<PAGE>
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 27, 1995
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 27, 1995 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 ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for the fiscal year ending June 30, 1996; and
3. 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 September 1, 1995
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 30, 1995, 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.
In accordance with Article Ten of the Company's By-Laws, notice is given
that on April 28, 1995 the Board of Directors voted to amend the By-Laws of
the Company to provide (i) that the Company's fiscal year shall end on June
30, rather than on the last Friday in June, and (ii) that the Annual Meeting
of Stockholders of the Company shall be held on the last Friday in October,
rather than the fourth Friday in October.
By order of the Board of Directors
John F. Fairbanks
Secretary
September 15, 1995
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 27, 1995
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 27, 1995 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 15, 1995
to each stockholder entitled to vote at the Meeting. The Company's Annual
Report to Stockholders for the fiscal year ended June 30, 1995 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 September 1, 1995 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 September 1, 1995, there were 14,879,949 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............................... 1,768,200(1) 11.53
New England Business Service, Inc.
500 Main Street
Groton, MA 01471
Richard H. Rhoads............................... 1,124,739(2) 7.34
New England Business Service, Inc.
500 Main Street
Groton, MA 01471
Systematic Financial Management, Inc. .......... 1,806,277(3) 11.78
Two Executive Drive
Fort Lee, NJ 07024
Fidelity Management and Research Corporation.... 1,181,408(4) 7.71
82 Devonshire Street
Boston, MA 02110
</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. Includes 3,000
shares issuable within 60 days upon exercise of options.
(2) Sole voting and investment power with respect to 984,987 shares; sole
voting power only with respect to 69 shares; shared voting and investment
power with respect to 139,683 shares. Includes 60,000 shares issuable
within 60 days upon exercise of options.
(3) Sole investment power with respect to 1,806,277 shares; sole voting power
with respect to 1,648,272 shares; shared voting power with respect to
158,005 shares.
(4) Sole investment power with respect to 1,181,408 shares and sole voting
power with respect to 38,400 shares.
<PAGE>
On September 1, 1995, the directors, the Chief Executive Officer, and the
other six executive officers of the Company 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. ..... 1,522,432(8) 245,768(1) 1,768,200 11.53
Richard H. Rhoads....... 984,987(8) 139,752(2)(7) 1,124,739 7.34
William C. Lowe......... 153,969(8) 1,000(3) 154,969 *
Peter A. Brooke......... 18,624(8) 12,468(4) 31,092 *
Benjamin H. Lacy........ 18,000(8) 18,000 *
Frank L. Randall, Jr. .. 6,000(8) 6,000 *
Robert J. Murray........ 3,000(8) 1,000(5) 4,000 *
Brian E. Stern.......... 0 0 *
Russell V. Corsini,
Jr. ................... 86,483(8) 3,090(6)(7) 89,573 *
Robert S. Brown, Jr. ... 56,913(8) 3,232(7) 60,145 *
Gerald G. Kokos......... 20,807(8) 0 20,807 *
Edward M. Bolesky....... 46,672(8) 3,577(7) 50,249 *
Linda A. Jacobs......... 15,207(8) 908(7) 16,115 *
Michael F. Dowd......... 9,836(8) 412(7) 10,248 *
All Directors and
Executive Officers
as a Group (14
persons)............... 3,354,137(9) 21.87
</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 73,683
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 jointly by Mr. Murray and Mr. Murray's wife.
(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, 69 shares, Mr. Corsini, 3,050 shares; Mr. Brown, 3,232
shares; Mr. Bolesky, 3,577 shares; Ms. Jacobs, 908 shares; and Mr. Dowd,
412 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: Jay R. Rhoads, Jr., 3,000;
Richard H. Rhoads, 60,000; Mr. Lowe, 148,916; Mr. Brooke, 3,000; Mr. Lacy,
3,000; Mr. Randall, 3,000; Mr. Murray, 3,000; Mr. Corsini, 83,560; Mr.
Brown, 54,793; Mr. Kokos, 20,000; Mr. Bolesky, 43,447; Ms. Jacobs, 14,955;
and Mr. Dowd, 9,603.
(9) Including 398,959 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, 450,274 shares which directors and officers
owning currently-exercisable options may acquire pursuant to Company stock
option and stock appreciation rights plans, 1,000 shares jointly owned by
officers or directors and their spouses and 11,248 shares held for the
accounts of current and former 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 except Mr. Stern were re-elected to their
position at the 1994 Annual Meeting. Mr. Stern was elected a director on April
28, 1995, effective July 28, 1995, to fill the vacancy caused by the
resignation of Robert Ripp. 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 65, 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 66, 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.
Benjamin H. Lacy, age 69, has been a director of the Company since 1970. His
principal occupation is President of the Clipper Ship Foundation, Inc., a
grant-making charitable foundation. Prior to his retirement in May, 1995, Mr.
Lacy was 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 54, 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 December, 1993 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 54, has been a director of the Company since 1991. Mr.
Murray has, since January 1, 1991, been Executive Vice President, 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, Fleet Bank of
Connecticut, Fleet Bank of Rhode Island and LoJack Corporation.
Frank L. Randall, Jr., age 77, 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 70, 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>
Brian E. Stern, age 47, was elected a director of the Company on April 28,
1995, effective July 28, 1995 to fill a vacancy on the board and to serve
until the 1995 Annual Meeting of Stockholders and until his successor is
elected and qualified. Mr. Stern has been President of the Personal Document
Products Division and Corporate Vice President of Xerox Corporation since
1993. From 1992 to 1993, Mr. Stern was Vice President of Corporate Business
Strategy of Xerox and from 1990 to 1992, Vice President, Finance, Development
and Manufacturing of Xerox.
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), Lacy and Murray.
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 fiscal
year ending June 30, 1996.
The Organization and Compensation Committee consists of Messrs. Lacy
(Chairman), Brooke and Murray. The Committee met three times in fiscal year
1995 to discuss the existing executive organization and compensation structure
and proposed changes thereto and one time to review the annual evaluation of
the Company's officers, and, subject to final approval by the Board, to fix
their base salaries for fiscal year 1996 and to approve the substantitive
provisions of the 1996 Executive Bonus Plan.
The Stock Option Committee, consisting of Messrs. Murray (Chairman), Brooke
and Lacy met or acted by unanimous consent three times in fiscal year 1995 to
grant stock options to eligible employees of the Company pursuant to The NEBS
1990 Key Employee Stock Option and Stock Appreciation Rights Plan and The NEBS
1994 Key Employee and Eligible Director Stock Option and Stock Appreciation
Rights Plan. On January 20, 1995, Mr. Lacy resigned as a member of the Stock
Option Committee.
The Nominating Committee, consisting of Messrs. Randall (Chairman) and Jay
R. Rhoads, Jr., did not hold any formal meetings during fiscal year 1995.
During the regular Board Meeting held April 28, 1995, the Nominating Committee
nominated Mr. Stern to fill a vacancy on the Board of Directors. The
Nominating Committee also recommended to the Board of Directors the persons
nominated for election as directors by the stockholders at the Annual Meeting
of Stockholders to be held October 27, 1995.
The Executive Committee, consisting of Messrs. Richard H. Rhoads (Chairman),
Lacy and Lowe, met or acted by unanimous consent fifteen times in fiscal year
1995.
The Board of Directors met six times during fiscal year 1995. 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 which Benjamin H. Lacy, a director and Chairman of the Organization and
Compensation Committee, was of counsel until his retirement from that firm in
May, 1995.
CERTAIN TRANSACTIONS
None.
4
<PAGE>
COMPENSATION OF OFFICERS AND DIRECTORS
The following table sets forth all compensation paid by the Company through
September 1, 1995 to the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company (the "Named
Executive Officers") in all capacities as an officer during the fiscal years
ended June 30, 1995, June 24, 1994 and June 25, 1993.
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>
William C. Lowe......... 1995 $ 375,000 $ 171,300 $ 0 45,833 $ 0
President, CEO 1994 187,500 212,500 110,500(2) 300,000 0
1993 0 0 0 0 0
Russell V. Corsini,
Jr. ................... 1995 193,000 63,000 0 19,300 3,700
Vice President, 1994 193,000 72,100 0 10,938 4,500
Chief Financial Officer 1993 186,000 57,800 0 22,698 0
Robert S. Brown, Jr. ... 1995 170,000 54,300 0 11,805 3,300
Vice President-- 1994 170,000 64,000 0 9,634 4,500
General Manager, 1993 157,000 48,800 0 19,158 4,400
Subsidiaries
Gerald G. Kokos......... 1995 165,000 82,500 0 40,000 0
Vice President-- 1994 0 0 0 0 0
General Manager, 1993 0 0 0 0 0
Software & Services
Edward M. Bolesky....... 1995 154,000 66,300 0 12,833 4,600
Vice President-- 1994 139,000 51,900 0 7,877 4,200
General Manager, 1993 130,000 40,400 0 15,864 4,400
Business Solutions &
Operations
</TABLE>
--------
(1) The amounts reported in this column 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.
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......... 45,833(1) 12.26% $18.00 9/16/04 $ 518,800 $ 1,314,900
Russell V. Corsini, Jr.. 19,300(1) 5.16 18.00 9/16/04 218,500 553,700
Robert S. Brown, Jr..... 11,805(1) 3.16 18.00 9/16/04 133,600 338,700
Gerald G. Kokos......... 40,000(2) 10.70 17.75 8/17/04 446,400 1,131,600
Edward M. Bolesky....... 12,833(1) 3.43 18.00 9/16/04 145,300 368,200
</TABLE>
--------
(1) The stock options awarded vest annually in four equal installments
beginning on September 16, 1994 and ending on September 16, 1997, except
that all of such options will vest immediately in case of a change in
control of the Company.
(2) The stock option awarded vests annually in four equal installments
beginning on August 17, 1994 and ending on August 17, 1997, except that
the entire option 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>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
ACQUIRED VALUE ------------------------------ -------------------------
AT EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William C. Lowe......... 20,000 $92,500 137,458 184,375 $461,100 $585,200
Russell V. Corsini, Jr.. 5,284 23,100 72,438 20,772 193,100 49,700
Robert S. Brown, Jr..... 1,654 8,300 45,545 15,151 140,400 39,900
Gerald G. Kokos......... 0 0 10,000 30,000 20,000 60,000
Edward M. Bolesky....... 1,550 6,600 33,942 15,922 124,700 41,200
</TABLE>
--------
(1) In-the-Money options are options where the current market value exceeds
the exercise price.
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) 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
6
<PAGE>
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....................................... 85,000 114,000 142,000
400,000....................................... 115,000 154,000 192,000
500,000 and over.............................. 145,000 194,000 242,000
</TABLE>
DEFERRED COMPENSATION PLAN
The Company has established the New England Business Service, Inc. Deferred
Compensation Plan (the "Plan") pursuant to which each of the Named Executive
Officers of the Company may elect to defer, until 60 days following his
termination of employment with the Company, a portion of all compensation
payable by the Company for his personal services rendered to the Company
during each Plan year (the "Deferral Amount"). Each participating officer may
request that his Deferral Amount be allocated among several available
investment options established and offered by the Company. The benefit payable
under the Plan at any time to a participant following termination of
employment is equal to the sum of the applicable Deferral Amounts and any
earnings or losses attributable to the investment of such Deferral Amounts.
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. Richard H. Rhoads receives an additional $50,000 per
year as compensation for his services as Chairman of the Board. Benjamin H.
Lacy receives an additional $20,000 per year as compensation for his services
as Chairman of the Organization and Compensation Committee, as a member of the
Executive Committee and as recording secretary to the Board. William C. Lowe
received no compensation for his services as director.
The directors of the Company both elected at the 1994 Annual Meeting of
Stockholders and not employed by the Company were granted stock options for
3,000 shares pursuant to The NEBS 1994 Key Employee and Eligible Director
Stock Option and Stock Appreciation Rights Plan with an exercise price
determined by the market value of the Company's Common Stock on the tenth day
following such Annual Meeting. Each eligible director will be granted 1,000
shares per year upon each subsequent election at an Annual Meeting of
Stockholders of the Company, under similar terms, except that any newly
elected director, or director retiring as an employee of the Company in the
preceding year, will be granted an option to acquire 3,000 shares following
the first subsequent Annual Meeting and 1,000 shares for each year of re-
election thereafter.
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. A retiring director 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, in some instances and to varying extents, 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. In October, 1994 such approval was obtained for the
Company's NEBS 1994 Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan and for the Company's Stock Compensation Plan.
IMPLEMENTATION
1. Salaries. The individual salaries of the Named Executive Officers other
than Gerald G. Kokos for fiscal year 1995 were recommended by the Committee
and approved by the Board at the beginning of the year. Mr. Kokos' salary was
approved by the Committee in August, 1994, in connection with his employment
as the Company's new Vice President--General Manager, Computer Forms and
Software. The salary ranges established for each of the Named Executive
Officers 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 11 below.
Within these ranges, the actual salaries fixed for the Named Executive
Officers, in accordance with the President's recommendation, reflected no
change from those being paid to them at the close of the prior fiscal year,
except in the case of Mr. Bolesky who was given an increase by reason of his
recent assumption of new responsibilities. This decision marked a shift in
emphasis toward performance-based compensation, as discussed below, rather
than any dissatisfaction with the performance of the Named Executive Officers.
The Committee discussed with the President the performance of the Company
during fiscal year 1994 and the contribution of the individual Named Executive
Officers other than Mr. Lowe to that performance. The Committee also
considered a performance review prepared by the Chairman of the Board with
respect to Mr. Lowe, the President and Chief Executive Officer of the Company.
2. Annual Bonuses. At the beginning of fiscal year 1995, all of the Named
Executive Officers were designated as participants in the Company's 1995
Executive Bonus Plan (the "Bonus Plan") and target bonuses of 70% of base
salary for the Chief Executive Officer and 50% of base salary for the other
Named Executive Officers were established. This amounted to an increase over
the percentage used in the prior year's Executive Bonus Plan of 10 percentage
points in the case of each of the Named Executive Officers. In accordance with
the Bonus Plan, after the close of the fiscal year 1995, cash bonuses were
paid, the amounts of which in the case of
8
<PAGE>
Mr. Lowe and Mr. Corsini were based entirely on the Company's performance for
the year versus budgeted net sales and earnings per share, and, in the case of
the other three Named Executive Officers, on those factors plus certain
individual performance objectives. The bonus paid to Mr. Kokos represented a
first year guaranteed amount in accordance with the terms of his employment by
the Company. The bonus paid to Mr. Bolesky included an additional amount of
$5,120 in recognition of the extraordinary contribution made by him to the
Company's performance in 1995. On this basis, the Named Executive Officers
received the bonuses indicated in the Summary Compensation table shown on page
5.
3. Stock Options. In September 1994, the Stock Option Committee (the
membership of which was then the same as that of the Committee) authorized the
granting of a stock option to Mr. Lowe covering shares with a market value on
the date of the grant equal to 220% of his 1995 base salary. The options
granted to the other Named Executive Officers other than Mr. Kokos were for
shares with a market value equal to the following respective percentages of
their 1995 base salaries: Mr. Corsini, 180%; Mr. Brown, 125%; and Mr. Bolesky,
150%. These awards were in part contingent upon the approval by the
Stockholders (which was given at the Annual Meeting of October 28, 1994) of
the NEBS 1994 Key Employee and Eligible Director Stock Option and Stock
Appreciation Rights Plan. These awards represented increases (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 their individual performance and the
desire of the Committee to increase emphasis on long-range performance based
compensation of the executives in a fiscal year in which it was anticipated
that the Company's new leadership would make significant changes in the
organization and focus of the Company. Mr. Kokos received a stock option to
purchase 40,000 shares for $17.75 per share (their then market value) on
August 1, 1994 in accordance with the terms of his employment by the Company.
4. Mr. Lowe's Compensation. The process by which the compensation of William
C. Lowe as President and Chief Executive Officer of the Company was arrived at
in fiscal year 1995 was as stated above and differed in no material way from
that employed with respect to the other Named Executive Officers. Mr. Lowe was
given no fringe benefits other than those available to all officers of the
Company.
ORGANIZATION AND COMPENSATION COMMITTEE
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
9
<PAGE>
PERFORMANCE GRAPH
The following chart compares the value of $100 invested in the Company's
Common Stock from June 30, 1989 through June 30, 1995 with a similar
investment in the S&P 600 Stock Index, with the NASDAQ Composite Index and in
a peer group consisting of the eight publicly held companies listed below
which are in the same industry as the Company. This fiscal year, in accordance
with Securities and Exchange Commission Rules, the Company changed the
comparison index from the NASDAQ Composite Index to the S&P 600 Stock Index in
connection with the transfer of listing of Company Common Stock from the
NASDAQ National Market to the New York Stock Exchange. The NASDAQ Composite
Index return data is provided below for comparative purposes, but will not be
provided in future years.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEB 100.00 118.96 112.45 117.86 144.37 158.56
--------------------------------------------------------------------------------
S&P 600 100.00 98.10 114.88 147.61 150.36 180.98
--------------------------------------------------------------------------------
NASDAQ 100.00 105.90 127.30 160.00 161.60 215.30
--------------------------------------------------------------------------------
Peer Group 100.00 93.92 84.45 98.15 109.41 137.17
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PEER GROUP COMPANIES:
<S> <C> <C>
American Business Products, Inc. Moore Corporation, Ltd. The Standard Register Company
Duplex Products, Inc. Paris Business Forms, Inc. Wallace Computer Services, Inc.
Ennis Business Forms, Inc. The Reynolds & Reynolds
Company
</TABLE>
10
<PAGE>
PROPOSAL TWO
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, 1996, 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 1995, 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 1996 fiscal year.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1996 Annual
Meeting of Stockholders must be received by the Company, at its offices at 500
Main Street, Groton, Massachusetts 01471, no later than May 10, 1996, 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 vote required for approval of directors is the affirmative vote of a
plurality of the shares present or represented at the Meeting and entitled to
vote thereon. Unless authority to vote for any director is withheld in the
Proxy, votes will be cast in favor of election of the nominees listed herein.
Votes withheld from election of directors will be excluded entirely from the
vote and will have no effect.
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 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 RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP
AS AUDITORS FOR FISCAL YEAR 1996, AND (3) IN THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.
11
<PAGE>
PROXY
NEW ENGLAND BUSINESS SERVICE, INC.
Meeting of Stockholders -- October 27, 1995
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF NEW ENGLAND BUSINESS SERVICE, INC.
The undersigned stockholder in New England Business Service, Inc. (the
"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
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 be held
at the offices of the Company, 500 Main Street, Groton, Massachusetts on October
27, 1995 at 10:00 a.m., Eastern Daylight Savings Time, and any adjournments
thereof.
-------------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-------------
<PAGE>
Please mark New England Business Services, Inc.
[X] votes as in
this example. Job-1: 8/14/95
The shares represented by this proxy will 2 Proposals *
be voted as directed by the undersigned.
IF NO CONTRARY INSTRUCTIONS ARE INDICATED, MULTIPLE ISSUE (2) PROOF
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. Brooke, Benjamin H. Lacy, William C. Lowe, Robert J. Murray,
Frank L. Randall, Jr. Jay R. Rhoads, Jr. and Brian E. Stern.
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
2. To ratify the selection of Deloitte & Touche LLP as independent auditors of
the Company for the current fiscal year ending June 30, 1996.
[_] [_] [_]
FOR AGAINST ABSTAIN
3. 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>
NEBS
The Small Business Resource
1995 Annual Report
Outside Front Cover Graphic of NEBS logo and four photographs of various
NEBS customers and employees
<PAGE>
NEBS Profile
NEBS is the leading supplier of business forms and other printed products
to small businesses in the United States and Canada. The Company's primary
channel to the small business customer is direct mail order. During 1995, NEBS
served more than 1,292,000 small business customers.
NEBS base product line consists of a wide range of standardized business forms,
custom forms, software and related printed products specifically designed to
facilitate the management of a small business. In addition, the Company markets
stationery, promotional materials and software to enable a small business to
create a consistent and professional image.
During a typical week, the Company's six production facilities located in the
US, Canada and the UK receive and process in excess of 50,000 orders with an
average order value of approximately $100.
NEBS established and has retained its market leadership by providing the high-
quality products a small business needs at affordable prices and with
outstanding customer service.
Inside Front Cover Graphic of various NEBS product
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
(In thousands of dollars except per share amounts)
For the Fiscal Year Ended June 30, 1995 (A) June 24, 1994 (B)
<S> <C> <C>
Net Sales $263,724 $251,253
Income Before Income Taxes 28,492 27,599
Net Income 16,298 15,563
Earnings Per Share 1.07 1.01
Dividends Per Share .80 .80
Operating Statistics
Return on Stockholders' Equity 17.8% 15.6%
Income Before Income Taxes as a Percent
of Sales 10.8% 11.0%
Net Income as a Percent of Sales 6.2% 6.2%
Working Capital $ 45,340 $ 54,870
Stockholders' Equity 91,523 99,479
Book Value Per Share 6.16 6.43
</TABLE>
(A) Included in the 1995 results is a $1.96 million pretax charge, or $.07 per
share, related to integration of the Company's SYCOM subsidiary.
(B) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per
share, related to a restructuring program.
Meeting Small Business Needs - A Strategy for Growth
Small businesses are changing the way they conduct business. They are installing
computers and software for operational efficiency. They are taking advantage of
new printing technology for more professional looking sales and marketing
materials. They are focusing on image, recognizing the value of color and
consistent design across all printed products. They are searching for a supplier
who understands their needs, a company to help them manage and promote their
business. Meeting small business needs is one of the largest business
opportunities of this decade. There are an estimated 10 million small businesses
and 20 million in-home offices in the United States, Canada and the United
Kingdom, the three countries where NEBS operates. Their numbers and the volume
of products and services they purchase are expected to grow substantially over
the next few years. NEBS is in a unique position to serve the changing needs of
the small business marketplace and to capitalize on this exceptional growth
opportunity. We understand the market. In-home offices and businesses with
20 or fewer employees have been our focus for 43 years. In 1995 alone, we served
more than 1,292,000 small business customers. We have direct access to the
market. We contact more than 8,000,000 small businesses each year through the
mail and maintain a proprietary data base of their buying preferences. Most
importantly, we sustain a solid reputation in the market as a high quality
supplier who understands and responds to small businesses.
In 1995, we broadened our vision. We looked beyond our strength as the nation's
leading supplier of business forms for small business, and focused on small
business needs. We determined how best to build on our strengths to meet those
needs. And we set out to become the source of printed products, software and
services for managing and promoting a small business.
We invite you to review the early results of our efforts and to follow our
progress in the years ahead -- as NEBS fulfills its mission to be "The Small
Business Resource."
-1-
<PAGE>
To Our Stockholders
Overview
The Company achieved record sales during fiscal 1995 and set the foundation
for future growth. The Company's small business image-building products were
enhanced with the Company Colors(TM) line of forms and stationery and the Page
Magic(TM) software line. Continued investment in color printing, telephone and
database technology strengthened the Company's product and service capabilities.
Retail distribution was expanded significantly by means of an alliance with
Kinko's, Inc. The year's efforts improved the Company's ability to meet the ever
changing needs of the small business marketplace.
Financial Performance
Sales for the year grew 5% to $263,724,000 and the number of customers
served grew to a record 1,292,000. This performance reflected strong growth in
the Company's retail and Canadian businesses and continued growth in computer
forms, custom forms and image products. Reflecting the slowing economy, sales of
standardized manual business forms contracted during the latter half of the year
and growth rates across all lines weakened.
Earnings amounted to $16,298,000 versus last year's $15,563,000. Earnings per
share were $1.07 versus last year's $1.01. This year's earnings reflected an
exit charge and period expense of $.13 per share related to the integration of
the Company's SYCOM subsidiary. Last year's earnings included a $.21 per share
restructuring charge for an organizational realignment and cost reduction
measures. Dividends were paid for the 32nd consecutive year and amounted to $.80
per share. We are pleased to have maintained the Company's strong profitability
during 1995 in light of the on-going investment required by product, channel and
marketing initiatives.
Financial Condition
The Company's operating cash flow and financial condition remained strong.
During the year, the Company repurchased $16,998,000 of common stock and paid
out $12,192,000 in dividends to stockholders. In spite of these significant cash
outflows, the Company had cash and short-term investments of $22,964,000 at
year-end and maintained a current ratio of 2.4 and a balance sheet free of debt.
Business Highlights
We are encouraged by the progress made by the Company during 1995. The
Company's accomplishments and initiatives to accelerate future growth are
highlighted below.
Kinko's Alliance One of the more promising developments during the year was
the formation of an alliance with Kinko's, Inc. Through the alliance, the
Company's design and printing services were made available to small businesses
at select sites within Kinko's network of more than 750 retail stores. At fiscal
year-end, the Company had established 22 custom print desks in Kinko's stores
and announced a joint commitment with Kinko's to grow the number to a minimum of
50 stores by December, 1995.
The alliance provides Kinko's with access by mail to millions of small
businesses, while the Company gains direct access to the $10 billion retail
market for small business printing services.
Company Colors The Company's new image-building line was created in response
to customer demand for printed products combining functionality with coordinated
color and design. Company Colors offers a full range of manual and computer
forms, business cards, stationery and related products in five popular two-color
combinations with consistent design elements. Company Colors provides the
Company with the product breadth required to meet customer needs in both the
retail and mail order channels.
Software Products Page Magic desktop publishing software and its companion
line of laser printer papers were introduced through direct mail and retail in
the second fiscal quarter. The Company's market-leading One-Write Plus(R)
accounting package continued to exhibit strong sales through mail order.
Development of a Windows(TM) version of One-Write Plus progressed throughout the
year with introduction expected during fiscal 1996. The Company has continued to
invest heavily in the development of One-Write Plus for Windows and to establish
cost-effective technical support.
International Operations The Company's Canadian subsidiary exhibited renewed
strength and posted its best performance in several years. The improvement was
led by new products, improved marketing programs and the improving Canadian
economy. In a promising venture, the Canadian subsidiary arranged to display the
Company's products in self-service kiosks in selected Mail Boxes, Etc. of Canada
stores. Revenues generated by the Company's U.K. branch also exhibited renewed
growth driven by product and market initiatives.
Investment in the Future Investment during 1995 was focused on technology,
systems and skills necessary to meet the new and emerging needs of the small
business marketplace. The Company added key personnel with expertise in software
development and distribution, information systems technology, channel marketing
and color printing technology. NEBSnet(TM), the Company's proprietary design and
composition system, was developed to facilitate the sales and order process in
the retail channel. The Company modernized its telemarketing and technical
support systems and added significantly to its full-color printing capability.
We anticipate the need to continue to invest in technology to keep pace with
increasingly demanding customer requirements.
-2-
<PAGE>
Page 3 Photographs of Richard H. Rhoads, Chairman and William C. Lowe,
President, Chief Executive Officer
Future Outlook
The sales growth weakness in the latter half of fiscal 1995 underscores two
forces prevalent in the small business marketplace. The sale of forms and
related products by mail order remains closely tied to the economic health of
the small business market. In addition, advancements in retail point-of-sale
systems and desktop computers continue to negatively impact demand for
standardized manual forms. Future opportunity is emerging from related trends in
the small business market. Small businesses consume over $11 billion of printed
products annually, are increasingly computerized, demand a distinctive image and
prefer to make initial purchases through retail. To take advantage of these
trends, the Company is expanding retail distribution, developing software
products, and introducing printed products with coordinated color and design.
These initiatives will enable the Company to serve a significantly larger
portion of the total market, and more importantly, to become the premier
supplier to these small businesses.
Goals for 1996
During 1996, the Company will introduce One-Write Plus(R) for Windows(TM)
and continue to refine and expand the Company Colors line. The Company will also
seek opportunities to form additional alliances to fill the full range of
service and product needs of our small business customers. Finally, we will
continue to focus on the alliance with Kinko's. Our goal is to make this
important venture an unqualified success. The Company's financial goal for 1996
is to achieve double-digit revenue growth during the latter half of the year
while maintaining profitability ratios. In light of the sales growth weakness
experienced during the latter half of fiscal 1995, continued pressure on the
standardized manual forms business and the investment demands of channel and
product initiatives, achieving this financial objective will be a challenge. The
Company will continue to seek opportunities to reduce costs and to increase
operational efficiency to support our goals.
Board of Directors
At its April meeting, the Board elected Brian E. Stern, President of the
Personal Document Products Division of Xerox Corporation, to its membership.
Brian brings strong experience with technology-based business to the Board, and
will help ensure the Company competes successfully in its new channels and lines
of business. We're delighted that Brian has joined us and we're looking forward
to working with him in the future. At the April meeting, the Board of Directors
also accepted the resignation of Robert Ripp as a Director of the Company. Bob
had ably served the Company for three years and we wish him well in his future
endeavors.
Words of Thanks
We would like to draw attention to the talent, dedication and commitment of
each of our 2,055 employees. The Company's employees are the source of its
strength and we commend them for their efforts and accomplishments during the
year. We remain indebted to our diverse and loyal customer base for their
business and thank them for their help in defining the NEBS of the future.
Finally, we thank you, our stockholders, for the strength of your interest and
support. Serving your best long term interest remains our highest priority.
/s/ Richard H. Rhoads
Richard H. Rhoads, Chairman
/s/ William C. Lowe
William C. Lowe, President and Chief Executive Officer
September 15, 1995
-3-
<PAGE>
Page 4 Photograph of NEBS customer Ed Jones and Graphic of NEBS
One-Write Plus software package
Making Business Easier for Small Business --
A NEBS Tradition
In 1995 and for more than 43 years, small business has relied on NEBS
business forms. More than a record, our forms offer a blueprint for any type of
transaction with customers or suppliers, making business easier and more
efficient for new and established small businesses. NEBS manual business forms,
the Company's foundation, remain as important to NEBS today as to the millions
of customers who rely on them. Sold primarily through the mail, our manual
business forms serve as an introduction to the full range of NEBS products and
services. In 1995, we continued to refine this vital product line, adapting it
to the changing needs and preferences of small businesses. In response to
customer requests, our most popular manual forms were redesigned with a more
contemporary look. We expanded our collection of value-priced "starter kits,"
sets of imprinted forms tailored to specific lines of business. We introduced
easier-to-use catalogs with tips on managing a small business, to make ordering
less time-consuming and more informative. And we saved customer time with new
database technology that links catalog mailings to customer purchase histories.
Customers receive less mail, and it is focused on the products and services they
need.
NEBS computer forms and software products continued to make managing and
promoting an automated small business easier. One-Write Plus(R), NEBS
proprietary accounting software, remains the nation's best selling DOS
accounting and payroll package. Through 1995, small businesses have installed
more than 350,000 copies. With the pending release of the Microsoft(R)
Windows(TM) version, the popularity of One-Write Plus will spread to those small
businesses using and converting to Windows. For small businesses who want to
create promotional materials with desktop systems, we introduced the Page
Magic(TM) software line in 1995. Featuring easy-to-use templates, Page Magic
enables a customer to design and print distinctive flyers, business cards,
brochures and newsletters -- in-house on a laser printer. At our founding in
1952, we provided the products small businesses depend on, and grew to be their
leading supplier of manual business forms. As small businesses installed
computers, we developed a full line of continuous forms, software and related
technical support. Today, as the needs of small business continue to change,
NEBS remains committed to providing the required products and services. Through
internal initiatives and external alliances, we are poised to respond in the
future as we have for the past 43 years.
Listening to Our Customers
Suggestions from small business owners like Ed Jones, a NEBS customer for 14
years, prompted the redesign of our contractor catalog. With less copy, larger
product photos, easy-to-find color-coded sections and tips on managing a small
business, ordering by mail became less time-consuming and more informative in
1995.
A Perfect Partner
Certified Public Accountant Richard Goldman of Providence, RI estimates that he
introduces at least 200 small business owners to One Write Plus each year
through seminars he conducts at software retail outlets in the Northeast.
Richard is a member of NEBS Perfect Partner Program, a group of CPAs who serve
as consultants to NEBS customers across the US. "One Write Plus is an excellent
program," Richard said. "It's flexible and easy to use for small businesses, and
powerful enough for the larger corporation."
-4-
<PAGE>
Leveraging our Strengths:
Bringing New Services to Small Business
Many companies have products and services of value to small business, but
lack the distribution channels to deliver them to market. With our direct access
to small businesses and our extensive customer support organization, NEBS is
actively seeking alliances with these companies to better serve our customers.
In the years ahead, we envision small businesses turning to NEBS not only for
our forms, promotional products and software, but for a broad array of third
party products and services specifically tailored to their needs.
Page 5 Photograph of NEBS Perfect Partner: Richard Goldman at training
session
-5-
<PAGE>
Page 6 Graphic of NEBS Page Magic software package and products and
photo of various items of the NEBS product line
Offering Small Businesses a Professional Image
An increasing number of small businesses want more than functional printed
products; they want printed products that project an image. During 1995, NEBS
responded by establishing a division dedicated to the creation of image-building
products and services. Our efforts in the NEBS Image Division will bolster our
ability to meet this emerging small business need. We introduced Company
Colors(TM) -- a multi-level program offering image-building products for any
small business budget. For the do-it-yourself marketer, Company Colors provides
a line of colorful desktop publishing papers. Compatible with our Page Magic(TM)
software and other page design and word processing programs, these desktop
papers allow small businesses to produce attractive, multi-colored stationery,
business cards, flyers and other image-oriented promotional products -- without
the cost and hassle of commercial printing.
Next, Company Colors gives a small business the opportunity to achieve a
consistent look across all its printed materials -- with the Company Colors
palette, five of the most popular, two color combinations used on stationery and
business cards. When ordering our most popular standard NEBS products, a
customer may now designate a preferred palette. Business cards, stationery and
envelopes may also be ordered in this color scheme, professionally printed by
NEBS on a wide range of paper stock. In short, Company Colors offers fully
color-coordinated printed products -- from manual and computer forms to business
cards and stationery -- without the time and expense associated with local
designers, advertising agencies and printers. For the small business with a need
for more extensive custom design and printing services, we introduced an
industry first in 1995. We call it NEBSnet(TM) -- a proprietary, interactive
graphic design workstation developed by NEBS software engineers. Operated by a
NEBS representative, it enables a customer to order competitively priced custom
forms, business cards, stationery, envelopes, even full-color brochures from
NEBS -- typically printed and shipped in less than a week. A growing number of
small businesses are searching for an affordable way to create a professional
image. In 1995, NEBS developed Company Colors and NEBSnet to meet their needs.
Page Magic -- For the Do-It-Yourself Marketer
Introduced in 1995, Page Magic software's easy-to-use templates enable NEBS
customers to create a variety of promotional materials in-house on desktop
systems. In the near future, customers will be able to mail their Page Magic
designs on diskette to a NEBS manufacturing facility for affordable, fast
turnaround, spot color and full-color printing.
Company Colors: The Affordable Route
to a Professional Image
With Company Colors, NEBS provides customers like Yolanda Hill, owner of Body
Heat in Phoenix, Arizona, a complete line of color-coordinated image products:
from attractive laser papers for creating promotional materials in-house, to
fully customized stationery, business cards, and brochures. A multi-level
program, Company Colors makes NEBS a one-stop image development service for any
small business budget.
-6-
<PAGE>
Leveraging our Strengths:
Short-Run
Efficiency and Image Conscious Customers
The demand for economical, short-run, full-color printing among small
businesses will rise dramatically in the next few years. We're ready to meet
that demand. In 1995, we leveraged our 43 years of experience in small order,
one and two-color printing by introducing full-color printing services. As more
small businesses choose color to create and promote an image, NEBS design and
printing services will be there to meet the need.
Page 7 Photograph of NEBS Customer: Yolanda Hill
-7-
<PAGE>
Page 8 Graphic of map of various NEBS and Kinko's sights and picture
of major metropolitan area
Retailing NEBS to the Small Business Customer
Over the last several years, NEBS retail efforts have focused primarily on
expanding the distribution network for our software and private label forms. In
1995, we broke new ground. Through a unique alliance with Kinko's, Inc., NEBS
design and printing services will be available in local markets across the US --
where small businesses spend in excess of $10 billion annually on custom
printing services. Kinko's, founded in 1970, is among the top service companies
in the US. A recognized leader in providing convenient, economical retail
services for small businesses and in-home offices, Kinko's offers copying, fax,
video-teleconferencing and computer-related services at more than 750 locations,
24 hours a day. Through the NEBS-Kinko's alliance, Kinko's gains access by mail
to millions of small businesses, adds NEBS small-order, custom printing
capabilities to its service menu and becomes a true one-stop shop for virtually
any copy or print service. The value of this alliance for NEBS is equally clear.
Through Kinko's established network of service centers, NEBS gains direct retail
access to local markets, where the majority of small business owners purchase
printed, image-building materials. With the aid of NEBSnet(TM) workstations,
NEBS representatives can deliver design and printing services at the customer's
convenience, often at hours other printers aren't working -- and at a price that
will be difficult to match.
At the end of fiscal 1995, NEBS custom print desks were operating in 22 Kinko's
stores, providing a new level of personalized service to small business. A very
promising venture, the number of Kinko's-based custom print desks has the
potential to grow into the hundreds in the years ahead. NEBS also continued to
make progress in our established retail networks in 1995. Our DFS unit, which
markets a specially designed version of our forms and printed promotional
materials, now works closely with more than 22,000 local printers, business
forms dealers and computer stores. Our network of software distributors and
retailers grew to include virtually every major computer and software retailer
in the United States. And in another alliance, our Canadian division arranged
with Mail Boxes, Etc. of Canada to display a variety of NEBS products and
catalogs in attractive, self-service centers -- further promoting product sales
and name recognition at the retail level. We made significant strides at retail
during 1995, for one reason: NEBS is committed to providing the products and
services a small business needs -- wherever small businesses prefer to do
business.
NEBS & Kinko's: A Promising Venture
With more than 750 service centers, Kinko's offers an established retail network
to promote NEBS products and services. Now NEBS Custom Printing Consultants like
Steve Soler (right) in Manhattan can design promotional products for NEBS
customers like Brigitte V. Rocher, President, and Clayton Anderson of Daytime
Running Lights, Inc. while they wait - and send approved designs by modem
directly to a NEBS facility for printing.
Opening New Markets
The NEBS-Kinko's alliance expands NEBS reach in major metropolitan areas,
greatly increasing the number of potential customers for our products and
services.
-8-
<PAGE>
Page 9 Photograph of NEBS Custom Printing Consultant: Steve Soler and
NEBS Customers Brigitte V. Rocher and Clayton Anderson
Leveraging our Strengths:
Turning
Technology into Promotional Products
Small businesses have a growing need for economical, custom-designed, full-
color promotional products. Now they can get them from NEBS -- with NEBSnet(TM).
With this new graphic design workstation, NEBSnet enables customers to work side
by side with NEBS representatives to design promotional materials -- from
stationery to brochures -- while they wait. At the touch of a button, approved
designs are sent by modem to a NEBS manufacturing facility, where product is
printed and shipped back to the customer in less than a week -- in the case of
business cards, in 24 hours. Exclusively from NEBS, it's the future of print and
design service for small business, available today.
-9-
<PAGE>
Page 10 Graphic of NEBS Company Colors chameleon logo and NEBS
Company Colors advertising piece
Looking Back, Looking Ahead
Small businesses want more than a collection of products and services. They
need a resource, a company able to respond to the full range of business needs.
At NEBS, becoming this resource became our mission in 1995. We continued to
improve our customer service and enhance our traditional product line, the many
business forms that have helped customers transact business for 43 years. We
added new software to further help automated customers manage and promote their
business. We responded to the growing sophistication among small business owners
by creating the Image Division, dedicated to offering affordable ways to create
and project an image. We introduced Company Colors(TM) and NEBSnet(TM) to enable
a small business to develop an image easily, faster and at costs below those
normally charged by local printers. Through the alliance with Kinko's, we took
our custom design and short-run printing capabilities to the retail
marketplace --a market eight times as large as the direct mail market we have
served since our inception.
We took our first major step beyond the $11 billion market for printed products
by focusing on the full range of small business needs, and how to best leverage
our internal strengths to address them efficiently and affordably . In 1995, by
preserving and building upon our heritage, we chose to be more than the nation's
leading supplier of business forms for small business. We expanded the vision of
what NEBS will be, and set out to become "The Small Business Resource."
New Look, Proven Strategy
Like the chameleon in our Company Colors logo, NEBS has been responding to the
changing needs of small business for 43 years. Our new Image Division, combined
with new products, services and alliances mark a renewed commitment to this
proven strategy for growth.
Responding to Customer Needs
During 1995, the Image Division's design team created the Company Colors line of
printed products. Company Colors provides a small business with a convenient and
affordable means to project the professional image required to compete in
today's marketplace.
-10-
<PAGE>
Leveraging our Strengths:
A Snapshot of
the Future
Our future is driven by only one criteria: small business needs. Whether
the need is forms, brochures, software or a full array of business services,
small businesses will be able to turn to NEBS for the help they need. That's the
vision at NEBS today, and it's what our customers should expect from "The Small
Business Resource."
Page 11 Photograph of NEBS Image Division's design team
-11-
<PAGE>
Eleven Year Summary
<TABLE>
<CAPTION>
(In thousands of dollars
except per share amounts
and other statistics)
For the Fiscal Year Ended June 30, June 24, June 25, June 26, June 28,
1995 (A) 1994 (B) 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Income Statistics (C)
Net Sales $ 263,724 $ 251,253 $ 237,144 $ 232,435 $ 231,838
Income before income taxes
and accounting changes 28,492 27,599 24,090 24,862 34,095
Percent of sales 10.8% 11.0% 10.2% 10.7% 14.7%
Taxes on income 11,818 12,036 9,873 8,925 13,765
Percent of sales 4.5% 4.8% 4.2% 3.8% 5.9%
Net income before equity in
losses of investment and
accounting changes 16,674 15,563 14,217 15,937 20,330
Percent of sales 6.3% 6.2% 6.0% 6.9% 8.8%
Percent of stockholders'
equity 18.2% 15.6% 15.0% 16.9% 18.9%
Per common share 1.09 1.01 0.93 1.02 1.24
Net Income 16,298 15,563 14,217 15,471 20,330
Percent of sales 6.2% 6.2% 6.0% 6.7% 8.8%
Percent of stockholders'
equity 17.8% 15.6% 15.0% 16.4% 18.9%
Per common share 1.07 1.01 0.93 0.99 1.24
Dividends per common share 0.80 0.80 0.80 0.80 0.80
Balance Sheet Statistics
Current assets 77,509 85,288 68,966 74,784 87,468
Current liabilities 32,169 30,418 25,293 25,649 24,094
Working capital 45,340 54,870 43,673 49,135 63,374
Current ratio 2.4 2.8 2.7 2.9 3.6
Total assets 124,546 131,691 120,624 121,056 133,602
Long-term debt 0 0 0 0 0
Stockholders' equity 91,523 99,479 94,668 94,124 107,802
Average common shares
outstanding 15,245 15,364 15,269 15,664 16,342
Book value per common share 6.16 6.43 6.19 6.18 6.61
Other Financial Statistics
Capital expenditures 10,804 6,054 6,475 9,669 9,166
Depreciation and
amortization 12,676 11,623 9,953 9,531 9,001
Profit sharing contribution 3,620 3,133 2,891 3,296 4,273
Other Statistics (C)
Number of employees 2,055 2,083 2,217 2,180 2,045
Number of stockholders 5,600 5,700 5,400 4,100 3,700
Number of active customers 1,292,000 1,285,000 1,210,000 1,195,000 1,173,000
Facilities (in square feet) 743,000 794,000 793,000 768,000 765,000
</TABLE>
Average common shares outstanding have been retroactively adjusted for stock
split of 2-for-1 in November 1986.
(A) Included in the 1995 results is a $1.96 million pretax charge, or $.07 per
share, related to integration of the Company's SYCOM subsidiary.
(B) Included in the 1994 results is a $5.45 million pretax charge, or $.21 per
share, related to a restructuring program.
(C) Years from 1985 through 1989 have been restated to eliminate a discontinued
operation.
-12-
<PAGE>
<TABLE>
<CAPTION>
(In thousands of dollars
except per share amounts
and other statistics)
For the Fiscal Year Ended June 29, June 30, June 24, June 26, June 27, June 28,
1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C>
Income Statistics (C)
Net Sales $ 233,113 $ 225,931 $ 202,423 $172,574 $158,927 $142,765
Income before income taxes
and accounting changes 33,415 39,109 36,804 36,852 32,009 22,782
Percent of sales 14.3% 17.3% 18.2% 21.4% 20.1% 16.0%
Taxes on income 12,792 15,074 14,500 17,936 15,654 10,630
Percent of sales 5.5% 6.7% 7.2% 10.4% 9.8% 7.4%
Net income before equity in
losses of investment and
accounting changes 20,623 24,035 22,304 18,916 16,355 12,152
Percent of sales 8.8% 10.6% 11.0% 11.0% 10.3% 8.5%
Percent of stockholders'
equity 19.9% 23.6% 22.8% 22.7% 23.7% 21.6%
Per common share 1.23 1.40 1.29 1.10 0.96 0.72
Net Income 21,148 22,189 22,431 19,130 16,893 12,979
Percent of sales 9.1% 9.8% 11.1% 11.1% 10.6% 9.1%
Percent of stockholders'
equity 20.4% 21.8% 22.9% 23.0% 24.5% 23.1%
Per common share 1.26 1.29 1.30 1.12 0.99 0.76
Dividends per common share 0.76 0.66 0.54 0.44 0.29 0.25
Balance Sheet Statistics
Current assets 84,311 84,398 80,256 69,956 62,321 48,141
Current liabilities 21,596 20,020 17,949 18,718 17,524 14,175
Working capital 62,715 64,378 62,307 51,238 44,797 33,966
Current ratio 3.9 4.2 4.5 3.7 3.6 3.4
Total assets 130,280 130,238 123,566 111,009 94,057 81,723
Long-term debt 3,319 6,688 5,720 6,938 6,099 9,879
Stockholders' equity 103,858 101,897 97,995 83,340 68,900 56,163
Average common shares
outstanding 16,835 17,193 17,265 17,138 17,056 16,996
Book value per common share 6.17 5.93 5.67 4.84 4.04 3.30
Other Financial Statistics
Capital expenditures 8,818 11,123 9,366 3,699 2,876 10,085
Depreciation and
amortization 8,689 8,195 7,109 5,233 4,722 3,514
Profit sharing contribution 4,271 4,792 4,245 3,618 3,236 2,395
Other Statistics (C)
Number of employees 2,154 2,002 1,928 1,797 1,632 1,745
Number of stockholders 3,600 3,600 2,700 2,600 2,500 2,200
Number of active customers 1,179,000 1,125,000 1,064,000 977,000 916,000 909,000
Facilities (in square feet) 765,000 748,000 689,000 79,000 623,000 623,000
</TABLE>
-13-
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, 1995 and June 24, 1994 (In thousands of dollars except share data)
Assets Notes June 30, 1995 June 24, 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents 1 $ 11,604 $ 3,456
Short-term investments 1 11,360 37,532
Accounts receivable (less allowance for doubtful
accounts of $3,304 in 1995 and $3,012 in 1994) 1 29,332 27,963
Inventories 1 9,880 7,740
Direct mail advertising 1 2,939 1,698
Prepaid expenses 2,716 1,439
Deferred income tax benefit 1, 12 9,678 5,460
Total current assets 77,509 85,288
Property and Equipment: 1, 3
Land and buildings 35,796 38,417
Less accumulated depreciation 18,833 18,849
Net land and buildings 16,963 19,568
Equipment 70,890 66,648
Less accumulated depreciation 51,818 48,525
Net equipment 19,072 18,123
Net property and equipment 36,035 37,691
Property Held for Sale 1 2,587
Other Assets (less accumulated amortization of
$11,683 in 1995 and $9,057 in 1994) 1, 2, 11 8,415 8,712
Total $124,546 $131,691
</TABLE>
See notes to consolidated financial statements.
-14-
<PAGE>
<TABLE>
<CAPTION>
June 30, 1995 and June 24, 1994 (In thousands of dollars except share data)
Liabilities and Stockholders' Equity Notes June 30, 1995 June 24, 1994
<S> <C> <C>
Current Liabilities:
Accounts payable $ 7,158 $ 6,702
Federal and state income taxes 1, 12 2,506 2,519
Accrued profit-sharing distribution 6 2,408 2,627
Accrued payroll expense 5,731 5,466
Accrued employee benefit expense 7, 8 6,005 5,637
Deferred revenue 1 1,691 1,233
Accrued exit costs/restructuring charge 9, 10 2,020 1,887
Other accrued expenses 4,650 4,347
Total current liabilities 32,169 30,418
Deferred Income Taxes 1, 12 854 1,794
Commitments and Contingencies 3
Stockholders' Equity:
Preferred stock 4
Common stock, par value, $1 per share -
authorized, 40,000,000 shares; issued,
15,769,501 shares in 1995 and 15,571,803
shares in 1994; outstanding 14,856,541
shares in 1995 and 15,466,219 shares in 1994 4, 5 15,770 15,572
Additional paid-in capital 12,450 9,480
Cumulative foreign currency translation
adjustment 1 (1,683) (2,152)
Retained earnings 82,412 78,306
Total 108,949 101,206
Less treasury stock, at cost - 912,960 shares in
1995 and 105,584 shares in 1994 4 17,426 1,727
Total stockholders' equity 91,523 99,479
Total $124,546 $131,691
</TABLE>
See notes to consolidated financial statements.
-15-
<PAGE>
Statements of Consolidated Income
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30, 1995, June 24, 1994 and June 25, 1993 (In
thousands of dollars except per share data)
Notes 1995 1994 1993
<S> <C> <C> <C>
Net Sales 1 $263,724 $251,253 $237,144
Operating Expenses:
Cost of sales including shipping costs 94,502 92,166 90,370
Selling and advertising 1 71,002 67,685 70,957
General and administrative 6, 7, 8 69,069 59,607 53,016
Exit costs 9 1,964
Restructuring charge 10 5,450
Total operating expenses 236,537 224,908 214,343
Income From Operations 27,187 26,345 22,801
Other Income (Expense):
Investment income 1,305 1,254 1,307
Interest expense (18)
Total other income 1,305 1,254 1,289
Income Before Income Taxes 28,492 27,599 24,090
Provision for Income Taxes 1, 12 11,818 12,036 9,873
Net Income Before Equity in
Losses of Investment 16,674 15,563 14,217
Equity in Losses of Investment 2 (376)
Net Income $ 16,298 $ 15,563 $ 14,217
Per Share Amounts: 1
Net Income $1.07 $1.01 $.93
Dividends $.80 $.80 $.80
Weighted Average Number of
Shares Outstanding 1 15,245 15,364 15,269
</TABLE>
See notes to consolidated financial statements.
-16-
<PAGE>
Statements of Consolidated Stockholders' Equity
For the Fiscal Years Ended June 30, 1995, June 24, 1994 and June 25, 1993 (In
thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Issued Foreign
Number At Par Additional Currency
of Value Paid-In Treasury Translation Retained
Notes Shares Amount Capital Stock Adjustment Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 26, 1992 15,397 $ 15,397 $6,908 $ (2,399) $ 1,185 $73,033 $ 94,124
Issuance of common stock
to employees pursuant to
stock plans 5, 6 12 12 182 592 786
Dividends paid (12,217) (12,217)
Foreign currency
translation adjustment 1 (2,242) (2,242)
Net income 14,217 14,217
Balance, June 25, 1993 15,409 15,409 7,090 (1,807) (1,057) 75,033 94,668
Issuance of common stock
to employees pursuant to
stock plans 5, 6 163 163 2,390 80 2,633
Dividends paid (12,290) (12,290)
Foreign currency
translation adjustment 1 (1,095) (1,095)
Net income 15,563 15,563
Balance, June 24, 1994 15,572 15,572 9,480 (1,727) (2,152) 78,306 99,479
Issuance of common stock
to employees pursuant to
stock plans 5, 6 198 198 2,970 1,299 4,467
Dividends paid (12,192) (12,192)
Acquisition of treasury
stock 4 (16,998) (16,998)
Foreign currency
translation adjustment 1 469 469
Net income 16,298 16,298
Balance, June 30, 1995 15,770 $ 15,770 $ 12,450 $(17,426) $(1,683) $82,412 $ 91,523
</TABLE>
See notes to consolidated financial statements.
-17-
<PAGE>
Statements of Consolidated Cash Flows
<TABLE>
<CAPTION>
For the Fiscal Years Ended June 30, 1995, June 24, 1994 and June 25, 1993 (In
thousands of dollars)
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income $ 16,298 $ 15,563 $ 14,217
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation and amortization 12,676 11,623 9,953
Deferred income taxes (5,062) (1,946) (540)
Exit cost or restructuring charge 1,651 1,887
Provision for losses on accounts
receivable 3,177 2,793 2,742
Employee benefit charges 692 465 370
Changes in assets and liabilities:
Accounts receivable (4,500) (4,630) (3,207)
Inventories and advertising
material (3,346) 462 2,293
Prepaid expenses (1,267) 376 535
Accounts payable 485 (277) (223)
Income taxes payable (12) 928 (845)
Other accrued expenses (881) 2,417 (375)
Net cash provided by operating
activities 19,911 29,661 24,920
Cash Flows From Investing
Activities:
Additions to property and
equipment (10,804) (6,054) (6,475)
Acquisition of product line (334) (9,750)
Investment in unconsolidated
subsidiary (1,800)
Other assets (843)
Purchases of investments (28,438) (36,556) (10,875)
Proceeds from sale of investments 54,649 16,463 13,016
Net cash provided (used) by
investing activities 12,764 (26,481) (14,084)
Cash Flows From Financing
Activities:
Repayment of debt (36) (41) (123)
Proceeds from issuing common stock 3,168 2,633 786
Net treasury stock transactions (15,699)
Dividends paid (12,192) (12,290) (12,217)
Net cash used by financing
activities (24,759) (9,698) (11,554)
Effect of Exchange Rate on Cash 232 (87) (157)
Net Increase (Decrease) in Cash
and Cash Equivalents 8,148 (6,605) (875)
Cash and Cash Equivalents at
Beginning of Year 3,456 10,061 10,936
Cash and Cash Equivalents at End
of Year $ 11,604 $ 3,456 $ 10,061
Supplemental Cash Flow Disclosure:
Income taxes paid $ 13,031 $ 13,425 $ 10,995
Interest paid $ 0 $ 0 $ 118
</TABLE>
See notes to consolidated financial statements.
-18-
<PAGE>
Notes to Consolidated Financial Statements
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, other types of printed business products and related
office 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. All significant intercompany accounts and
transactions have been eliminated in consolidation. 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 classified as available for sale securities and reported at amortized cost,
which approximates fair market value as required by Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Short-term investments are primarily tax-exempt municipal
debt instruments which have a fixed maturity beyond three months. In addition,
the Company holds 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.
Inventories Inventories are carried at the lower of first-in, first-out cost
or market. At year end, inventories consisted of:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw paper $1,130,000 $ 721,000
Business forms and
related office products 8,750,000 7,019,000
Total $9,880,000 $7,740,000
</TABLE>
Direct Mail Advertising The Company adopted the provisions of Statement of
Position 93-7 "Reporting on Advertising Costs" in fiscal 1995. The adoption of
this statement was not material to the Company's financial statements as it
simply amended a previous deferral policy which produced similar results. The
Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefit. Direct-
response advertising consists primarily of product catalogs and associated
mailing costs. Advertising expense included in selling and advertising was
approximately $39,997,000 in 1995.
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. Property held for sale is stated
at the lower of cost or estimated net realizable value and includes certain
facilities and land no longer used in the Company's operations or held for
future expansion.
Other Assets Other assets consisted principally of purchased customer lists,
acquired software, trade name, a covenant not to compete, goodwill, and customer
and other contracts and 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.
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.
Software development costs of $519,000 were capitalized in 1995. No software
development costs were capitalized in 1994 or 1993. 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 $1,450,000, $1,383,000 and $553,000 was charged to
operations in fiscal 1995, 1994 and 1993, respectively. Unamortized costs of
$3,827,000 and $4,849,000 are included in other assets at June 30, 1995 and June
24, 1994, respectively.
-19-
<PAGE>
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 previously followed by the Company.
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.
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.
Concentration of Credit Risk The Company extends credit to approximately 1.3
million geographically dispersed 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, in place, policies 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 Company plans to adopt this statement in the first
quarter of fiscal 1996.
Impairment of Long-Lived Assets The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
is required to be adopted by the Company no later than fiscal year 1997. This
statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The impact of this new standard has not been
fully determined, but is not expected to be material. The date of adoption has
not been determined.
Postemployment Benefits Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" was adopted in the first quarter of
fiscal year 1995. The impact of this adoption was not material to the Company's
financial statements.
Reclassifications Certain reclassifications have been made to the 1994 and
1993 financial statements to conform with the 1995 presentation.
2. Investment in Unconsolidated Subsidiary
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. In addition, the Company has advanced GST approximately
$250,000 in the form of a note. 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. The Company has elected to treat its investment under the
equity method of accounting due to the degree of control it can exercise over
GST's operations. Accordingly, it is recording a share of GST's losses for the
period. The difference between the Company's underlying equity in the net
tangible assets of GST and its investment is being amortized over 10 years.
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 (6.4% at June 30, 1995). This line is
unsecured and may be terminated at any time by either party. At June 30, 1995
and at June 24, 1994, no amounts were outstanding. The minimum rental
commitments for operating leases of certain facilities and equipment total
$1,110,000 in the aggregate, and are payable over the next five years. Total
rental expense was $774,000, $605,000 and $300,000, in 1995, 1994, and 1993,
respectively.
4. Equity Transactions
The Company has issued a stock purchase right to stockholders for each
outstanding share of common stock of the Company. Each right becomes exercisable
upon the occurrence of certain events, as provided in the Rights Agreement, and
entitles the registered holder to purchase from the Company a "Unit" 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
-20-
<PAGE>
and/or other securities, as provided in the Rights Agreement. The rights will
expire on October 20, 2004. The Company may redeem the rights at a price of $.01
per right. On October 20, 1994, the Company announced a plan to repurchase up to
$22,000,000 of its common stock in the open market. The repurchase plan
terminated on June 30, 1995. As of June 30, 1995, the Company had purchased
881,750 shares at a cumulative cost of approximately $16,998,000. There are
1,000,000 authorized and unissued shares of $1.00 par value preferred stock.
5. Stock Options
At the October 1994 annual meeting, the stockholders ratified the NEBS 1994
Key Employee and Eligible Director Stock Option and Stock Appreciation Rights
Plan (the "1994 Plan") and the New England Business Service, Inc. Stock
Compensation Plan (the "Stock Compensation Plan"). Under the 1994 Plan, options
or stock appreciation rights for up to 1,200,000 shares of common stock may be
granted. At June 30, 1995, 971,739 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 terms ranging from one to four 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. Under the Stock Compensation Plan, up to 300,000
shares of common stock may be issued. At June 30, 1995, 300,000 shares are
reserved under this plan for future issuance.
At the October 1990 annual meeting, the stockholders ratified the NEBS 1990 Key
Employee Stock Option and Stock Appreciation Rights Plan (the "1990 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 30, 1995, 30,267 shares are
reserved under this plan for granting of future options. The Company had an
incentive stock option and stock appreciation rights plan ratified by the
stockholders at the October 1980 annual meeting ("the 1980 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. The 1980 Plan
expired in 1990, although outstanding options are still exercisable. There were
no outstanding stock appreciation rights under any of the plans during 1995,
1994 or 1993.
A summary of stock option activity under the plans and other arrangements during
1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Number of shares:
Subject to option at
beginning of year 1,140,743 918,214 641,843
Granted during the year 373,976 512,073 312,441
Exercised at $14.50
to $20.25 per share (197,333) (162,836) (11,657)
Expired (92,874) (126,708) (24,413)
Subject to option at
end of year 1,224,512 1,140,743 918,214
Grant price per share $17.50-18.75 $15.88-16.25 $ 14.75
Options outstanding
at end of year:
Aggregate option price $ 21,390,000 $ 19,526,000 $ 16,414,000
Expiration dates 1995 to 2004 1994 to 2003 1993 to 2002
Shares as to which
options are exercisable 781,264 691,443 592,560
Price range of
outstanding options $14.50-25.25 $14.50-25.25 $14.50-25.25
</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 1995, 1994,
and 1993, distributions under the plans (which were charged to general and
administrative expense) aggregated $3,620,000, $3,133,000, and $2,891,000,
respectively. The Company also has a 401(k) plan covering substantially all
domestic employees eligible to participate in the Company's profit-sharing 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 76,286 shares in 1995,
41,427 shares in 1994, and 27,943 shares in 1993 with a fair market value of
approximately $1,337,000, $650,000, and $450,000, respectively (which were
charged to general and administrative expense). At June 30, 1995, 111,668 shares
are reserved for issuance under this plan.
-21-
<PAGE>
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 the 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 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1,481,000 $ 1,431,000 $ 1,241,000
Interest cost on projected
benefit obligation 1,886,000 1,694,000 1,521,000
Actual return on
plan assets (3,753,000) (188,000) (2,728,000)
Net amortization
and deferral 1,008,000 (2,534,000) 266,000
Net pension cost $ 622,000 $ 403,000 $ 300,000
</TABLE>
The following table sets forth the plan's funded status and obligations as of
June 30, 1995 and June 24, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$18,259,000 in 1995 and
$14,649,000 in 1994 $ 18,826,000 $ 15,399,000
Projected benefit obligation $(26,939,000) $(23,643,000)
Plan assets at fair value,
primarily stocks and bonds 27,224,000 24,193,000
Plan assets in excess of
projected benefit obligation 285,000 550,000
Add prior service cost 1,923,000 2,508,000
Less:
Unamortized net asset at
transition 1,640,000 1,903,000
Unrecognized net gain 4,516,000 4,480,000
Net pension liability (included in
accrued employee benefit expense) $ (3,948,000) $ (3,325,000)
</TABLE>
Assumptions used in calculating the obligations as of June 30, 1995 and June 24,
1994 were:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Discount rate 7.8% 8.3%
Rate of increase in compensation
levels 5.0 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")
requires the accrual of postretirement benefits other than pensions (such as
health care benefits) during the years an employee provides service to the
Company. 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
following table sets forth the plan's funded status and obligations as of June
30, 1995 and June 24, 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 401,000 $ 372,000
Eligible active plan participants 69,000 59,000
Other active plan participants 361,000 278,000
APBO 831,000 709,000
Plan assets at fair value 0 0
Accumulated postretirement benefit obligation in
excess of plan assets 831,000 709,000
Unrecognized net gain 106,000 174,000
Net postretirement liability (included in accrued
employee benefit expense) $ 937,000 $ 883,000
</TABLE>
The components of postretirement benefits cost for 1995, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 27,000 $ 23,000 $ 23,000
Interest on accumulated postretirement
benefit obligation 58,000 53,000 56,000
Amortization of gain (15,000) (14,000) (9,000)
Net periodic postretirement cost $ 70,000 $ 62,000 $ 70,000
</TABLE>
For measurement purposes, a 12% annual rate of increase in the cost of
providing medical benefits was assumed in 1995, 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 7.8% in 1995 and 8.3% in 1994. 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
$133,000 and the net periodic postretirement benefits cost by $13,000.
-22-
<PAGE>
9. Exit Costs
During the third quarter of fiscal 1995, the Company made the decision to
close its Wisconsin based SYCOM subsidiary and to integrate SYCOM's activities
into other of the Company's operations. As such, the Company recorded a
$1,964,000 pretax charge for exit costs associated with the SYCOM closure. The
charge consisted of facilities and equipment write-offs of approximately
$792,000 and termination benefits of approximately $1,172,000. Approximately 100
employees were terminated as a result of the facility closing. As of June 30,
1995 approximately $313,000 has been expended related to termination benefits
with substantially all of the remaining $859,000 to be expended during fiscal
year 1996. The closure of the facility is expected to be substantially completed
over the next two quarters.
10. Restructuring Charge
During fiscal 1994, the Company recorded a $5,450,000 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
addition, approximately $150,000 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. Approximately $4,481,000 of the total
anticipated cash outflows were made as of June 30, 1995 with substantially all
of the remaining $219,000 of cash outflows to be made pursuant to severance and
other agreements during fiscal 1996.
11. Acquisition of Product Line
On January 15, 1993, the Company acquired the One-Write Plus ("OWP")
product line from MECA Software, Inc. ("MECA"). The total purchase price
amounted to $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 was allocated to the net assets acquired based on the fair value
of such assets and liabilities. A large portion of the purchase price was
allocated to specifically identifiable intangibles.
12. Income Taxes
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
United States $26,900,000 $25,238,000 $20,815,000
Canadian 1,592,000 2,361,000 3,275,000
Total $28,492,000 $27,599,000 $24,090,000
</TABLE>
Provisions for income taxes under SFAS No. 109 in 1995 and 1994 and SFAS No. 96
in 1993 consisted of:
Currently payable:
<TABLE>
<S> <C> <C> <C>
Canadian 1,592,000 2,361,000 3,275,000
Federal $11,931,000 $ 9,837,000 $ 6,706,000
State 4,232,000 3,145,000 2,400,000
Canadian 684,000 978,000 1,320,000
Total 16,847,000 13,960,000 10,426,000
Deferred (5,029,000) (1,924,000) (553,000)
Total $11,818,000 $12,036,000 $ 9,873,000
</TABLE>
Cumulative earnings of the Company's Canadian subsidiary are subject to
withholding taxes of approximately $1,806,000 in the event such earnings are
distributed to the U.S. 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 30, 1995 are as follows:
<TABLE>
<CAPTION>
Current Noncurrent
<S> <C> <C>
Deferred tax assets:
Amortization of intangible assets $2,542,000
Pension plans 1,758,000
Accrued vacation 1,265,000
Allowance for doubtful accounts 1,237,000
Accrued expenses 936,000
Accrued exit costs 693,000
Sales returns and allowances 459,000
Inventory 397,000
Postretirement benefits 391,000
Deferred tax liabilities:
Depreciation $ (689,000)
Other (165,000)
Net deferred tax asset (liability) $9,678,000 $ (854,000)
</TABLE>
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:
Pension plans $ 1,486,000
Allowance for doubtful accounts 1,120,000
Accrued restructuring charge 678,000
Accrued vacation 642,000
Inventory 572,000
Sales returns and allowances 405,000
Postretirement benefits 397,000
Accrued expenses 160,000
Other $ 100,000
Deferred tax liabilities:
Depreciation $(1,603,000)
Other (191,000)
Net deferred tax asset (liability) $5,460,000 $(1,694,000)
</TABLE>
-23-
<PAGE>
A reconciliation of the provisions for income taxes to the U. S. Federal income
tax statutory rates follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
State income taxes (less federal tax benefits) 6.5 6.4 6.2
Other - net 2.2 (0.8)
Effective tax rate 41.5% 43.6% 41.0%
</TABLE>
13. Financial Information by Geographic Area
The Company markets its products directly to very small businesses and
professional offices in the United States, Canada and the United Kingdom.
Profit from operations represents 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)
1995 Domestic International Consolidated
<S> <C> <C> <C>
Net sales $241,844 $21,880 $263,724
Income from operations 26,511 676 27,187
Identifiable assets 103,868 20,678 124,546
<CAPTION>
1994
<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
<CAPTION>
1993
<S> <C> <C> <C>
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
</TABLE>
14. Quarterly Financial Information (Unaudited)
The following financial information is in thousands of dollars except per
share amounts.
<TABLE>
<CAPTION>
First Second Third Fourth Total
1995 Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net sales $62,079 $69,479 $68,832 $63,334 $263,724
Gross profit 40,038 44,989 44,212 39,983 169,222
Income before income taxes 8,239 9,202 4,387 6,664 28,492
Net income 4,633 5,259 2,570 3,836 16,298
Earnings per share $ .30 $ .34 $ .17 $ .26 $ 1.07
Dividends per share $ .20 $ .20 $ .20 $ .20 $ .80
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1994
<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
</TABLE>
-24-
<PAGE>
Management Discussion and Analysis
Liquidity and Capital Resources
Cash provided by operating activities was $19.9 million in 1995
representing a 33.0% decrease from the $29.7 million provided in 1994. This
decrease was primarily the result of a payment of additional taxes resulting
from the Company's most recent Federal audit and increased inventory investment.
In 1994, cash from operations increased $4.7 million from 1993 due to higher
operating earnings as well as the effects of depreciation, amortization and the
unexpended restructuring reserve.
Working capital at June 30, 1995 amounted to $45.3 million including $23.0
million of cash and short-term investments. This compares to $54.9 million of
working capital including cash and short-term investments of $41.0 million at
the end of fiscal 1994. The decrease in working capital was due primarily to the
repurchase of $17.0 million of the Company's common stock on the open market in
accordance with the authorization to purchase up to $22.0 million of the
Company's common stock announced in October, 1994. The decrease in working
capital was also due in part to the Company's expenditure of $1.8 million
related to the acquisition of a 19 percent equity interest in GST Software, plc
(GST) together with an option to purchase the balance of GST shares.
Capital expenditures of $10.8 million in 1995 represented a significant
increase over the $6.1 million and $6.5 million expended during 1994 and 1993,
respectively. The capital expenditures in fiscal 1995 included investment in
electronic prepress equipment and digital imaging presses to meet the growing
demand for short-run color printing. In addition, the Company upgraded its
customer service and order handling systems. Expenditures in fiscal 1994 and
1993 were lower due to cost containment activities. 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
1995 versus 1994 Net sales increased 5.0% from $251.3 million in 1994 to
$263.7 million in 1995. This sales increase was composed of price increases of
2.1% or $5.3 million, volume growth of approximately 1.8% or $4.5 million and
the impact of the additional week in fiscal year 1995 of 1.1% or $2.7 million.
The primary source of growth for the year was from increased sales of
computer forms and image products. These products accounted for approximately
57% and 34% of the net sales growth, respectively.
Cost of sales decreased from 36.7% of sales in 1994 to 35.8% of sales in
1995. This decrease was the result of product price increases, stable material
costs and reduced spoilage. It is expected that the cost of paper will
increase in the foreseeable future due to strong demand and limited capacity in
the paper industry. The Company has taken steps necessary to mitigate the
impact including the acceleration of paper purchases. The Company anticipates
being able to offset the potential impact of a paper cost increase with product
price actions and cost reduction initiatives during fiscal year 1996.
Selling and advertising expenses remained stable at 26.9% of sales in 1994
and 1995. More effective promotional programs, better targeted mailings to
customers and the impact of last year's restructuring program were primarily
responsible for the stability in these costs. The United States Postal Service
increased third class postage rates by approximately 14% in January, 1995. The
Company has reduced the size and weight of some mail pieces and eliminated
marginal mailings to compensate for a portion of the postage increase. The
Company anticipates being able to offset similar cost increases with product
price increases in the future.
General and administrative expenses increased from 23.7% of sales in 1994
to 26.2% of sales in 1995. This increase was the result of costs associated with
servicing the Company's expanded software product line, capital improvements to
the Company's order processing system, and costs associated with the Company's
retail channel initiatives.
During fiscal 1994 the Company recorded a $5.45 million pretax charge
related to a restructuring program. As of June 30, 1995 approximately $.4
million remains in the reserve. The remaining amounts will be expended pursuant
to severance and other agreements during fiscal 1996.
During the third quarter, the Company recorded a $2.0 million pretax charge
or $.07 per share, for exit costs related to the closure of the Company's
Wisconsin based SYCOM facility. The $2.0 million pretax charge for exit costs
consisted of (i) approximately $1.2 million of anticipated cash payments for
postemployment benefits in conjunction with the termination of approximately 100
employees, and (ii) approximately $.8 million for anticipated non-cash
facilities and equipment write-offs. As of June 30, 1995, approximately $.3
million has been expended related to the termination of approximately 100
employees, with the remainder expected to be expended during fiscal 1996.
The Company also incurred pretax integration expense of approximately $.9
million during fiscal 1995. The integration expense included systems conversion,
personnel and equipment relocation and related transition expenditures and was
included in
-25-
<PAGE>
other operating expenses. When fully completed, the integration is expected to
save the Company about $1.8 million annually.
The Company will continue to seek opportunities to enhance the cost
structure of the Company, to improve operating efficiencies, and to fund
investments in support of the Company's strategy. The provision for income taxes
as a percentage of pretax income decreased from 1994 to 1995 due primarily to
higher tax free interest yields on the Company's tax-free marketable securities
portfolio.
In fiscal year 1995, the Company's adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment
Benefits" and SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" were not significant to the financial statements.
1994 versus 1993 Net sales in 1994 increased 6.0% to $251.3 million from $237.1
million in 1993. 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. Computer forms, One-Write Plus software, image products and custom
forms 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, stable material
costs, improved productivity and effective production cost management. Selling
and advertising expenses decreased from 29.9% of sales in 1993 to 26.9% in 1994.
This decrease reflected cost reduction actions 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 the Company's expanded
software product line.
During 1994, the Company recorded a $5.45 million pretax charge related to
a restructuring program. The restructuring charge consisted of approximately
$4.7 million of anticipated cash payments related to employee termination and
other employment benefits. In addition, approximately $.2 million was related to
the noncash write-down of operating assets and approximately $.6 million was
related to the anticipated cash outflows for facility closings and relocation
costs. Approximately $4.5 million of the total anticipated cash outflows were
made as of June 30, 1995 with substantially all of the remaining $.2 million of
cash outflows to be made pursuant to severance and other agreements.
The provision for income taxes as a percentage of pre-tax income increased
from 1993 to 1994 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 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.
Other
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" was issued in March, 1995 and must be
adopted no later than fiscal year 1997. SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments" was issued in December, 1991 and must be adopted
no later than fiscal 1996. The Company plans to adopt these Statements within
the required period and does not expect that either of them will have a material
effect on its financial position or results of operations.
Common Stock
The Company's Common Stock was traded in the over-the-counter market and
quoted on the NASDAQ National Market System until February 24, 1995 when the
Company transferred the listing and trading of the Company's Common Stock to the
New York Stock Exchange ("NYSE"). High and low bid prices of the Company's
Common Stock for each quarter by NASDAQ and the NYSE were as follows:
<TABLE>
<CAPTION>
Fiscal 1995 High Low Fiscal 1994 High Low
<S> <C> <C> <C> <C> <C>
1st Quarter 19 1/2 17 1/4 1st Quarter 17 1/4 15 1/2
2nd Quarter 19 1/4 16 1/4 2nd Quarter 19 3/4 14 3/4
3rd Quarter 20 17 3/4 3rd Quarter 21 3/4 18 1/4
4th Quarter 22 3/8 16 3/4 4th Quarter 21 3/4 17 3/4
</TABLE>
-26-
<PAGE>
Independent 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 30, 1995 and June 24,
1994, 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 30, 1995. 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 Company at June 30, 1995
and June 24, 1994 and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
July 28, 1995
-27-
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Corporate Officers
Richard H. Rhoads
William C. Lowe
Edward M. Bolesky,
Timothy D. Althof,
Sally C. Davis,
Robert S. Brown, Jr.
Gerald G. Kokos,
Russell V. Corsini, Jr.,
Kenneth R. Kaisen,
Michael F. Dowd
John F. Fairbanks,
Peter J. Zarrilla
Linda A. Jacobs,
Thomas W. Freeze,
Steven G. Schlerf (Not Pictured)
Page 28 Photographs of NEBS Corporate Officers: Richard H. Rhoads,
William C. Lowe, Edward M. Bolesky, Timothy D. Althof,
Sally C. Davis, Robert S. Brown, Jr., Gerald G. Kokos,
Russell V. Corsini, Jr., Kenneth R. Kaisen, Michael F. Dowd,
John F. Fairbanks, Peter J. Zarrilla, Linda A. Jacobs, and
Thomas W. Freeze
-28-
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Corporate Information
Board of Directors
Richard H. Rhoads
Chairman of the Board,
New England Business Service, Inc.
Peter A. Brooke
Chairman and
Chief Executive Officer, Advent International Corporation
Benjamin H. Lacy
President,
Clipper Ship Foundation, Inc.
William C. Lowe
President,
Chief Executive Officer,
New England Business Service, Inc.
Robert J. Murray
Executive Vice President,
North Atlantic Group,
The Gillette Company
Frank L. Randall, Jr.
Vice Chairman (retired),
North American Phillips Corporation
Jay R. Rhoads, Jr.
Chairman of the Board (retired), New England Business Service, Inc.
Brian E. Stern
President,
Personal Document Products Division,
Xerox Corporation
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.
Organization and
Compensation Committee
Peter A. Brooke
Benjamin H. Lacy
Robert J. Murray
Stock Option Committee
Peter A. Brooke
Robert J. Murray
NEBS Foundation Directors
Peter A. Brooke
Benjamin H. Lacy
Jay R. Rhoads, Jr.
Corporate Officers
William C. Lowe
President,
Chief Executive Officer
Timothy D. Althof
Vice President,
Corporate Controller
Edward M. Bolesky
Vice President-
General Manager,
Business Solutions
and Operations
Robert S. Brown, Jr.
Vice President-
General Manager, Subsidiaries
Russell V. Corsini, Jr.
Vice President,
Chief Financial Officer
Sally C. Davis
Vice President-
Business Planning
and Development
Michael F. Dowd, Esq.
Vice President-
General Manager, Corporate Marketing
and Strategy
John F. Fairbanks
Treasurer and Secretary
Thomas W. Freeze
Vice President- Finance and Administration,
Image Products
Linda A. Jacobs
Vice President-
General Manager,
Image Products
Kenneth R. Kaisen
Vice President- General Manager, Business Solutions Marketing
and Information Systems
Gerald G. Kokos
Vice President-
General Manager,
Software and Services
Steven G. Schlerf
Vice President- Image Manufacturing and Product Development
Peter J. Zarrilla
Vice President-
Human Resources
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 27, 1995 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
100 Federal Street
Boston, Massachusetts
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New England Business Service, Inc.
500 Main Street, Groton, Massachusetts 01471
Printed on Recycled Paper
40% Pre-Consumer Content
10% Post-Consumer Content
Outside Back Cover Graphics of NEBS logo
