumed $ 293
================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The financial statements are consolidated to include
the accounts of New England Business Service, Inc. (the "Company") and its
wholly-owned subsidiaries. The Company and its subsidiaries operate primarily
in a single industry segment consisting of the sale of business forms and
related software and other types of printed business products. The accounts
of the Company's foreign entities have been translated into U. S. dollars in
accordance with Statement of Financial Accounting Standards No. 52.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers its
holdings in short-term money market accounts and certificates of deposit with
an original maturity to the Company of three months or less to be cash
equivalents.
Short-term investments are stated at cost which approximates market value.
Short-term investments are primarily tax-exempt municipal debt instruments
which have a fixed maturity beyond three months. In addition, the Company
has other tax-exempt municipal debt instruments redeemable at par value
through a put option which can be exercised by the Company at time periods
of one week to one year.
PROVISION FOR DOUBTFUL ACCOUNTS For doubtful customer accounts, a
provision is recorded equal to a percentage, based upon experience of open
account sales. This percentage was approximately 1.0% during the fiscal
year ended June 24, 1994, approximately 1.2% during the fiscal year ended
June 25, 1993, and approximately 1.5% during the fiscal year ended
June 26, 1992.
INVENTORIES Inventories are carried at the lower of first-in, first-out
cost or market. At year end, inventories consisted of:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Raw paper $ 721,000 $ 781,000
Business forms and related office products 7,019,000 7,882,000
- ---------------------------------------------------------------------------
Total $7,740,000 $8,663,000
===========================================================================
</TABLE>
DIRECT MAIL ADVERTISING MATERIALS Direct mail advertising materials are
carried at cost and expensed as used.
PROPERTY AND EQUIPMENT Property and equipment are carried at cost.
Depreciation is computed over the estimated useful lives (three to twenty
years) of the assets using the straight-line method.
OTHER ASSETS Other assets consisting principally of purchased customer
lists, acquired software, tradename, covenant not to compete, goodwill and
customer and other contracts are amortized on a straight-line basis over
their estimated lives ranging from five to twenty years.
REVENUE RECOGNITION Revenue is recognized from sales other than software
support contracts when a product is shipped. Revenue on software support
contracts is recognized ratably over the contract period, generally twelve
months. Insignificant vendor and post contract support obligations, if
any, are recognized upon shipment.
MAILING LISTS Costs of compiling and maintaining mailing lists are
charged to costs and expenses as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE The
Company follows Statement of Financial Accounting Standards No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise
Marketed" ("SFAS No. 86"). Costs incurred prior to the establishment of
technological feasibility, as defined in SFAS No. 86, are charged to research
and development expense. Software development costs are capitalized from the
establishment of technological feasibility until the product is available for
general release. Development costs associated with product enhancements that
extend the original product's life or significantly improve the original
product's marketability are also capitalized if technological feasibility of
the enhancement has been established. Software purchased as part of a business
acquisition is recorded at its estimated fair value. Amortization of
capitalized software development costs is provided on a product-by-product
basis at the greater of the amount computed using (a) the ratio of current
gross revenues for a product to the total of current and anticipated future
gross revenues or (b) the straight-line method over the remaining estimated
economic life of the product.
No software development costs were capitalized in 1994, 1993 or 1992.
Purchased software costs acquired in connection with the acquisition of the
One-Write Plus product line are being amortized in accordance with the
provisions of SFAS No. 86. Amortization expense of $1,383,000 and $553,000
was charged to operations in fiscal 1994 and 1993, respectively. Unamortized
costs of $4,849,000 and $5,475,000 are included in other assets at
June 24, 1994 and June 25, 1993, respectively.
INCOME TAXES Effective June 26, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). This statement supersedes Statement of Financial Accounting
Standards No. 96, "Accounting for Income Taxes," which was adopted by the
Company in 1990. The cumulative effect of adopting SFAS No. 109 was not
significant to the Company's financial statements. The adoption did result in
certain reclassifications of deferred tax assets and liabilities.
Deferred income taxes primarily represent the income tax effect of the
difference between straight-line depreciation recorded for financial reporting
purposes and accelerated depreciation deducted for tax purposes, and the
effects of the income tax treatment of items such as pensions, postretirement
benefits other than pensions, vacation expense, restructuring charge and the
provisions for doubtful accounts and sales returns.
DEFERRED GRANTS Deferred grants represent unearned income related to
government grants to fund employee hiring, training and capital investment in
the United Kingdom. Grants are recognized in income in the year in which
related employee hiring and training costs are incurred or over the life of
the related capital investment.
PER SHARE AMOUNTS Net income per share amounts are computed based upon the
weighted average number of shares of common stock outstanding during each
fiscal year. Shares issuable under common stock options have been excluded
from the computations since their inclusion would have no significant
dilutive effect.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
CONCENTRATION OF CREDIT RISK The Company extends credit to customers on an
unsecured basis in the normal course of business. No individual industry or
industry segment is significant to the Company's customer base. The Company
has policies in place governing the extension of credit and collection of
amounts due from customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" which requires the disclosure of
fair value of most financial instruments, both assets and liabilities, for
which it is practical to estimate fair value. The statement is required to
be adopted no later than fiscal 1996. The date of adoption has not been
determined.
INVESTMENTS IN DEBT AND EQUITY SECURITIES The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" which addresses the
accounting and reporting of such investments. The statement is required to be
adopted no later than fiscal 1995. The Company plans to adopt this statement
in the first quarter of fiscal 1995.
POSTEMPLOYMENT BENEFITS The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" which is required to be adopted by the Company
no later than fiscal year 1995. This statement will require accrual of
benefits (such as severance benefits) provided by an employer to former or
inactive employees and their beneficiaries after employment but before
retirement. The costs of these benefits are currently expensed on a
pay-as-you-go basis. The impact of this new standard has not been fully
determined but is not expected to be material. The Company plans to adopt
this statement in the first quarter of fiscal 1995.
RECLASSIFICATIONS Certain reclassifications have been made to the 1993 and
1992 financial statements to conform with the 1994 presentation.
2. ACQUISITION OF PRODUCT LINE On January 15, 1993, the Company's wholly-
owned subsidiary, NEBS Software, Inc., acquired the One-Write Plus ("OWP")
product line from MECA Software, Inc. ("MECA"). The purchase price of the
acquisition, including transaction costs, was $9,750,000 cash, plus the
assumption of certain liabilities, of which $500,000 was held in escrow subject
to final determination of the purchase price. During fiscal year 1994, the
purchase price was finalized resulting in total purchase price consideration of
$10,282,000. The acquisition was accounted for under the purchase method of
accounting and, accordingly, OWP's results of operations are included in the
accompanying financial statements from the date of acquisition. The purchase
price has been allocated to the net assets acquired based on the fair value of
such assets and liabilities. The Company had also entered into a one-year
arrangement for research and development management under which MECA could earn
up to $1,200,000. This agreement included contingent payments of $1,000,000 of
which $350,000 had expired unearned as of June 25, 1993. The remaining $200,000
relates to compensation for management services, of which $100,000 was charged
to expense in 1993. During fiscal 1994, the Company negotiated a settlement
regarding the termination of the remaining contingent payments under these
agreements. Compensation for management services of $17,000 was charged to
expense in fiscal 1994.
The following summary presents pro forma consolidated results of
operations (unaudited) of the Company as if the acquisition of OWP had been
consummated at the beginning of the periods presented:
<TABLE>
<CAPTION>
1993 1992
- --------------------------------------------------------------
<S> <C> <C>
Net Sales $ 241,786,000 $ 239,108,000
Net Income $ 13,610,000 $ 13,934,000
Net Income Per Share $ .89 $ .89
</TABLE>
The pro forma operating results are presented for comparative purposes
only and do not purport to present the Company's actual operating results had
the acquisition of OWP occurred on the assumed date, or results which may occur
in the future.
3. DEBT OBLIGATIONS AND LEASES A line of credit agreement with a major
commercial bank allows the Company to borrow up to $10,000,000 at the bank's
base lending rate or 3/8% above the Eurodollar rate at the Company's option
(5.3% at June 24, 1994). This line may be terminated at any time by either
party. At June 24, 1994 and at June 25, 1993, no amounts were outstanding.
The capitalized cost of leased equipment, acquired in 1992 and located
in the United Kingdom, was $120,000 and $144,000 at June 24, 1994 and June 25,
1993 with related accumulated amortization of $100,000 and $72,000 at June 24,
1994 and June 25, 1993, respectively. The future minimum lease payments of
approximately $36,000 in the aggregate are due over the next five years.
The final installment on notes payable totaling $14,000 at June 26, 1992
was paid during fiscal 1993.
The above amounts relating to notes payable and capitalized leases have
been included in accounts payable.
The minimum rental commitments for operating leases of certain
facilities and equipment total $969,000 in the aggregate, and are payable over
the next five years. Total rental expense was $605,000, $300,000 and $233,000,
in 1994, 1993, and 1992, respectively.
4. EQUITY TRANSACTIONS On November 10, 1989, the Company issued a stock
purchase right to stockholders for each outstanding share of common stock of the
Company. Each right becomes exercisable upon occurrence of certain events, as
provided in the Rights Agreement, and entitles the registered holder to purchase
from the Company a "Unit" solely consisting of one one-hundredth of a share of
"Preferred Stock" at a Purchase Price of $75.00 per Unit, subject to adjustment
to prevent dilution. In addition, upon the occurrence of certain events, the
registered holder will thereafter have the right to receive, upon payment of the
Purchase Price, additional shares of common stock and/or cash and/or other
securities, as provided in the Rights Agreement. The rights will expire on
November 10, 1999. The Company may redeem the rights at a price of $.01 per
right.
22
<PAGE>
There are 1,000,000 authorized and unissued shares of $1.00 par value
preferred stock.
On November 14, 1991, pursuant to an agreement, the Company repurchased
1,000,000 shares of its common stock from a current director and former Chairman
of the Board of the Company. The Company paid $15.25 per share, the market value
on that date. The Company subsequently retired the shares.
5. STOCK OPTIONS At the October 1990 annual meeting, the stockholders ratified
the NEBS 1990 Key Employee Stock Option and Stock Appreciation Rights Plan.
Under the "1990 Plan," options or stock appreciation rights for up to 1,000,000
shares of common stock may be granted. At June 24, 1994, 122,192 shares are
reserved under this plan for granting of future options. Stock options are
granted to purchase stock at fair market value as of the date the option is
granted. Each option is exercisable in full in one to three years from the date
of grant and the options expire no later than ten years from the date of grant.
In addition, the plan permits the holder of a stock option to make payment for
optioned shares by surrendering shares of the Company's common stock valued at
their fair market value on the date of surrender. The Company had an incentive
stock option and stock appreciation rights plan under which key employees could
be granted stock options or stock options and stock appreciation rights for up
to 900,000 shares of common stock. This plan (the "1980 Plan") expired in 1990,
although outstanding options are still exercisable.
There were no outstanding stock appreciation rights under either of the
plans during 1994, 1993 or 1992. A summary of stock option activity under the
plans and other arrangements during 1994, 1993, and 1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares:
Subject to option at beginning of year 918,214 641,843 572,273
Granted during the year 512,073 312,441 147,217
Exercised at $14.50 to $19.75 per share (162,836) (11,657) (52,790)
Expired (126,708) (24,413) (24,857)
- ----------------------------------------------------------------------------------------------------------
Subject to option at end of year 1,140,743 918,214 641,843
==========================================================================================================
Grant price per share $15.88 - 16.25 $14.75 $19.75
==========================================================================================================
Options outstanding at end of year:
Aggregate option price $19,526,000 $16,414,000 $12,417,000
Expiration dates 1994 to 2003 1993 to 2002 1992 to 2001
Shares as to which options are exercisable 691,443 592,560 490,186
Price range of outstanding options $14.50 - 25.25 $14.50 - 25.25 $12.25 - 25.25
</TABLE>
6. PROFIT-SHARING PLANS The Company and its subsidiaries have profit-sharing
plans for substantially all of their employees who have completed one year of
service. Distributions are based on net income and payments are made five times
a year and for 1994, 1993, and 1992, distributions under the plans (which were
charged to general and administrative expense) aggregated $3,133,000,
$2,891,000, and $3,296,000, respectively.
The Company also has a deferred profit-sharing and employee stock
ownership plan covering substantially all domestic employees who have completed
one year of service. At June 24, 1994, 293,707 shares are reserved for issuance
under this plan. Contributions to the plan are made by way of participant salary
deferrals and Company contributions of shares of common stock equal to one-half
of participant deferrals subject to a maximum of 3% of eligible pay. The
Company's contributions (generally from treasury shares) totaled 41,427 shares
in 1994, 27,943 shares in 1993, and 26,267 shares in 1992 with a fair market
value of approximately $650,000, $450,000, and $469,000, respectively (which was
charged to general and administrative expense).
7. PENSION PLANS The Company has a defined-benefit, trusteed pension plan
which provides retirement benefits for substantially all of its domestic
employees. Benefits under the plan are primarily based on e employee's
compensation during the five years before retirement and the number of years of
service. The Company funds current pension cost up to the maximum deductible
amount allowed by the Internal Revenue Code.
The components of net pension cost for 1994, 1993, and 1992 are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1,431,000 $ 1,241,000 $ 1,204,000
Interest cost on projected
benefit obligation 1,694,000 1,521,000 1,335,000
Actual return on plan assets (188,000) (2,728,000) (2,594,000)
Net amortization and deferral (2,534,000) 266,000 358,000
- -----------------------------------------------------------------------------------------------------------------
Net pension cost $ 403,000 $ 300,000 $ 303,000
=================================================================================================================
</TABLE>
The following table sets forth the plan's funded status and obligations as of
June 24, 1994 and June 25, 1993:
<TABLE>
<CAPTION>
1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $14,649,000 in 1994 and $13,309,000 in 1993 $ 15,399,000 $ 13,601,000
=================================================================================================================
Projected benefit obligation $(23,643,000) $(20,642,000)
Plan assets at fair value, primarily stocks and bonds 24,193,000 24,517,000
- -----------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 550,000 3,875,000
Add prior service cost 2,508,000 2,665,000
Less:
Unamortized net asset at July 1, 1985
being recognized over sixteen years 1,903,000 2,166,000
Unrecognized net gain 4,480,000 7,296,000
- -----------------------------------------------------------------------------------------------------------------
Net pension liability (included in accrued
employee benefit expense) $ (3,325,000) $ (2,922,000)
=================================================================================================================
</TABLE>
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
Assumptions used in the accounting as of June 24, 1994 and June 25, 1993
were:
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.3% 8.3%
Rate of increase in compensation levels 5.5 5.5
Expected long-term rate of return on assets 9.0 9.0
</TABLE>
The Company's Canadian subsidiary has a similar plan for its employees.
The amounts are not significant.
In addition, during fiscal 1993 the Company established a supplemental
executive retirement plan which is currently unfunded. Executive employees are
eligible to become members of the plan upon designation by the Board of
Directors. Benefits under the plan are based on the employees' annual earnings
and years of service. Provision for this benefit is charged to operations over
the employees' term of employment. The amounts are not significant.
8. Postretirement Benefits Other Than Pensions Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106") was implemented in 1992. The first quarter
of 1992 was restated to reflect the immediate recognition of the transition
amount of $717,000 or $466,000 net of income taxes ($.03 per share). The
accumulated postretirement benefit obligation ("APBO") is $709,000 and $657,000
at June 24, 1994 and June 25, 1993, respectively. This statement requires the
accrual of postretirement benefits other than pensions (such as health care
benefits) during the years an employee provides services. The Company sponsors a
defined benefit postretirement plan that provides health and dental care
benefits for retired Corporate Officers. The plan is contributory and retirees'
contributions are adjusted annually. The plan is not funded. The net
postretirement liability is included in accrued employee benefit expense.
The following table sets forth the plan's funded status and obligations
as of June 24, 1994 and June 25, 1993:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 372,000 $ 367,000
Eligible active plan participants 59,000 54,000
Other active plan participants 278,000 236,000
- -------------------------------------------------------------------------------------------------------------
709,000 657,000
Plan assets at fair value 0 0
- -------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan assets 709,000 657,000
- -------------------------------------------------------------------------------------------------------------
Unrecognized net gain 174,000 188,000
- -------------------------------------------------------------------------------------------------------------
Net postretirement liability (included in accrued employee benefit expense) $ 883,000 $ 845,000
=============================================================================================================
The components of postretirement benefits cost for 1994 and 1993 are as follows:
Service cost $ 23,000 $ 23,000
Interest on accumulated postretirement benefit obligation 53,000 56,000
Amortization of gain (14,000) (9,000)
- -------------------------------------------------------------------------------------------------------------
Net periodic postretirement cost $ 62,000 $ 70,000
=============================================================================================================
</TABLE>
For measurement purposes, a 13% annual rate of increase in the cost of
providing medical benefits was assumed in 1994, reducing by 1% per year to a
trend rate of 6% for fiscal 2001.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.3% and 8.5% in 1994 and 1993,
respectively.
The health care cost trend has a significant effect on the amounts
reported. An increase of 1% in the rate of increase would have had an effect of
increasing the APBO by $113,000 and the net periodic postretirement cost by
$12,000.
9. Restructuring Charge During the first quarter of fiscal 1994, the Company
recorded a $6,000,000 pretax charge related to a restructuring program. The
objectives of this program were to increase the Company's competitiveness,
permit investments in new business development, and to strengthen margins. The
restructuring program included the realignment of the Company's marketing and
manufacturing organizations. The restructuring charge consisted of approximately
$4,700,000 of anticipated cash payments related to employee termination and
other postemployment benefits in conjunction with staff reductions throughout
the Company totaling 5% of the 2,200 employee work force. In addition,
approximately $700,000 was related to the noncash write-down of operating
assets, and approximately $600,000 was related to the anticipated cash outflows
for facility closing and relocation costs associated with the closing of two
small administrative facilities. In the fourth quarter of fiscal 1994, the
Company reviewed the status of the restructuring plan and concluded that certain
operating assets that were planned for disposal would be retained by the
Company. Based upon this review, the restructuring charge was reduced by the
$550,000 that was originally allocated for the estimated noncash charges
associated with these assets. Approximately $3,563,000 of the total anticipated
cash outflows were made as of June 24, 1994 with substantially all of the
remaining $1,737,000 of cash outflows to be made over the next two quarters.
10. Income Taxes The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $25,238,000 $20,815,000 $20,902,000
Canadian 2,361,000 3,275,000 3,960,000
- ---------------------------------------------------------------------------------------
Total $27,599,000 $24,090,000 $24,862,000
=======================================================================================
</TABLE>
Provisions for income taxes under SFAS No. 109 in 1994 and SFAS No. 96 in 1993
and 1992 consist of:
Currently payable:
<TABLE>
<S> <C> <C> <C>
Federal $ 9,837,000 $ 6,706,000 $ 6,645,000
State 3,145,000 2,400,000 816,000
Canadian 978,000 1,320,000 1,686,000
- ---------------------------------------------------------------------------------------
Total 13,960,000 10,426,000 9,147,000
Deferred (1,924,000) (553,000) (222,000)
- ---------------------------------------------------------------------------------------
Total $12,036,000 $ 9,873,000 $ 8,925,000
=======================================================================================
</TABLE>
24
<PAGE>
Cumulative earnings of the Company's Canadian subsidiary are subject to
withholding taxes of approximately $1,752,000 in the event such earnings are
distributed to the United States. No tax provision has been made as the
Company's intent is to reinvest all earnings.
The tax effects of significant items comprising the Company's net
deferred tax asset (liability) as of June 24, 1994 are as follows:
<TABLE>
<CAPTION>
Current Noncurrent
- ---------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses $ 824,000
Accrued vacation 642,000
Allowance for doubtful accounts 1,120,000
Pension plans 1,486,000
Other 1,388,000 $ 100,000
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (1,603,000)
Other (191,000)
- ---------------------------------------------------------------------------
Net deferred tax asset (liability) $5,460,000 $(1,694,000)
===========================================================================
</TABLE>
During the first quarter of 1994, Federal tax legislation was enacted in
which the principal provision was to increase the overall tax rate. This had no
material effect on the Company's annual results.
A reconciliation of the provisions for income taxes to the U. S. Federal
income tax statutory rates follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 34.0% 34.0%
State income taxes (less federal tax benefits) 6.4 6.2 6.0
State tax refund (4.0)
Other -- net 2.2 .8 (0.1)
- ------------------------------------------------------------------------------
Effective tax rate 43.6% 41.0% 35.9%
==============================================================================
</TABLE>
11. FINANCIAL INFORMATION BY GEOGRAPHIC AREA The Company markets its products
directly to small businesses and professional offices in the United States,
Canada and the United Kingdom. Income from operations reflects all identifiable
operating expenses. Investment income, interest expense and income taxes are
excluded from geographic area operating data. Sales or transfers between
geographic areas were not material. General corporate expenses are included
under the Company's domestic operations.
<TABLE>
<CAPTION>
(In Thousands)
1994 DOMESTIC INTERNATIONAL CONSOLIDATED
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $230,543 $20,710 $251,253
Income from operations 24,795 1,550 26,345
Identifiable assets 108,998 22,693 131,691
1993
- ------------------------------------------------------------------------------------
Net sales $215,184 $21,960 $237,144
Income from operations 20,561 2,240 22,801
Identifiable assets 98,814 21,810 120,624
1992
- ------------------------------------------------------------------------------------
Net sales $209,654 $22,781 $232,435
Income from operations 20,657 2,058 22,715
Identifiable assets 98,118 22,938 121,056
</TABLE>
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following financial information is in thousands of dollars except per
share amounts.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
1994 QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $59,820 $65,550 $63,424 $62,459 $251,253
Gross profit 36,769 42,685 40,112 39,521 159,087
Income before income taxes 1,305 8,891 8,609 8,794 27,599
Net income 762 4,967 4,919 4,915 15,563
Earnings per share $ .05 $ .32 $ .32 $ .32 $ 1.01
===============================================================================================
Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80
===============================================================================================
1993
- -----------------------------------------------------------------------------------------------
Net sales $57,322 $60,284 $59,377 $60,161 $237,144
Gross profit 35,599 36,924 36,270 37,981 146,774
Income before income taxes 5,293 5,546 5,860 7,391 24,090
Net income 3,206 3,332 3,362 4,317 14,217
Earnings per share $ .21 $ .22 $ .22 $ .28 $ .93
===============================================================================================
Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80
===============================================================================================
</TABLE>
13. SUBSEQUENT EVENT On July 8, 1994, the Company acquired a 19 percent
equity interest in GST Software, plc (GST) for $1,800,000 together with an
option to acquire the balance of GST shares. GST is a privately held
company based in the United Kingdom which develops and markets desktop
publishing graphic design software which the Company will market under an
exclusive distribution agreement in North America.
25
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was
$29.7 million in 1994 representing an 18.8% increase from the $25.0 million
provided in 1993. This increase was due to higher operating earnings in 1994
as well as the effects of depreciation, amortization and the unexpended
restructuring reserve. In 1993, cash from operations decreased $3.5 million
from 1992 due to lower operating earnings in 1993 and changes in the balances
of current assets and liabilities.
Working capital at June 24, 1994 amounted to $55.2 million including
$41.0 million of cash and short-term investments. This compares to $43.7 million
of working capital and cash and short-term investment balances of $28.1 million
at the end of fiscal 1993. The increase in working capital was due primarily to
increases in cash and short-term investments as the 1993 balances were effected
by the acquisition of the One-Write Plus product line. The increases in deferred
income tax benefit and accounts receivable were offset somewhat by increases in
accrued expenses compared to the prior year.
Capital expenditures of $6.1 million in 1994 were slightly below the
$6.5 million in 1993 and well below the $9.7 million in 1992. At year end, the
Company was committed for approximately $1.5 million for expansion and
improvement of the telemarketing and customer service areas.
On July 8, 1994, the Company acquired a 19 percent equity interest in
GST Software, plc for $1.8 million together with an option to acquire the
balance of GST shares.
In addition to its present cash and investment balances, the Company has
consistently generated sufficient cash internally to fund its needs for working
capital, dividends and capital expenditures. However, should the Company need
additional funds, it has an unsecured line of credit with a major bank for $10
million. At present, there are no outstanding balances against this line.
RESULTS OF OPERATIONS
1994 VERSUS 1993 Net sales increased 6.0% from $237.1 million in 1993 to
$251.3 million in 1994. This sales increase was composed of price increases of
approximately 1.8% or $4.3 million and unit volume growth of 4.2% or $9.9
million. The computer forms, OWP software, marketing products and custom forms
product lines contributed to the growth.
Cost of sales decreased from 38.1% of sales in 1993 to 36.7% in 1994.
This decrease was the result of product mix changes, price increases in several
units with stable material costs, improved productivity and effective cost
management within the Company's production facilities.
Selling and advertising expenses decreased from 29.9% of sales in 1993
to 26.9% in 1994. This decrease reflected a restructuring program implemented in
the first quarter of 1994 and more effective marketing and advertising programs.
General and administrative costs increased from 22.4% of sales in 1993
to 23.7% in 1994. This increase was due primarily to costs associated with
servicing the Company's expanded software product line.
During the first quarter of fiscal 1994, the Company recorded a $6.0
million pretax charge related to a restructuring program. The objectives of this
program were to increase the Company's competitiveness, permit investments in
new business development and to strengthen margins. The restructuring program
included the realignment of the Company's marketing and manufacturing
organizations. The restructuring charge consisted of approximately $4.7 million
of anticipated cash payments related to employee termination and other
postemployment benefits in conjunction with staff reductions throughout the
Company totaling 5% of the 2,200 employee work force. In addition, approximately
$.7 million was related to the noncash write-down of operating assets and
approximately $.6 million was related to the anticipated cash outflows for
facility closing and relocation costs associated with the closing of two small
administrative facilities. In the fourth quarter of fiscal 1994, the Company
reviewed the status of the restructuring plan and concluded that certain
operating assets that were planned for disposal would be retained by the
Company. Based upon this review, the restructuring charge was reduced by the
$.55 million originally allocated for the estimated noncash charges associated
with these assets. Approximately $3.6 million of the total anticipated cash
outflows were made as of June 24, 1994 with substantially all of the remaining
$1.7 million of cash outflows to be made over the next two quarters.
Substantially all of the expected savings are associated with reduced staffing
levels throughout the Company and on an annual basis will approximately cover
the restructuring charge.
The provision for income taxes as a percentage of pre-tax income
increased from 1993 due to a smaller proportion of tax exempt income resulting
from lower interest rates and changes in Federal tax laws creating a higher
corporate tax rate and less favorable treatment of certain foreign source
income.
In 1994, the Company's adoption of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" was not significant to
the financial statements. The adoption did result in certain reclassifications
of deferred tax assets and liabilities.
1993 VERSUS 1992 Net sales increased 2.0% from $232.4 million in 1992 to
$237.1 million in 1993. This sales increase was composed of price increases
of approximately 1.8% or $4.4 million and unit volume growth of .2% or $.3
million. Growth in the computer forms, software, dealer, UK, and custom forms
business units was somewhat offset by a modest sales decline in the manual
business forms unit.
Cost of sales increased from 37.5% of sales in 1992 to 38.1% in 1993.
This increase was the result of product mix changes, increased start up costs
associated with changes in production processes for certain products and lower
than expected incoming order volume.
Selling and advertising expenses decreased from 30.7% of sales in 1992
to 29.9% in 1993. This decrease reflected the refinement of marketing programs,
mostly in the latter half of the year, which resulted in a 10% reduction in
selling and advertising costs during that period.
General and administrative costs as a percent of sales remained
approximately the same as the prior year.
Investment income decreased due to lower interest rates and lower
investable balances. The lower balances were caused by 1992 treasury share
purchases, the 1992 payoff of the remaining balance of the industrial revenue
financing for the Flagstaff, Arizona manufacturing facility and the January,
1993 acquisition of One-Write Plus. In addition, investment income in 1992
reflected the interest received on a state tax refund which had the effect of
increasing net income by $.3 million or $.02 per share.
26
<PAGE>
The provision for income taxes as a percent of pre-tax income increased
from 1992 due to the impact of the refund in 1992 of state taxes from the fiscal
years 1988 through 1990 which had the effect of increasing net income by $1.0
million or $.06 per share. Without this refund, the tax rate would have been
approximately the same for both periods.
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits other than Pensions"
which requires the accrual method of accounting for certain postretirement
benefits. The cumulative effect of adopting Statement 106 was $.7 million ($.47
million after tax). The quarterly results for the first quarter of 1992 were
restated to reflect this adoption.
OTHER SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
was issued in December, 1991 and must be adopted no later than fiscal 1996. SFAS
No. 112, "Employers' Accounting for Postemployment Benefits" was issued in
November, 1992 and must be adopted no later than fiscal 1995. SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" was issued in
May, 1993 and must be adopted no later than fiscal 1995. The Company plans to
adopt these Statements within the required period and does not expect any of
them will have a material effect on its financial position or results of
operations.
COMMON STOCK The Company's Common Stock is traded in the over-the-counter
market and quoted on the NASDAQ National Market System. High and low bid prices
of the Company's Common Stock for each quarter by NASDAQ were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FISCAL 1994 HIGH LOW FISCAL 1993 HIGH LOW
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st Quarter 17 1/4 15 1/2 1st Quarter 16 1/4 14 1/2
2nd Quarter 19 3/4 14 3/4 2nd Quarter 19 3/4 14 1/2
3rd Quarter 21 3/4 18 1/4 3rd Quarter 19 3/4 15 1/4
4th Quarter 21 3/4 17 3/4 4th Quarter 18 1/2 15 1/2
</TABLE>
AUDITORS' REPORT
To the Board of Directors and Stockholders of
New England Business Service, Inc.:
We have audited the accompanying consolidated balance sheets of New
England Business Service, Inc. and its subsidiaries as of June 24, 1994 and June
25, 1993, and the related statements of consolidated income, consolidated
stockholders' equity, and consolidated cash flows for each of the three years in
the period ended June 24, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the companies at June 24,
1994 and June 25, 1993 and the results of their operations and their cash flows
for each of the three years in the period ended June 24, 1994 in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, in 1992
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 106.
As discussed in Note 1 to the consolidated financial statements,
effective June 26, 1993, the Company changed its method of accounting for income
taxes to conform to Statement of Financial Accounting Standards No. 109.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
July 22, 1994
27
<PAGE>
CORPORATE OFFICERS
[PICTURE OF RICHARD H. RHOADS APPEARS HERE]
Richard H. Rhoads
[PICTURE OF SALLY C. DAVIS, CHRISTOPHER H. CORBETT, AND RUSSELL V. CORSINI,
JR. APPEARS HERE]
Sally C. Davis, Christopher H. Corbett,
Russell V. Corsini, Jr.
[PICTURE OF WILLIAM C. LOWE APPEARS HERE]
William C. Lowe
[PICTURE OF THOMAS W. FREEZE, ROBERT S. BROWN, JR., TIMOTHY D. ALTHOF, AND
EDWARD M. BOLESKY APPEARS HERE]
Thomas W. Freeze, Robert S. Brown, Jr.,
Timothy D. Althof, Edward M. Bolesky
Not Pictured: John F. Fairbanks
28
<PAGE>
BOARD OF DIRECTORS
Richard H. Rhoads
Chairman of the Board
Peter A. Brooke
Chairman and
Chief Executive Officer of
Advent International Corporation
(an international venture
capital management firm)
Benjamin H. Lacy
Assistant Secretary; Of Counsel,
Hill & Barlow,
a Professional Corporation
William C. Lowe
President,
Chief Executive Officer
Robert J. Murray
Executive Vice President,
North Atlantic Group,
The Gillette Company
Frank L. Randall, Jr.
Vice Chairman (retired),
North American Phillips Corp.
Jay R. Rhoads, Jr.
Chairman of the Board
(retired), NEBS
Robert Ripp
Corporate Vice President - Finance,
AMP Incorporated
BOARD COMMITTEES
Executive Committee
Benjamin H. Lacy
William C. Lowe
Richard H. Rhoads
Audit Committee
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
Nominating Committee
Frank L. Randall, Jr.
Jay R. Rhoads, Jr.
Robert Ripp
Organization and
Compensation Committee
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
Stock Option Committee
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
NEBS Foundation Directors
Peter A. Brooke
Benjamin H. Lacy
Jay R. Rhoads, Jr.
CORPORATE OFFICERS
Richard H. Rhoads
Chairman of the Board
William C. Lowe
President,
Chief Executive Officer
Timothy D. Althof
Vice President, Corporate Controller
Edward M. Bolesky
Vice President -
General Manager, Operations
Robert S. Brown, Jr.
Vice President -
General Manager, Subsidiaries
Christopher H. Corbett
Vice President, Information Systems
Russell V. Corsini, Jr.
Vice President, Chief Financial Officer
Sally C. Davis
Vice President - Manual Business Forms
John F. Fairbanks
Treasurer and Secretary
Thomas W. Freeze
Vice President - Finance and Administration, Image Products
SUBSIDIARY CHIEF EXECUTIVES
NEBS Business Forms, Ltd.
Robert T. Richardson
NEBS Business Stationery
David G. Booth
SYCOM, Inc.
Robert A. Lay
CORPORATE OFFICE
NEBS
500 Main Street
Groton, MA 01471
Telephone: 508-448-6111
ANNUAL MEETING
The annual meeting of
stockholders will be held
on Friday, October 28, 1994
at 10:00 am. at the Company's
offices in Groton, Massachusetts.
FORM 1O-K AVAILABLE
A copy of the annual report filed
with the Securities and Exchange
Commission on Form 10-K is available
to shareholders, without charge,
upon written request to:
John F. Fairbanks,
Treasurer and Secretary,
NEBS, 500 Main Street
Groton, MA 01471
LEGAL COUNSEL
Hill & Barlow,
a Professional Corporation,
One International Place
Boston, Massachusetts
AUDITORS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts
TRANSFER AGENT AND REGISTRAR
The First National
Bank of Boston
Boston, Massachusetts
<PAGE>
[LOGO OF NEBS APPEARS HERE]
New England Business Service, Inc. 500 Main Street Groton, Massachusetts 01471
Printed on Recycled Paper
[RECYCLING LOGO APPEARS HERE] 40% Pre-Consumer Content
10% Post-Consumer Content
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page Where
Graphic Appears Description of Graphic
- --------------- ----------------------
Outside Front Cover Graphic of NEBS logo and photograph of NEBS
Customers: Jane and Gene Behrens
Inside Front Cover Graphic of various NEBS product catalogs
Page 1 Portrait photograph of NEBS Customers: Jane and
Gene Behrens
Page 3 Photographs of Richard H. Rhoads, Chairman and
William C. Lowe President, Chief Executive
Officer
Page 4 Graphic of various items of NEBS product line
Page 5 Photograph of NEBS Customer: Dan Wolfe
Page 6 Graphic of various items of NEBS product line
Page 7 Photograph of NEBS Customers: Richard and Wilma
Hinderleiter
Page 8 Graphic of various items of NEBS product line
Page 9 Photograph of NEBS Customer: Karen Lautzenheiser
Page 10 Graphic of various items of NEBS product line
Page 11 Photograph of NEBS Customers: James and Jenna
Auxier
Page 12 Graphic of various items of NEBS product line
Page 13 Photograph of NEBS Customer: Elaine Warner
Page 28 Photograph of NEBS Corporate Officers: Richard
H. Rhoads, William C. Lowe, Sally C. Davis,
Christopher H. Corbett, Russell V. Corsini, Jr.,
Thomas W. Freeze, Robert S. Brown, Jr., Timothy
D. Althof, Edward M. Bolesky
Outside Back Cover Graphic of NEBS logo
