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

                                   FORM 10-K
(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934
                    For the fiscal year ended June 30, 2001

                                      OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

   For the transition period from     to

                          Commission File No. 1-11427

                               ----------------
                      NEW ENGLAND BUSINESS SERVICE, INC.
            (Exact name of registrant as specified in its charter)

               Delaware                              04-2942374
    (State or other jurisdiction of     (IRS Employer Identification number)
    incorporation or organization)

            500 Main Street                             01471
         Groton, Massachusetts                       (Zip Code)
    (Address of principal executive
               offices)

      Registrant's telephone number, including area code: (978) 448-6111

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

<TABLE>
<CAPTION>
                                            Name of each exchange
             Title of each class             on which registered
             -------------------           -----------------------
         <S>                               <C>
          Common Stock ($1.00 par value)   New York Stock Exchange
          Preferred Stock Purchase Rights  New York Stock Exchange
</TABLE>

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

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                               Yes [X]    No [_]

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

   The aggregate market value of the Registrant's Common Stock, par value
$1.00 per share, held by stockholders who are not affiliates of the Registrant
at August 22, 2001 as computed by reference to the closing price of such stock
on that date was approximately $245,101,063.

   The number of shares of Registrant's Common Stock, par value $1.00 per
share, outstanding at August 22, 2001 was 12,570,858.

Documents Incorporated By Reference

   Portions of the Proxy Statement sent to stockholders in connection with the
Annual Meeting to be held on October 26, 2001 are incorporated by reference
into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy Statement,
except for the parts therein which have been specifically incorporated by
reference, shall not be deemed "filed" for the purposes of this report on Form
10-K.

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                                    PART I

ITEM 1. BUSINESS

   New England Business Service, Inc. (the "Company") was founded in 1952,
incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986.
The Company designs, produces and distributes business forms, checks,
envelopes, labels, greeting cards, signs, stationery and related printed
products, and distributes packaging, shipping and warehouse supplies,
software, work and promotional apparel, advertising specialties and other
business products through direct mail, direct sales, telesales, dealers and
the Internet to small businesses throughout the United States, Canada, the
United Kingdom and France. The Company also designs, embroiders and sells
specialty apparel products through distributors and independent sales
representatives to the promotional products/advertising specialty industry,
primarily in the United States. During the past five years the Company has
completed several acquisitions which are described below.

   In January 1997, the Company acquired the outstanding stock of Standard
Forms Limited ("SFL"), a U.K-based company for consideration of approximately
$4.3 million. SFL markets a line of business forms and stationery by direct
mail and through a direct sales force, principally to automotive accounts in
the U.K. and France.

   In March 1997, the Company acquired substantially all of the assets and
assumed certain liabilities of Chiswick Trading, Inc. ("Chiswick") for
consideration of approximately $34.6 million in cash (net of cash acquired)
and approximately $8.4 million in Company common stock. Chiswick markets a
line of retail and industrial packaging, shipping and warehouse supplies sold
primarily by direct mail to small wholesalers, manufacturers and retailers.

   In December 1997, the Company acquired all of the outstanding common stock
of Rapidforms, Inc. ("Rapidforms") for consideration of approximately $82.1
million in cash (net of cash acquired). Rapidforms designs, produces and
markets business forms, business supplies, holiday greeting cards and
promotional products sold principally by direct mail to small businesses
across the United States. As part of the Rapidforms acquisition, the Company
also acquired Rapidforms' wholly-owned subsidiary, Russell & Miller, Inc.,
which primarily sells in-store retail merchandising supplies.

   In June 1998, the Company acquired all of the outstanding common stock of
McBee Systems, Inc. and all of the assets of McBee Systems of Canada, Inc.
(collectively "McBee") for consideration of approximately $48.5 million in
cash (net of cash acquired) and $12.6 million in Company common stock. McBee
manufactures and markets checks and related products to small businesses in
the United States and Canada through a dedicated field sales force.

   In July 2000, the Company acquired all the outstanding shares of
PremiumWear, Inc. ("PremiumWear"). The purchase price was $13.50 per share in
cash and totaled approximately $39.0 million (net of cash acquired) for the
shares plus debt assumed of $3.9 million. PremiumWear designs, embroiders and
sells specialty apparel products through distributors and independent sales
representatives to the promotional products/advertising specialty industry,
primarily in the United States.

   Over the past several years, management has assessed the operations of the
company in several different ways. In the first quarter of fiscal year 2001,
the Company further changed its internal reporting for segments. This change
was precipitated by the acquisition of PremiumWear and the realignment of the
Company's international subsidiaries. The Company has now identified five
reportable segments. Prior year figures have been restated so as to match the
current year presentation. The first segment is "Direct Marketing-US" and
represents those business operations that sell primarily printed products such
as checks and business forms to small businesses through direct marketing in
the United States. The second segment, "Direct Sales-US," also sells primarily
checks and business forms to small businesses; however, they sell primarily
through distributors or by directly selling to the customer in the United
States. The third segment, "Apparel", utilizes independent sales

                                       2
<PAGE>

representatives to market its specialty apparel products and to solicit orders
from customers in the promotional products/advertising specialty industry.
"Packaging and Display Products", the fourth segment, primarily resells
packaging and shipping supplies and retail signage marketed through both
direct marketing and direct selling efforts. The fifth segment,
"International", sells primarily printed products such as checks and business
forms to small businesses in Europe and Canada through direct marketing,
distributors or a direct sales force.

   Additional financial information regarding the segments, including the net
sales and operating profit attributable to each of the Company's segments for
the last three fiscal years, is contained in the Notes to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.

Products

   The Company's product lines consist of an extensive range of standardized
imprinted manual and computer forms, custom forms, checks and check writing
systems, envelopes, labels, greeting cards, signs, stationery and other
printed products principally designed and imprinted in-house. Most forms are
either specifically designed for individual lines of business or are of a type
generally used by small businesses and professional offices. In addition, the
Company distributes a variety of other business products commonly used by
small businesses, including merchandising displays, presentation folders,
promotional products, work apparel and software. These products are primarily
sold by the companies in the Direct Marketing-U.S., Direct Sales-U.S. and
International segments. The Company, primarily through its Packaging and
Display Products segment, also distributes a variety of industrial shipping
and packaging products including corrugated boxes, polyethylene bags, tape,
labels and shrink wrap as well as retail packaging supplies such as bags,
ribbons, gift wrap and bows. The Company's full range of products is enhanced
by high quality, fast delivery, competitive prices and extensive product
guarantees.

   The Company's standard manual forms include billing forms, work orders, job
proposals, purchase orders, invoices and personnel forms. Standard manual
forms are designed to provide small businesses with the financial and other
business records necessary to efficiently manage a business. The Company's
stationery line, including letterhead, envelopes and business cards, is
available in a variety of formats and ink colors designed to provide small
businesses with a professional image. Checks and check writing systems are
designed to facilitate payments, the recording of transactional information
and the posting of related bookkeeping entries.

   The Company also offers a full line of printed products compatible with
most accounting software packages commonly used by small businesses. The
Company's computer forms, including checks, billing forms, work orders,
purchase orders and invoices, provide computer compatible records necessary to
efficiently manage a business.

   Promotional products, including labels, pricing tags, signage, advertising
specialties, presentation folders and greeting cards, are designed to fulfill
a variety of selling and marketing activities and to provide small businesses
with a professional image. Additionally, the Company markets a line of filing
systems, accountants' supplies and appointment products specifically for use
in small professional offices.

   The majority of the Company's standard products are imprinted to provide
small businesses with a professional image. Standard imprint options include
consecutive numbering, logos, customer names, addresses, and phone numbers.
The Company also offers a wide range of custom printing alternatives and a
custom logo design service.

   The Company also sells the Company ColorsTM line of work apparel, including
an array of jackets, shirts, pants, hats, sweatshirts, and uniforms commonly
worn in the workplace. The Company Colors line may be embroidered with
business names, logos, and employee names to provide a small business with a
coordinated and professional image.

                                       3
<PAGE>

   The Company distributes Form Magic(R), a proprietary form-filling software
package, third-party accounting software including Peachtree's One-Write
Plus(R) and Intuit's Quickbooks(R), and a line of products designed by
MySoftware Company. Software distributed by the Company is designed to perform
a variety of the tasks required to manage and promote a small business, and is
compatible with certain business forms and other printed products offered by
the Company.

   The Company, primarily through its Packaging and Display Products segment,
sells packaging and shipping supplies, including bags and bag closures, bubble
and polystyrene fill, wrapping materials, boxes, tapes and mailers, used
principally by small wholesalers, manufacturers and distributors to package,
distribute and market their products. The Company's line of retail supplies,
including signs, merchandising supplies, bags, ribbons, gift wrap and bows,
are used by small retailers to display, market and package their products.

   The Company, through its PremiumWear subsidiary, sells knit and woven sport
shirts under the Munsingwear(R), Jockey(R) and Field & Stream(R) labels to
promotional products/advertising specialty customers pursuant to licenses from
Perry Ellis International, Inc., Jockey International and Field & Stream
Licensing, respectively. The Company sells its Page & Tuttle(R) brand of knit
golf shirts and coordinated apparel to advertising specialty customers and
golf course pro shops throughout the U.S. Distribution of PremiumWear products
to customers is through a network of independent sales representatives. Also,
PremiumWear receives commission income from representing other companies'
products to the promotional products industry.

   For a further discussion of the risks and uncertainties associated with
customer preferences and the market for forms and related printed products and
apparel, see "Certain Factors That May Affect Future Results" included in Part
II, Item 7 to this Annual Report on Form 10-K.

Product Development and Research

   Products sold by all of the Company's segments are designed either by an
in-house product development staff or are obtained from third-party sources.
The Company relies upon direct field research with customers and prospects,
focus groups, mail surveys, feedback from distributors, salespeople and
representatives, and unsolicited suggestions to generate new product ideas.
Product design efforts are accomplished or directed by Company design
personnel who employ manual and computer design methods to create products.
Product design efforts range from minor revisions of existing manual business
forms to the creation of an entirely new line of products such as the Company
Colors line of work and promotional apparel. Throughout the design process,
the Company solicits comments and feedback from customers and prospects, and
tests market acceptance through a variety of methods.

   For a further discussion of the risks and uncertainties associated with the
technological changes affecting future demand for the Company's business forms
and related products, see "Certain Factors That May Affect Future Results"
included in Part II, Item 7 to this Annual Report on Form 10-K.

Sales and Marketing

   The Company has four distinct channels of distribution. The Company's
primary channel, used by all segments except for PremiumWear, is direct mail,
in which up to 100 million pieces of promotional advertising offering the
Company's products are delivered by mail to customers and prospective
customers each year under the NEBS(R), RapidForms(R), McBee(R), Chiswick(R),
Histacount(R), SYCOM(R), R&M Retail Merchandising Products(R), Visual Display
SolutionsTM, Bags & BowsTM, NCS National Clothier Supply(R), Main Street(R),
Holiday Expressions(R), Ad IdeasTM, ASH(R), NAPCO(R), Education Matters(R),
Company ColorsTM, Business EnvelopesTM and SFLTM brand names. The Company's
direct mail efforts are supplemented by the prospecting and account
development efforts of an outbound telemarketing group.

   The Company's success to date has largely been the result of effective
direct marketing and the strength of its customer relationships. Targeted
direct mail marketing in combination with focused telemarketing allows the

                                       4
<PAGE>

Company to identify and penetrate geographically dispersed but, in the
aggregate, significant markets. The Company targets small businesses with 100
or fewer employees within these markets with specialized promotions and
products specifically designed to meet small business needs. In the direct
mail channel, the Company's promotional materials contain one or more order
forms to be completed by the customer and either mailed, faxed or telephoned
to the Company's telesales and customer service group. The Company and its
subsidiaries also maintain numerous Internet sites for promotion, customer
education and order taking.

   The Company's promotional materials include several catalogs containing a
comprehensive display of the Company's forms and checks, work and promotional
apparel, packaging supplies and retail merchandising supplies product
offerings. In addition, the Company utilizes smaller catalogs focused on
specific products or targeted to a specific small business segment,
promotional circulars with samples, flyers, and inserts included with
invoices, statements and product shipments. To a lesser extent, the Company
relies on advertising space in magazines and post card packages to generate
sales leads from prospective customers. The Company utilizes the United States
or the local country postal service for distribution of most of its
advertising materials.

   The Company's second principal channel of distribution, used primarily by
the Direct Sales-U.S. and Packaging and Display Products segments, is through
a field sales organization of over 400 employees, primarily dedicated to
marketing McBee brand checks and check writing systems, Chiswick brand
packaging and shipping supplies, or Russell & Miller brand retail
merchandising and display products. Initial order support, product reorders
and routine service in the direct sales channel is provided by a network of
customer service representatives located throughout the United States and
Canada.

   The principal focus of the McBee sales force in the Direct Sales-U.S.
segment is to generate first-time buyers for check and check writing system
products. Prospective customer leads are generated for the McBee sales force
under referral arrangements with accountants servicing small businesses and
commercial banks representing approximately 26,000 geographically dispersed
branch offices. The McBee sales effort typically targets small business
customers with fewer than 10 employees.

   The principal focus of the Chiswick and Russell & Miller sales forces in
the Packaging and Display Products segment is to develop high-potential
customer relationships initially established through the direct mail channel.
The Chiswick and Russell & Miller sales efforts typically support businesses
with more than 100 employees or retail chains with geographically dispersed
store locations.

   The Company's third principal distribution channel is a network of
independent dealers used primarily by the Direct Sales-U.S. segment. The
Company distributes a full line of private label standard and custom printed
products, including manual and computer forms, checks, greeting cards and
labels through this dealer network. The Company's approximately 25,000
independent dealers typically include local printers, business forms dealers,
stationers, computer stores and system houses.

   The Company's PremiumWear subsidiary represents the fourth channel of
distribution by utilizing independent sales representatives to market its
products and to solicit orders from customers. All products are distributed to
customers through PremiumWear's distribution facility in Tennessee.

   The Company also has entered into alliance marketing agreements with third-
party vendors to offer payroll, accounting, web-page development, and direct
marketing services to the company's customers. Revenue from these alliances is
generated in the form of royalties and commissions received from the third-
party vendors.

   The Company believes that its sophisticated and extensive marketing
database, customer/prospect lists and referral sources used by most segments
constitute a competitive advantage. The Company is able to select names and
plan promotions based on a variety of attributes including status as a
customer or prospect, line of business, product purchase history, purchase
frequency or purchase dollar volume. With this data, the Company is able to
create and deliver cost-effective marketing programs to small businesses
through direct mail, direct sales, outbound telemarketing, the Internet or the
dealer channel.

                                       5
<PAGE>

   For a further discussion of the risks and uncertainties associated with the
small business market and the Company's various channels see "Certain Factors
That May Affect Future Results" included in Part II, Item 7 to this Annual
Report on Form 10-K.

Raw Materials, Production and Distribution

   The Company's production and distribution systems for all segments are
designed to process a high volume of small dollar orders on a cost-effective
basis. The production and procurement of printed product base stock is driven
by forecasts of demand for the Company's printed products. The Company
produces semi-finished base business forms, check stock and related products
in long runs on high-speed, roll-fed presses from bond and carbonless papers.
The bond and carbonless papers used by the Company to produce base stock are
purchased from a limited number of vendors at competitive prices. The Company
also purchases printed base stock from a number of industry sources at
competitive prices.

   In response to a customer order for a printed product, the Company's base
printed products are personalized with a variety of imprint options including
customer name, address, phone number, consecutive numbering and logo. The
Company operates equipment specifically designed to meet the demands of short-
run personalized printing. Typesetting and imprinting of customer headings are
accomplished with computerized typesetters, platemaking systems, letter
presses, offset presses and digital presses. In addition, the Company utilizes
manual and semi-automatic bindery equipment. A number of the Company's
imprinting presses have been designed internally or substantially modified to
meet the short-run demands of small businesses. These specialized presses
allow the Company to produce small-order quantities with greater efficiency
than would be possible with stock equipment available from typical printing
press equipment suppliers.

   During the past three years, primarily from business within the Packaging
and Display Products segment, the Company has experienced an increase in the
revenue generated by the sale of stock business products produced by third
parties, but shipped to customers by the Company, including industrial
packaging and warehouse supplies, and retail supplies. The Company principally
utilizes a "pick and pack" operation to aggregate stock products from
warehoused inventory into distinct order groups and to package these order
groups for shipment to the customer. The Company's stock business products are
obtained from a large number of suppliers at competitive prices. In addition,
the Company relies on a limited number of suppliers to produce and drop-ship
products directly to Company customers. The Company believes that alternative
sources are generally available for products purchased from third-party
vendors, and is continually evaluating its sourcing of these third-party
supplied products. PremiumWear, which comprises the Apparel segment, primarily
sources its product from "full package" manufacturers or garment assembly
companies in various foreign countries. There currently is reasonable
availability of raw materials, manufacturing and assembly capacity for this
product line.

   The Company has no significant backlog of orders. The Company's objective
is to produce and ship product as expeditiously as possible following receipt
of a customer's order. During fiscal year 2001, approximately 70% of printed
products were produced and shipped within one day and approximately 90% within
four days of order. The Company's stock business products are routinely
shipped within 24 hours of receipt of a customer order.

   To facilitate expeditious production and shipment of product, the Company
maintains inventories of unprinted paper and in process apparel ($3.3 million
at June 30, 2001), and partially printed business forms, packaging, shipping
and retail supplies, work and promotional apparel and related business
products ($39.3 million at June 30, 2001).

   The Company ships its products to customers primarily by United Parcel
Service of America, Inc. The Company uses parcel post or overnight delivery
services for distribution of the remainder of its products to customers in the
U.S. and for its international businesses.

   For a further discussion of the risks and uncertainties associated with the
Company's reliance on certain individual third-party vendors to provide raw
materials and services critical to the Company's operation, see

                                       6
<PAGE>

"Certain Factors That May Affect Future Results" included in Part II, Item 7
to this Annual Report on Form 10-K.

Competition

   The small business forms and supplies industry is highly competitive. The
Company believes that it is well positioned in the small business marketplace,
with a reputation for reasonable prices, high quality and reliability and
dependable service.

   The Company's primary competitors for printed products are the local
printers, business forms dealers, contract stationers and office products
superstores located throughout each of its geographic markets. Local printers
have an advantage of physical proximity to customers, but generally do not
have the capability of producing a broad array of products, particularly those
having a complex construction. In addition, most local printers lack the
economies of scale to produce a small order for a single customer on a cost-
effective basis. General purpose, preprinted business forms offered by
stationers and office product superstores are typically price competitive with
the Company's forms, but lack the design and functionality for specific lines
of business and the custom printing options available with the Company's
products. The Company's principal competitors for stock business products are
the numerous local and regional business supplies jobbers, distributors and
retailers throughout the United States and Canada.

   At present, the Company is aware of more than twenty major independent
companies or divisions of larger companies in its geographic markets offering
printed products and business supplies to small businesses through direct
mail, distributors, or a direct sales force. The primary competitive factors
influencing a customer's purchase decision are product guarantees, breadth of
product line, speed of delivery, product quality, price and customer service.
The Company believes it is the leading direct marketer of business forms,
checks and related printed products to the very small business market in the
United States, Canada and the United Kingdom. The Company defines the very
small business market as businesses with fewer than 20 employees.

   The Company's PremiumWear subsidiary operates in the promotional
products/advertising specialty marketplace for apparel which has become
increasingly competitive and is characterized by a number of broad-line
companies. The principal competitive features are pricing, styling, quality
(both in material and production), product availability and customization
services such as embroidery and screen printing.

   For a further discussion of the risks and uncertainties associated with the
competitive landscape for the Company's products, see "Certain Factors That
May Affect Future Results" included in Part II, Item 7 to this Annual Report
on Form 10-K.

Employees

   The Company had 3,819 full and part-time employees at June 30, 2001. The
Company believes its relationship with its employees to be satisfactory.

Environment

   To the Company's knowledge, no material action or liability exists on the
date hereof arising from the Company's compliance with federal, state and
local statutes and regulations relating to protection of the environment.

                                       7
<PAGE>

ITEM 2. PROPERTIES

   The Company's principal executive offices are located in Groton,
Massachusetts. The Company's principal operating facilities consist of
manufacturing, administrative and warehouse facilities and are located in the
United States, Canada, the United Kingdom and France. Of all of its operating
facilities, the Company owns approximately 832,100 square feet in the
aggregate in Flagstaff, Arizona, Groton and Townsend, Massachusetts,
Maryville, Missouri, Peterborough, New Hampshire, Thorofare, New Jersey,
Ogden, Utah, Midland, Ontario and Chester, England, and leases approximately
780,900 square feet in the aggregate in Santa Fe Springs, California, Sudbury,
Massachusetts, Lithia Springs, Georgia, Athens, Ohio, Minnetonka, Minnesota,
Clarksville, Tennessee, Chateau-Renault, France and in approximately 54
locations in the United States and Canada for sales offices.

   The Company believes its existing production and office facilities are
adequate for its present and foreseeable future needs.

ITEM 3. LEGAL PROCEEDINGS

   On June 30, 2000, a lawsuit entitled "Perry Ellis International, Inc. v.
PremiumWear, Inc.", was filed in the Circuit Court of the Eleventh Judicial
Circuit in and for Miami-Dade County, Florida. The case has been removed to
federal court and is currently pending in the United States District Court for
the Southern District of Florida. On April 11, 2001, the court granted the
plaintiff's motion to amend its complaint to add the Company as a co-
defendant. The amended complaint relates to a Right of First Refusal Agreement
dated as of May 22, 1996 (the "RFR Agreement") between the plaintiff and
PremiumWear, Inc., and to the Company's acquisition of all the outstanding
shares of PremiumWear in July 2000. In the amended complaint, the plaintiff
alleges breach of the RFR Agreement and breach of an implied covenant of good
faith and fair dealing against PremiumWear as a result of PremiumWear's
alleged failure to notify the plaintiff of certain discussions between
PremiumWear and the Company preceding the Company's agreement to purchase all
of the outstanding shares of PremiumWear. The amended complaint also alleges
that the Company tortiously interfered with the plaintiff's rights under the
RFR Agreement by allegedly inducing PremiumWear to breach its obligations to
the plaintiff under the RFR Agreement. The plaintiff is seeking damages in an
unspecified amount, attorneys' fees, interest and costs. The Company believes
the allegations in the amended complaint are without merit and intends to
defend the lawsuit vigorously.

   From time to time the Company is involved in other disputes and/or
litigation encountered in the ordinary course of its business. The Company
does not believe that the ultimate impact of the resolution of such other
outstanding matters will have a material effect on the Company's business,
operating results or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal 2001.

ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT

   The Company's executive officers are elected to office by the Board of
Directors at the first board meeting following the Annual Meeting of
Stockholders or at other board meetings as appropriate, and hold office until
the first board meeting following the next Annual Meeting and until a
successor is chosen. Information regarding the Company's executive officers is
presented below.

   Robert J. Murray, age 60, has been Chairman of the Board, President and
Chief Executive Officer of the Company since 1995. Mr. Murray retired from The
Gillette Company, a diversified consumer products company, in 1995, having
been with Gillette for more than 34 years. From 1991 until his retirement in
1995, Mr. Murray was Executive Vice President, North Atlantic Group of
Gillette. Mr. Murray has been a director of the Company

                                       8
<PAGE>

since 1991 and is also a director of LoJack Corporation, Allmerica Financial
Corporation and the Delhaize Group.

   George P. Allman, age 59, joined the Company in 1996, and he has been
Senior Vice President and President--Diversified Operations since 1998. Prior
to that he served as Vice President--Diversified Operations from 1996 to 1998,
and as Vice President--Retail Sales and Operations during 1996.

   David E. Berg, age 44, has been Senior Vice President and President--
PremiumWear since 2000. Mr. Berg joined the Company in 2000 in connection with
the Company's acquisition of PremiumWear, Inc., where he has been President
since 1997. Prior to that, he served as PremiumWear's Executive Vice President
of Sales and Marketing from 1995 to 1997. Mr. Berg has also served as
PremiumWear's Chief Executive Officer since 1999, and he served as Chief
Operating Officer from 1996 to 1999.

   John F. Fairbanks, age 40, joined the Company in 1994, and he has been
Senior Vice President and President--Chiswick since 1998. Prior to that, he
served as Vice President and Chief Financial Officer from 1996 to 1998, as
Vice President and Corporate Controller during 1996, and prior to that in
different capacities in corporate administration.

   Daniel M. Junius, age 49, joined the Company in 1998, and he has been
Senior Vice President, Chief Financial Officer and Treasurer since 1998. Prior
to joining the Company, he served as Vice President--Finance and Chief
Financial Officer of Nashua Corporation, a supplier of specialty imaging
products and services, from 1995 to 1998, and as Treasurer of Nashua
Corporation for more than five years previous to 1995.

   Richard T. Riley, age 45, joined the Company in 1997 in connection with the
Company's acquisition of Rapidforms, Inc., and has been Senior Vice President
and President--NEBS Direct Marketing since July 2001. Prior to that he served
as Senior Vice President and President--Integrated Marketing Services from
2000 to June 2001, and as Senior Vice President and President--Rapidforms from
1998 to 2000. He served as President of Rapidforms, Inc. from 1992 to June
2001, and during 1998 he held the additional title of Vice President of the
Company.

   Steven G. Schlerf, age 49, joined the Company in 1979, and he has been
Senior Vice President--Manufacturing and Technical Operations since 1998.
Prior to that he served as Vice President--Manufacturing and Technical
Operations from 1996 to 1998, and prior to that in a variety of capacities in
manufacturing and operations.

   Robert D. Warren, age 50, joined the Company in 1996, and he has been
Senior Vice President and President--International since 2000. Prior to that
he served as Senior Vice President--Business Management and Development from
1998 to 2000, as Vice President--Business Management and Development from 1996
to 1998, and as Vice President--Business Management and Business Solutions
during 1996.

                                       9
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

Common Stock

   The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "NEB". For the fiscal periods indicated, the high
and low sales prices for shares of the Company's Common Stock as reported on
the New York Stock Exchange--Composite Transactions Reporting System were as
follows:

<TABLE>
<CAPTION>
Fiscal 2001              High   Low
-----------              ----- -----
<S>                      <C>   <C>
1st Quarter............. 22.00 16.19
2nd Quarter............. 21.38 14.69
3rd Quarter............. 21.87 16.31
4th Quarter............. 19.45 16.90
</TABLE>
<TABLE>
<CAPTION>
Fiscal 2000              High   Low
-----------              ----- -----
<S>                      <C>   <C>
1st Quarter............. 31.00 26.81
2nd Quarter............. 29.94 18.00
3rd Quarter............. 24.44 15.38
4th Quarter............. 17.50 13.25
</TABLE>

   As of August 22, 2001, there were 582 stockholders of record, and the
Company believes that as of such date there were approximately 6,000
beneficial owners of the Company's Common Stock, based on information provided
by the Company's transfer agent. Information with respect to dividends paid on
the Company's Common Stock during the past two fiscal years is shown in the
Notes to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.

                                      10
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

FIVE YEAR SUMMARY
(In thousands, except per share amounts and Other Statistics)

<TABLE>
<CAPTION>
                           June 30,   June 24,   June 26,   June 27,   June 28,
For the fiscal year ended   2001(A)    2000(B)    1999(C)    1998(D)    1997(E)
-------------------------  ---------  ---------  ---------  ---------  ---------
<S>                        <C>        <C>        <C>        <C>        <C>
Income Statement
 Statistics
Net sales................   $586,091   $523,053   $503,933   $380,189   $279,540
Income before income
 taxes...................     30,726     45,697     43,742     41,405     31,380
  Percent of sales.......        5.2%       8.7%       8.7%      10.9%      11.2%
  Provision for income
   taxes.................     11,983     16,339     17,291     16,471     12,731
  Percent of sales.......        2.0%       3.1%       3.4%       4.3%       4.6%
Net income...............     18,743     29,358     26,451     24,934     18,649
  Percent of sales.......        3.2%       5.6%       5.3%       6.6%       6.7%
  Percent of
   stockholders' equity..       14.9%      24.2%      23.1%      30.9%      24.6%
  Per diluted common
   share.................       1.43       2.12       1.81       1.77       1.38
Dividends per common
 share...................        .80        .80        .80        .80        .80
---------------------------------------------------------------------------------
Balance Sheet Statistics
Current assets...........   $138,016   $108,216   $ 97,903   $100,009   $ 68,426
Current liabilities......     68,606     52,254     45,775     50,677     33,327
Working capital..........     69,410     55,962     52,128     49,332     35,099
Current ratio............        2.0        2.1        2.1        2.0        2.1
Total assets.............    377,684    323,671    300,262    307,577    141,196
Long-term debt...........    179,168    133,500    128,000    141,000     27,000
Obligations under capital
 lease...................      2,873      2,429          0          0          0
Stockholders' equity.....    113,903    125,729    121,529    114,505     80,581
Diluted weighted average
 shares outstanding......     13,143     13,868     14,640     14,106     13,525
Book value per common
 share...................       9.11       9.31       8.65       8.01       5.92
---------------------------------------------------------------------------------
Cash Flow Statistics
EBITDA (F)...............   $ 73,183   $ 80,043   $ 77,081   $ 61,194   $ 40,954
  Percent of sales.......       12.5%      15.3%      15.3%      16.1%      14.7%
Net cash provided by
 operating activities....     55,571     53,104     45,608     41,478     37,763
Net cash used by
 investing activities....    (65,783)   (33,168)   (16,125)  (144,207)   (38,936)
Net cash provided (used)
 by financing
 activities..............     13,958    (20,086)   (35,619)   105,412      1,928
Capital expenditures.....    (26,836)   (21,057)   (16,866)   (13,275)    (9,567)
Depreciation and
 amortization............     28,979     25,721     24,845     15,218      9,090
---------------------------------------------------------------------------------
Other Statistics
Number of employees......      3,819      3,779      3,727      3,738      2,164
Number of stockholders...      6,000      6,000      6,200      6,000      6,000
Number of 24-month
 customers...............  2,650,000  2,602,000  2,526,000  2,507,000  1,651,000
Facilities (in square
 feet)...................  1,613,000  1,659,000  1,531,000  1,594,000    886,000
---------------------------------------------------------------------------------
</TABLE>
(A)  Included in the 2001 results is a $7.3 million net after tax charge, or
     $.55 per diluted share, related to restructuring and integration
     activities.
(B)  Included in the 2000 results is a $.9 million tax benefit, or $.07 per
     diluted share, from a favorable letter ruling effecting prior years'
     taxes.
(C) Included in the 1999 results is a $.3 million pretax gain, or $.01 per
    diluted share, from the settlement of the Company's Canadian defined
    benefit pension plan.
(D)  Included in the 1998 results is a $.9 million pretax gain, or $.04 per
     diluted share, from the settlement of the Company's U.S. defined-benefit
     pension plan and curtailment of the Company's Canadian defined-benefit
     pension plan.
(E)  Included in the 1997 results is a $3.8 million pretax charge, or $.17 per
     diluted share, related to the elimination of the Company's retail
     initiative with Kinko's and a $2.2 million pretax gain, or $.10 per
     diluted share, from the curtailment of the Company's U.S. defined-benefit
     pension plan.
(F)  Earnings before interest expense, taxes, depreciation and amortization.

See the Notes to the Consolidated Financial Statements included in this Annual
Report on Form 10-K.

                                      11
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Overview

   New England Business Service, Inc. (the "Company") was founded in 1952,
incorporated in Massachusetts in 1955 and reincorporated in Delaware in 1986.
The Company designs, produces and distributes business forms, checks,
envelopes, labels, greeting cards, signs, stationery and related printed
products and distributes packaging, shipping and warehouse supplies, software,
work and promotional apparel and other business products through direct mail,
direct sales, telesales, dealers and the Internet to small businesses
throughout the United States, Canada, the United Kingdom and France. During
the past five years the Company has completed several acquisitions, the most
recent of which is described below. The Company also designs, embroiders and
sells specialty apparel products through distributors and independent sales
representatives to the promotional/advertising specialty industry, primarily
in the United States.

   In July 2000, the Company acquired all the outstanding shares of
PremiumWear, Inc. The purchase price was $13.50 per share in cash and totaled
approximately $39.0 million (net of cash acquired) for the shares plus debt
assumed of $3.9 million. PremiumWear designs, embroiders and sells specialty
apparel products through distributors and independent sales representatives to
the promotional products/advertising specialty industry, primarily in the
United States.

   The Company's fiscal year ends the last Saturday of June. The Company's
results for fiscal year 2001 contained 53 weeks, whereas fiscal years 2000 and
1999 contained 52 weeks.

   In the first quarter of fiscal year 2001, the Company changed its internal
reporting for segments. This change was precipitated by the acquisition of
PremiumWear and the realignment of the Company's international subsidiaries.
Prior year figures have been restated so as to match the current year
presentation. The Company has now identified five reportable segments. The
first segment is "Direct Marketing-US" and represents those business
operations that sell primarily printed products such as checks and business
forms to small businesses through direct marketing in the United States. The
second segment, "Direct Sales-US," also sells primarily checks and business
forms to small businesses; however, they sell primarily through distributors
or by directly selling to the customer in the United States. The third
segment, "Apparel", utilizes independent sales representatives to market its
specialty apparel products and to solicit orders from customers in the
promotional products/advertising specialty industry. "Packaging and Display
Products", the fourth segment, primarily resells packaging and shipping
supplies and retail signage marketed through both direct marketing and direct
selling efforts. The fifth segment, "International", sells primarily printed
products such as checks and business forms to small businesses in Europe and
Canada through direct marketing, distributors or a direct sales force.

   Any sentence followed by an asterisk (*) in this section constitutes a
forward-looking statement which reflects the Company's current expectations.
There can be no assurance the Company's actual performance will not differ
materially from those projected in such forward-looking statements due to the
important factors described in the section of this Management's Discussion and
Analysis of Financial Condition and Results of Operations titled "Certain
Factors That May Affect Future Results".

Results of Operations

2001 versus 2000

   Net sales increased $63.0 million, or 12.1%, to $586.1 million for fiscal
year 2001 from $523.1 million in fiscal year 2000. The sales increase was
composed of a $64.6 million increase associated with the Direct Sales-US,
Packaging and Display and Apparel segments. Included in this increase are
$56.9 million in sales from the PremiumWear, Inc. operation, which makes up
the Apparel segment, purchased in July 2000 and hence not part of the
comparable figures for fiscal year 2000. These increases were offset by a
slight decline, of $1.6 million, in sales of the Company's Direct Marketing-US
and International segments.

                                      12
<PAGE>

   For fiscal year 2001, cost of sales increased to 43.6% of sales from 40.4%
in fiscal year 2000. The increase was due primarily to the addition of
PremiumWear, which incurs a higher cost of sales as a percentage of sales than
the Company's other businesses. Excluding PremiumWear, cost of sales was 40.3%
of sales, which is consistent with fiscal year 2000. In fiscal 2001, increased
handling charges and freight discounts and improvement in plant efficiencies
were offset by increases in material costs year-to-year due to a shift in
product sales towards outsourced products. Cost of sales as a percentage of
sales is anticipated to remain relatively consistent with fiscal year 2001
during fiscal year 2002.*

   Selling and advertising expense decreased to 33.7% of sales in fiscal year
2001 from 34.9% of sales in fiscal year 2000. The year to year decrease was
due primarily to the addition of PremiumWear, which has a significantly lower
selling and advertising expense as a percentage of sales than in the Company's
other businesses. Selling and advertising expense as a percentage of sales is
anticipated to decrease slightly during fiscal year 2002.*

   General and administrative expense declined as a percentage of sales from
14.4% of sales in fiscal year 2000 to 14.0% in fiscal year 2001. The decrease
was due to the lower general and administrative expense as a percentage of
sales incurred in PremiumWear. Without considering the effect of PremiumWear,
general and administrative expense as a percentage of sales would have climbed
due to increased investment in information systems and general corporate
expenses. Additionally, during the year, the Company recognized an impairment
charge of $1.7 million for the write-off of capitalized internal-use software
related to an enterprise resource planning system the Company no longer plans
to implement. The Company also recognized an impairment charge of $.5 million
for the write-off of its investment in a privately owned web hosting company.
These charges are included in general and administrative expenses. General and
administrative expense as a percentage of sales is anticipated to remain
relatively consistent with fiscal year 2001 during fiscal year 2002.*

   During fiscal year 2001, the Company undertook two separate restructuring
actions. The first resulted in a restructuring charge of $3.5 million to
provide for costs primarily associated with the Company's decision to more
closely align its direct marketing and direct sales activities. As part of the
restructuring program, the McBee US headquarters has been relocated from
Parsippany, New Jersey to the existing RapidForms facility in Thorofare, New
Jersey. In addition, the McBee manufacturing plant in Damascus, Virginia was
closed and a portion of leased warehousing space currently occupied by
Chiswick in Sudbury, Massachusetts was vacated. In Canada, the McBee sales and
marketing organizations were combined with the local NEBS Direct Marketing
operation and are operating under the NEBS name. Approximately 140 employees
have been or will be affected by the restructuring either through elimination
of their positions or relocation.

   The second restructuring action resulted in the Company recording an
additional restructuring charge of $3.6 million to provide for costs
associated with the Company's decision to eliminate excess capacity by closing
a manufacturing facility in Ogden, Utah and a leased distribution facility in
Sudbury, Massachusetts, along with other actions to reduce the workforce in
various locations. Approximately 175 employees have been or will be affected
by the restructuring, either through elimination of their positions or
relocation. The following is a table of the charges incurred and the cash paid
pursuant to these actions (in millions of dollars):

<TABLE>
<CAPTION>
                             Balance    Charge for Payments or reductions    Balance
Type of Liability         June 24, 2000 the period     for the period     June 30, 2001
-----------------         ------------- ---------- ---------------------- -------------
<S>                       <C>           <C>        <C>                    <C>
First Restructuring
Employee termination
 benefit costs..........       $--         $2.2            $(1.3)              $.9
Facility closure costs..        --          1.3              (.6)               .7
Second Restructuring
Employee termination
 benefit costs..........        --          2.9              (.5)              2.4
Facility closure costs..        --           .7               --                .7
</TABLE>

   The activities related to all restructuring actions identified above are
anticipated to be completed by the Company during fiscal year 2002.*

                                      13
<PAGE>

   Interest expense increased to 2.3% of sales in fiscal year 2001 from 1.7%
of sales in fiscal year 2000. The increase is the result of additional debt,
primarily from the PremiumWear acquisition in July 2000, additional treasury
share repurchases, and higher interest rates in the current year. Interest
expense as a percentage of sales is anticipated to remain relatively
consistent with fiscal year 2001 during fiscal year 2002.*

   The provision for income taxes as a percentage of pre-tax income increased
to 39.0% in fiscal year 2001 from 35.8% in fiscal year 2000. The lower fiscal
year 2000 provision was due to a favorable letter ruling affecting prior
years' state tax rates. The Company anticipates that its effective tax rate
for fiscal year 2002 will be relatively consistent with fiscal year 2001.*

   The Company will continue to seek opportunities to acquire companies,
businesses and product lines to enhance the Company's competitive position in
the marketplace or to gain access to new markets, products, competencies or
technologies such as the PremiumWear acquisition completed in July 2000.* In
addition, 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 strategies.*

2000 versus 1999

   Net sales increased $19.2 million, or 3.8%, to $523.1 million for fiscal
year 2000 from $503.9 million in fiscal year 1999. The net sales increase was
due to growth in sales of seasonal holiday cards and personalized work apparel
sold principally through the Direct Marketing-U.S. and International segments.
Net sales increased in the Packaging and Display segment primarily as a result
of expanded distribution facilities. In the Direct Sales-U.S. segment, net
sales growth was attributable to an increase in orders derived from bank
referral contracts.

   For fiscal year 2000, cost of sales decreased to 40.4% of sales from 40.5%
in fiscal year 1999. This change was partially due to increased efficiencies
in the Company's U.S. operating units primarily selling business forms and
related printed products tied in part to the benefits from acquisition
integration activities in fiscal 2000 which helped offset higher
transportation costs.

   Selling and advertising expense decreased to 34.9% of sales in fiscal year
2000 from 35.0% of sales in fiscal year 1999. The decrease was due primarily
to reduced direct mail costs. This decrease was partially offset by higher
selling and advertising expense generated by the McBee sales force.

   General and administrative expense increased to 14.4% of sales in fiscal
year 2000 from 14.2% in fiscal year 1999. During fiscal year 2000, the Company
continued to increase spending levels associated with its program to re-
engineer financial and operational information systems.

   Interest expense was at 1.7% of sales in fiscal years 2000 and 1999.

   The provision for income taxes as a percentage of pretax income decreased
from 39.5% in fiscal year 1999 to 35.8% in fiscal year 2000 primarily as a
result of a one-time tax benefit due to a favorable letter ruling effecting
both current and prior years' state taxes.

New Accounting Pronouncements

   In the first quarter of fiscal 2001, the Company adopted Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This adoption resulted in an initial credit of $.4 million (net
of tax) to Accumulated Other Comprehensive Loss. However, the adoption of the
Standard had an immaterial impact on net income for the period.

   In the fourth quarter of fiscal 2001, the Company adopted Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition". This SAB was intended to clarify certain elements of revenue
recognition. It has been supplemented by a "frequently asked questions"
document. Adoption of this SAB did not materially impact the Company's revenue
recognition practices.

                                      14
<PAGE>

   In the fourth quarter of fiscal 2001, the Company adopted the Emerging
Issues Task Force Consensus No. 00-10, "Accounting for Shipping and Handling
Fees and Costs". The consensus states that a seller of goods should classify
fees attributable to shipping and handling in the income statement as
revenues. The Company had previously netted such fees against shipping and
handling costs in the cost of sales line. In fiscal years 2001, 2000 and 1999,
approximately $42 million, $37.7 million and $33.5 million, respectively,
which previously would have reduced cost of sales, have been classified as
revenues. There was no effect on reported net income.

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which
supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 142,
"Goodwill and Intangible Assets," which supercedes APB opinion No. 17,
"Intangible Assets". SFAS No. 141 eliminates the pooling-of-interests method
of accounting for business combinations and modifies the application of the
purchase accounting method. The elimination of the pooling-of-interests method
is effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS No. 141 will be effective for transactions accounted for
using the purchase method that are completed after June 30, 2001. SFAS No. 142
eliminates the current requirement to amortize goodwill and indefinite-lived
intangible assets, addresses the amortization of intangible assets with a
defined life and addresses the impairment testing and recognition for goodwill
and intangible assets. SFAS No. 142 will apply to goodwill and intangible
assets arising from transactions completed before and after the Statement's
effective date. SFAS No. 142 is effective for fiscal 2002. Adoption of these
statements will result in $98.3 million of goodwill and tradenames, currently
being amortized over periods of 20 to 40 years, no longer requiring recurring
amortization. Additionally, an intangible asset called assembled workforce
will be reclassified to goodwill and will result in $2.3 million, currently
being amortized over a period of 6 years, no longer requiring recurring
amortization. In fiscal year 2002, approximately $3.9 million which previously
would have been amortized will not require amortization. No restatement of
prior periods is required; instead a footnote disclosure will identify the
historical effect on earnings.

Liquidity and Capital Resources

   Cash provided by operating activities amounted to $55.6 million in fiscal
year 2001, approximately $2.5 million, or 4.7%, higher than the $53.1 million
provided in fiscal year 2000. This increase in cash provided by operating
activities was composed principally of a $10.6 million decrease in net income,
a $3.3 million increase in non-cash depreciation and amortization, a $2.2
million charge for asset impairments, $7.1 million for exit costs and $.5
million in the amount of cash provided by working capital and other non-cash
adjustments to reported net income. In fiscal year 2000, cash provided by
operating activities increased $7.5 million, or 16.4%, from the $45.6 million
dollars provided in fiscal year 1999 due principally to a $2.9 million
increase in net income and a $.9 million increase in non-cash depreciation and
amortization expense, plus an increase of $3.7 million in the amount of cash
provided by working capital and other non-cash adjustments to reported net
income.

   Working capital as of June 30, 2001 amounted to $69.4 million, including
$7.2 million of cash and short-term investments. This represents an increase
of $13.5 million from the working capital balance of $55.9 million, including
cash and short-term investments of $3.5 million, at the end of fiscal year
2000. The increase in working capital during the period is principally due to
the effect of the PremiumWear, Inc. acquisition in July 2000. The Company does
not expect to experience any significant change to the amount of working
capital investment required to support its business during fiscal year 2002.*
Working capital increased in fiscal year 2000 by $3.8 million, which was not a
significant change.

   Capital expenditures of $26.8 million in fiscal year 2001 represented a
$5.7 million increase from the $21.1 million expended in fiscal year 2000 and
a $9.9 million increase from the $16.9 million expended in fiscal year 1999.
Capital expenditures over the three-year period have included significant
investments in the purchase, development and implementation of information
systems infrastructure, operating systems and the Company's website and
manufacturing related equipment. In fiscal year 2001, over $5.0 million was
invested in information systems and embroidery and distribution capacity for
the company's recently acquired PremiumWear business. Capital expenditures in
fiscal year 2000 included an investment of $1.0 million in a leased
distribution center in Lithia Springs, Georgia; and in fiscal year 1999
included a $1.2 million expansion of the Company's Midland,

                                      15
<PAGE>

Ontario manufacturing facility. The Company expects capital expenditures to
approximate $16.5 million in fiscal year 2002, which will include additional
planned improvements in information systems infrastructure and investments to
enhance manufacturing capability.*

   The Company repurchased 1,111,432 shares of the Company's common stock for
$17.6 million in cash during fiscal year 2001, 595,157 shares of the Company's
common stock for $14.2 million in cash during fiscal year 2000 and 509,600
shares of the Company's common stock for $14.0 million in cash during fiscal
year 1999. In addition, the Company declared and paid a cash dividend of $.80
per share during each of the last three fiscal years, amounting to a total of
$10.4 million in fiscal 2001, $11.0 million in fiscal 2000 and $11.5 million
in fiscal 1999. The Company still has authorization from its Board to purchase
an additional 1,202,600 shares of its stock.

   In addition to its present cash and short-term investment balances, the
Company has consistently generated sufficient cash internally to fund its
needs for working capital, dividends and capital expenditures. The Company
currently has a committed, unsecured, revolving credit agreement for $200
million. Subsequent to the end of the fiscal year, in July 2001, the Company
amended the agreement to decrease the participating banks to seven and extend
the facility maturity date to July 2004. At June 30, 2001, the Company had
$178.5 million of outstanding debt under this credit facility. The credit
agreement contains various restrictive covenants which, among other things,
require the Company to maintain certain minimum levels of consolidated net
worth and specific consolidated debt and fixed charge ratios. The Company is
in compliance with these provisions.

   Subsequent to the end of the fiscal year, during July 2001, the Company
entered into a committed, unsecured, revolving credit agreement for $10
million. Under this credit agreement the Company has the option to borrow at
the Eurodollar rate plus a spread or the agent bank's lending rate prevailing
from time to time. The credit agreement contains various restrictive covenants
which, among other things, require the Company to maintain certain minimum
levels of consolidated net worth and specific consolidated debt and fixed
charge ratios.

   In order to effectively fix the interest rate on a portion of the debt
outstanding under the revolving line of credit, the Company has entered into
seven interest rate swap agreements with three of the banks party to the
credit agreements. These swap agreements contain notional principal amounts
and other terms (including rate of interest paid and received and maturity
date) determined with respect to the Company's forecasts of future cash flows
and borrowing requirements. At June 30, 2001 the notional principal amount
outstanding under the interest rate swap agreements totaled $160.0 million.

   The Company anticipates that its current cash on hand, cash flow from
operations and additional availability under the lines of credit will be
sufficient to meet the Company's liquidity requirements for its operations and
capital expenditures during fiscal year 2002.* However, the Company may pursue
additional acquisitions from time to time, such as the acquisitions mentioned
in "Overview", which would likely be funded through the use of available cash,
the issuance of stock, the obtaining of additional credit, or any combination
thereof.*

Certain Factors That May Affect Future Results

   References in this section to "we", "us" and "our" refer to New England
Business Service, Inc.

   We may make forward-looking statements in this report and in other
documents filed with the SEC, in press releases, and in discussions with
analysts, investors and others. These statements include:

  .   descriptions of our operational and strategic plans,

  .   expectations about our future sales and profits,

  .   views of conditions and trends in our markets, and

  .   other statements that include words like "expects", "estimates",
      "anticipates", "believes" and "intends", and which describe opinions
      about future events.


                                      16
<PAGE>

   You should not rely on these forward-looking statements as though they were
guarantees. These statements are based on our expectations at the time the
statements are made, and we are not required to revise or update these
statements based on future developments. Known and unknown risks may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by these statements.

   A majority of our sales and profits come from selling standardized business
forms, checks and related products by mail order, telesales and direct sales
to a target market consisting mainly of small businesses. We believe that the
critical success factors to compete in this market include competitive
pricing, breadth of product offering, product quality and the ability to
attract and retain a large number of individual customers. Known material
risks that may affect those critical success factors are described below.

   A majority of the sales in our newly-acquired apparel business come from
selling knit and woven sport shirts under labels licensed from third parties
to the promotional products/advertising specialty industry. We believe that
the critical success factors to compete in this market include product
quality, timely fulfillment of customer orders and brand awareness. Known
material risks that may affect those success factors are also described below.

   Our printed product lines face increased competition from new sources, such
as office supply superstores and Internet-based vendors. Increased competition
may require us to reduce prices or offer other incentives in order to attract
new customers and retain existing customers, which could reduce our profits.

   Low-price, high-volume office supply chain stores have entered our core
business of selling standardized business forms, checks and related products
to small businesses. Because of their size, these superstores have the buying
power to offer many of these products at competitive prices. These superstores
also offer the convenience of "one-stop shopping" for a broad array of office
supplies that we do not offer. In addition, national superstore competitors
have greater financial strength to reduce prices or increase promotional
discounts in order to seek or retain market share.

   Recently, Internet-based vendors have begun to compete in our core
business. These vendors include both start-up ventures as well as the online
sites of the office supply national chains. One business model for many
Internet-based vendors is to seek market share as rapidly as possible through
significantly reduced prices and deep discounting.

   If any of these new competitors seek to gain or retain market share through
price reductions or increased discounting, we may be forced to reduce our
prices or match the discounts in order to stay competitive, which could reduce
our profits.

   Technological improvements may reduce our competitive advantage over our
smaller competitors, which could reduce our profits.

   Historically, our relatively greater financial strength and size have
enabled us to offer a broader array of products, particularly those having a
complex construction, at lower prices than the small local and regional
dealers, distributors and printers who constitute our primary competition.
Improvements in the cost and quality of printing technology are enabling these
smaller competitors to gain access to products of complex design and
functionality at competitive costs. Increased competition from local and
regional competitors could force us to reduce our prices in order to attract
and retain customers, which could reduce our profits.

   Because our long-term sales growth is dependent on our ability to
continually attract new customers in our target small business market,
economic events that adversely affect the small business economy may reduce
our sales and profits.

   Average annual sales per customer of our core products have remained
relatively stable over time. As a result, we rely, in part, on continually
attracting new customers for these mature products. Our sales and profits

                                      17
<PAGE>

have been adversely affected by economic-related contractions in the small
business economy. We expect that our sales and profits will continue to be
affected by changes in the levels of small business formations and failures
and from other economic events that affect the small business economy
generally.

   Because our long-term sales growth is dependent on our ability to
continually attract new customers in our target small business market, changes
in the direct marketing industry that reduce our competitive advantage in
contacting prospective customers may reduce our sales and profits.

   Growth in the total number of our direct mail customers depends on
continued access to high-quality lists of newly-formed small businesses. In
the past, our ability to compile proprietary prospect lists was a distinct
competitive advantage. However, the external list compilation industry has
grown more sophisticated and comprehensive lists of new small business
formations are now commercially available to our competitors. In addition, the
Internet has the potential to eliminate our advantage of scale in direct
marketing by providing all competitors, regardless of current size, with
access to prospective customers.

   We currently rely on the speed of our delivery of promotional materials to
prospective customers to gain advantage over competitors. We are also
expanding our Internet product offerings and capabilities and seeking to
increase our visibility on the Internet. Notwithstanding these efforts, a
deterioration in our competitive advantage in contacting prospective customers
could reduce our sales and profits.

   In addition, the enactment of privacy laws could constrain our ability to
obtain prospect lists or to telemarket to prospective customers.

   Increases in the cost of paper and in postal rates adversely impact our
costs, which we may be unable to offset by reducing costs in other areas or by
raising prices.

   The cost of paper to produce our products, catalogs and advertising
materials makes up a significant portion of our total costs. Also we rely on
the U.S. Postal Service to deliver most of our promotional materials. Prices
for the various types of paper that we use have been volatile, and we expect
them to continue to be so. Third class postal rates have generally increased
over the past ten years, at times significantly. We are not sure that we will
always be able to reduce costs in other areas or to increase prices for our
products sufficiently to offset increases in paper costs and postal rates. If
we are unable to offset these cost and expense increases, our profits will be
adversely affected.

   Disruption in the services provided by certain of our critical vendors may
adversely affect our operating performance and profits.

   In order to obtain favorable pricing, we have selected a limited number of
vendors to provide key services to our business. Examples of this are as
follows:

  .   we use MCI WorldCom to provide a majority of the toll-free telephone
      lines for our direct marketing business,

  .   we use United Parcel Service to deliver most of the products that we
      ship to customers,

  .   we rely on the postal services of the countries in which we do business
      to deliver our catalogs and other advertising material to customers.

   In the past, we have been adversely affected by disruption of some of these
services due to labor actions, system failures, adverse weather conditions and
other natural disasters. If there are future interruptions in service from one
or more of these vendors, we believe that there could be a significant
disruption to our business due to our inability to readily find alternative
service providers at comparable rates.

                                      18
<PAGE>

   Sales of our standardized forms products face technological obsolescence
and changing customer preferences, which could reduce our sales and profits.

   Our standardized business forms, checks and related products provide our
customers with financial and business records to manage their businesses.
Continual technological improvements have provided our target customers in
several market segments with alternative means to enact and record business
transactions. For example, the price and performance capabilities of personal
computers and related printers now provide a cost-competitive means to print
low-quality versions of our business forms on plain paper. In addition,
electronic transaction systems and off-the-shelf business software
applications have been designed to automate several of the functions performed
by our business form products.

   In response to the gradual obsolescence of our standardized forms business,
we continue to develop our capability to provide custom and full-color
products. However, we have less of a cost advantage with these products than
with standardized forms, due to improvements in the cost and quality of
printing technology available to our smaller local and regional competitors.
We are also seeking to introduce new products that are less susceptible to
technological obsolescence. We may develop new products internally, procure
them from third party vendors, or obtain them through the acquisition of a new
business. We generally realize lower gross margins on outsourced products than
on products that we manufacture ourselves. The risks associated with the
acquisition of new businesses are described below.

   If new printing capabilities and new product introductions do not continue
to offset the obsolescence of our standardized business forms products, there
is a risk that the number of new customers we attract and existing customers
we retain may diminish, which could reduce our sales and profits. Decreases in
sales of our historically high margin standardized business forms products due
to obsolescence could also reduce our gross margins. This reduction could in
turn adversely impact our profits unless we are able to offset the reduction
through the introduction of new high margin products and services or realize
cost savings in other areas.

   We source our apparel products from offshore third party manufacturers.
Difficulty in securing reliable sources for these products could adversely
affect our ability to maintain inventory levels that are adequate to satisfy
customer demand.

   We purchase a majority of our apparel products either from "full package"
manufacturers in various foreign countries, or through 807 programs (assembly
only) in Central America. In most cases these same manufacturers supply other
apparel companies, many of which are significantly larger than our apparel
business and are able, when necessary, to secure preferential treatment from
the manufacturers. The availability of product from these manufacturers can
also be adversely affected by social and economic conditions in their
respective regions. Any significant disruption in our relationships with our
current manufacturers could adversely affect our apparel business to the
extent we cannot readily find alternative sources of supply at comparable
levels of price and quality.

   Inaccurate forecasting of the demand for specific apparel styles and sizes
could reduce our sales and profits.

   We believe that success in our apparel business depends in part on our
ability to immediately ship ordered products, either directly or through our
distributors. Given the relatively long lead time in procuring inventory, we
must estimate demand for specific styles and sizes well in advance of
receiving firm orders from customers in order to ensure the timely
availability of these products. Inaccurate forecasting of demand for specific
styles and sizes can result in either lost sales due to product
unavailability, or reduced margins from overstocked items.

   Failure of our apparel licensors to adequately promote our licensed brands
and protect those brands from infringement could reduce our sales and profits.

   We believe that brand awareness is an important factor to the end-user of
our apparel products, and in that regard we market and sell a majority of our
apparel products under nationally-recognized brands licensed from

                                      19
<PAGE>

third parties. In each case, the licensor is primarily responsible for
promoting its brand and protecting its brand from infringement. The failure of
one or more of our licensors to adequately promote or defend their brands
could diminish the perceived value of those brands to our customers, which
could lead to reduced sales and profits.

   Our growth strategy depends, in part, on the acquisition of complementary
businesses that address our target small business market.

   The acquisition of complementary businesses that address our target small
business market has been important to our growth strategy. We intend to
continue this acquisition activity in the future. The success of this activity
depends on the following:

  .   our ability to identify suitable businesses and to negotiate agreements
      on acceptable terms,

  .   our ability to obtain financing through additional borrowings, by
      issuing additional shares of common stock, or through internally
      generated cash flow, and

  .   our ability to achieve anticipated savings and growth and avoid
      disruption to our existing businesses.

   In evaluating a potential acquisition, we conduct a business, financial and
legal review of the target. This review is intended to support our assumptions
with respect to the projected future performance of the target and to identify
the benefits and risks associated with those assumptions. We cannot be certain
that our review will identify all potential risks associated with the
purchase, integration or operation of acquired businesses. Unanticipated risks
may adversely affect the benefits that we expect to obtain from any given
acquisition.

   Any write-down of our investment in Advantage Business Services Holdings,
Inc. required under generally accepted accounting principles could reduce our
reported earnings.

   As of the date of this Annual Report on Form 10-K, we have invested a total
of $30.5 million for a minority investment in Advantage Business Services
Holdings, Inc., a closely-held payroll processing company. This investment is
currently reported on our balance sheet at our cost. If, as a result of
Advantage's performance or other economic factors beyond our control, the
value of this investment on our books exceeds the realizable value of the
investment in the market, then we may be required under generally accepted
accounting principles to write-down the reported value of the investment,
which could reduce our reported earnings for the period in which the write-
down occurs.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company is exposed to a number of market risks, primarily due to the
effects of changes in foreign currency exchange rates and interest rates.
Investments in and loans and advances to foreign subsidiaries and branches,
and their resultant operations, denominated in foreign currencies, create
exposures to changes in exchange rates. The Company's utilization of its
revolving line of credit (which carries a variable interest rate) creates an
exposure to changes in interest rates. The effect, however, of changes in
exchange rates and interest rates on the Company's earnings generally has been
small relative to other factors that also affect earnings, such as business
unit sales and operating margins. This is because (i) foreign operations
represent a relatively small portion of the Company's total activity, the
magnitude of foreign currency transactions has been minimal and forward
foreign currency contracts have been historically entered into to hedge
certain foreign exchange rate fluctuations; (ii) a significant portion of the
Company's borrowings are fixed through interest rate swaps. In order to
effectively convert the interest rate of a portion of the Company's debt from
a Eurodollar-based floating rate to a fixed rate, the Company has entered into
interest rate swap agreements with major commercial banks. Although the
Company is exposed to credit and market risk in the event of future
nonperformance by any of the banks, management has no reason to believe that
such an event will occur.

   The Company does, however, have a component of its borrowings that is not
hedged. A 10% upward movement in interest rates would impact earnings and cash
flows by approximately $.1 million because of this

                                      20
<PAGE>

unhedged position. For more information on these market risks and financial
exposures, see the Notes to Consolidated Financial Statements included in this
Annual Report on Form 10-K. The Company does not hold or issue financial
instruments for trading, profit or speculative purposes.

   As described above, while the Company has historically hedged short-term
foreign exchange exposures, all such positions were closed in fiscal 2000.
This is because the Company either had its foreign subsidiaries repay any
dollar advances or converted such advances to equity positions in the
subsidiaries. Accordingly, as of the end of the year, the Company had minimal
exposure to exchange rate fluctuation.

   Upon reviewing its derivatives and other foreign currency and interest rate
instruments, based on historical foreign currency rate movements and the fair
value of market-rate sensitive instruments at year-end, the Company does not
believe that changes in foreign currency or interest rates will have a
material impact on its near term earnings, fair values or cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

   The Company's financial statements, together with the independent auditors'
report thereon, appear beginning on page F-1 of this Annual Report on Form 10-
K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

   Not applicable.


                                      21
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The Company will furnish to the Securities and Exchange Commission not
later than 120 days after the close of its fiscal year ended June 30, 2001 a
definitive Proxy Statement (the "Proxy Statement") for the Annual Meeting of
Stockholders to be held on October 26, 2001. The information required by this
Item concerning the directors of the Company who have been nominated for
reelection is incorporated by reference to "Election of Directors" in the
Proxy Statement.

   Benjamin H. Lacy, a director since 1970, has decided to retire from NEBS
Board and will not be standing for reelection at the above-mentioned Annual
Meeting of Stockholders. The information required by this item concerning Mr.
Lacy is as follows: Mr. Lacy, age 75, has been Chairman of the Board and,
prior to July 2000, President of The Clipper Ship Foundation, Inc., a grant-
making charitable foundation, since 1995. Prior to that he was a partner of,
and subsequently of counsel to, the law firm of Hill & Barlow, a professional
corporation.

   The information required by this Item concerning the executive officers of
the Company appears in Part I, Item 4.1 to this Annual Report on Form 10-K.

Section 16(a) Beneficial Ownership Reporting Compliance

   Information regarding compliance with Section 16(a) beneficial ownership
reporting requirements is located in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

   The information required by this Item is incorporated by reference to
"Election of Directors" and "Executive Compensation" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The information required by this Item is incorporated by reference to
"Voting Securities" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this Item is incorporated by reference to
"Certain Relationships and Related Transactions" in the Proxy Statement.


                                      22
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   The following documents are filed as part of this report:

   (a)(1) Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
New England Business Service, Inc. and Subsidiaries
Consolidated Balance Sheets as of June 30, 2001 and June 24, 2000.........   F-2
Statements of Consolidated Income for the fiscal years ended June 30,
 2001, June 24, 2000 and
 June 26, 1999............................................................   F-3
Statements of Consolidated Stockholders' Equity for the fiscal years ended
 June 30, 2001, June 24, 2000 and June 26, 1999...........................   F-4
Statements of Consolidated Cash Flows for the fiscal years ended June 30,
 2001, June 24, 2000 and June 26, 1999....................................   F-5
Notes to Consolidated Financial Statements................................   F-6
Independent Auditors' Report..............................................  F-20

   (a)(2) Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts..........................  F-21
</TABLE>

   Schedules I, III, IV and V are omitted as they are not applicable or
required under Regulation S-X.

   (a)(3) List of Exhibits

   Exhibits required to be filed by Item 601 of Regulation S-K are listed in
the exhibit index beginning on page X-1.

   (b) Reports on Form 8-K

   None

                                       23
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          New England Business Service, Inc.
                                          (Registrant)

                                                  /s/ Robert J. Murray
                                          By: _________________________________
                                                     (Robert J. Murray,
                                               Chairman, President and Chief
                                                     Executive Officer)

Date: September 1, 2001

                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of New England Business Service, Inc., a Delaware corporation (the
"Company"), hereby constitutes and appoints Robert J. Murray and Daniel M.
Junius, and each of them, with full power to act without the other, his or her
true and lawful attorney-in-fact, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities (until revoked in writing) to sign the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2001, and any and all
amendments thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                 Name                            Title                   Date
                 ----                            -----                   ----

<S>                                    <C>                        <C>
         /s/ Robert J. Murray          Chairman, President and     September 1, 2001
______________________________________  Chief Executive Officer
          (Robert J. Murray)            and Director (Principal
                                        Executive Officer)

          /s/ William T. End           Director                    September 1, 2001
______________________________________
           (William T. End)

           /s/ Neil S. Fox             Director                    September 1, 2001
______________________________________
            (Neil S. Fox)

         /s/ Robert L. Gable           Director                    September 1, 2001
______________________________________
          (Robert L. Gable)

         /s/ Benjamin H. Lacy          Director                    September 1, 2001
______________________________________
          (Benjamin H. Lacy)

          /s/ Thomas J. May            Director                    September 1, 2001
______________________________________
           (Thomas J. May)
</TABLE>

                                      24
<PAGE>

<TABLE>
<CAPTION>
                 Name                            Title                   Date
                 ----                            -----                   ----
<S>                                    <C>                        <C>
        /s/ Herbert W. Moller          Director                    September 1, 2001
______________________________________
         (Herbert W. Moller)

          /s/ Brian E. Stern           Director                    September 1, 2001
______________________________________
           (Brian E. Stern)

         /s/ M. Anne Szostak           Director                    September 1, 2001
______________________________________
          (M. Anne Szostak)

         /s/ Daniel M. Junius          Senior Vice President,      September 1, 2001
______________________________________  Chief Financial Officer
          (Daniel M. Junius)            and Treasurer (Principal
                                        Financial and Accounting
                                        Officer)
</TABLE>

                                       25
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
New England Business Service, Inc. and Subsidiaries

Consolidated Balance Sheets as of June 30, 2001 and June 24, 2000.........   F-2

Statements of Consolidated Income for the fiscal years ended June 30,
 2001, June 24, 2000 and
 June 26, 1999............................................................   F-3

Statements of Consolidated Stockholders' Equity for the fiscal years ended
 June 30, 2001, June 24, 2000 and June 26, 1999...........................   F-4

Statements of Consolidated Cash Flows for the fiscal years ended June 30,
 2001, June 24, 2000 and June 26, 1999....................................   F-5

Notes to Consolidated Financial Statements................................   F-6

Independent Auditors' Report..............................................  F-20

Schedule II--Valuation and Qualifying Accounts............................  F-21
</TABLE>

                                      F-1
<PAGE>

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                        June 30, 2001 and June 24, 2000
                  (In thousands of dollars, except share data)

<TABLE>
<CAPTION>
                                                    June 30, 2001 June 24, 2000
                                                    ------------- -------------
<S>                                                 <C>           <C>
                      ASSETS
Current Assets:
Cash and cash equivalents.........................    $   7,154     $   3,469
Accounts receivable (less allowance for doubtful
 accounts of $5,344 in 2001 and $5,037 in 2000)...       59,529        55,483
Inventories.......................................       42,599        24,578
Direct mail advertising materials, net and prepaid
 expenses.........................................       13,601        16,445
Deferred income tax benefit.......................       15,133         8,241
                                                      ---------     ---------
   Total current assets...........................      138,016       108,216
Property and Equipment:
 Land and buildings...............................       45,884        43,553
 Equipment........................................      146,782       122,163
                                                      ---------     ---------
 Property and equipment...........................      192,666       165,716
 Less accumulated depreciation....................     (115,598)     (101,310)
                                                      ---------     ---------
  Property and equipment, net.....................       77,068        64,406
Deferred Income Tax Benefit.......................       16,986         8,796
Goodwill, net.....................................       68,274        60,567
Tradenames, net...................................       30,073        30,792
Customer Lists, net...............................       16,650        23,974
Long-Term Investments.............................       12,869        13,369
Other Assets......................................       17,748        13,551
                                                      ---------     ---------
   Total..........................................    $ 377,684     $ 323,671
                                                      =========     =========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................    $  18,546     $  18,951
Federal and state income taxes....................        2,868           117
Accrued bonus distribution........................        2,218         2,382
Accrued payroll expense...........................       10,344        11,894
Accrued employee benefit expense..................       10,790         6,839
Accrued exit costs/restructuring charge...........        4,665           147
Accrued derivative contracts at fair value........        4,517           --
Obligations under capital lease--current portion..        1,323           819
Current portion of long-term debt.................          120           --
Deferred income taxes.............................        3,378         1,761
Other accrued expenses............................        9,837         9,344
                                                      ---------     ---------
   Total current liabilities......................       68,606        52,254
Obligations Under Capital Lease...................        1,550         1,610
Long-Term Debt....................................      179,168       133,500
Deferred Income Taxes.............................       14,457        10,578
Commitments and Contingencies
Stockholders' Equity:
Preferred stock
Common stock, par value, $1 per share--authorized,
 40,000,000 shares; issued, 15,511,093 shares in
 2001 and 15,399,447 shares in 2000; outstanding,
 12,499,702 shares in 2001 and 13,499,488 shares
 in 1999..........................................       15,511        15,399
Additional paid-in capital........................       52,083        50,337
Unamortized value of restricted stock awards......         (157)         (115)
Accumulated other comprehensive loss..............       (7,417)       (3,399)
Retained earnings.................................      113,628       105,278
                                                      ---------     ---------
   Total..........................................      173,648       167,500
Less treasury stock, at cost--3,011,391 shares in
 2001 and 1,899,959 shares in 2000................      (59,745)      (41,771)
                                                      ---------     ---------
   Total stockholders' equity.....................      113,903       125,729
                                                      ---------     ---------
   Total..........................................    $ 377,684     $ 323,671
                                                      =========     =========
</TABLE>

See notes to consolidated financial statements.

                                      F-2
<PAGE>

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                       STATEMENTS OF CONSOLIDATED INCOME

   For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                     2001      2000      1999
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Net Sales......................................... $586,091  $523,053  $503,933
  Cost of sales including shipping costs..........  255,458   211,181   204,284
                                                   --------  --------  --------
Gross Profit......................................  330,633   311,872   299,649
Operating Expenses:
  Selling and advertising.........................  197,509   182,425   176,439
  General and administrative......................   82,207    75,264    71,454
  Exit costs......................................    7,145       --        --
                                                   --------  --------  --------
    Total operating expenses......................  286,861   257,689   247,893
Income From Operations............................   43,772    54,183    51,756
Other Income (Expense):
  Interest income.................................      432       139       221
  Interest expense................................  (13,478)   (8,625)   (8,494)
  Gain on pension curtailment/settlement..........      --        --        259
                                                   --------  --------  --------
    Total other income (expense)..................  (13,046)   (8,486)   (8,014)
                                                   --------  --------  --------
Income Before Income Taxes........................   30,726    45,697    43,742
Provision For Income Taxes........................   11,983    16,339    17,291
                                                   --------  --------  --------
Net Income........................................ $ 18,743  $ 29,358  $ 26,451
                                                   ========  ========  ========
Per Share Amounts:
  Basic earnings per share........................ $   1.44  $   2.14  $   1.84
                                                   ========  ========  ========
  Diluted earnings per share...................... $   1.43  $   2.12  $   1.81
                                                   ========  ========  ========
  Dividends....................................... $    .80  $    .80  $    .80
                                                   ========  ========  ========
Basic Weighted Average Shares Outstanding.........   13,015    13,717    14,352
  Plus incremental shares from assumed conversion
   of stock options and contingently returnable
   shares.........................................      128       151       288
                                                   --------  --------  --------
Diluted Weighted Average Shares Outstanding.......   13,143    13,868    14,640
                                                   ========  ========  ========
</TABLE>

See notes to consolidated financial statements.

                                      F-3
<PAGE>

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY

   For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                        Common Stock
                                           Issued
                                       --------------
                                                                  Unamortized   Accumulated
                                       Number At Par  Additional     Value         Other                             Total
                                         of    Value   Paid-in   of Restricted Comprehensive Retained  Treasury  Stockholders'
                                       Shares Amount   Capital   Stock Awards  Income/(Loss) Earnings   Stock       Equity
                                       ------ ------- ---------- ------------- ------------- --------  --------  -------------
<S>                                    <C>    <C>     <C>        <C>           <C>           <C>       <C>       <C>
Balance, June 27,
 1998.............                     15,185 $15,185  $44,559       $   0        $(2,337)   $ 71,962  $(14,864)   $114,505
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......                        173     173    4,941                                            1,318       6,432
Dividends paid....                                                                            (11,511)              (11,511)
Acquisition of
 treasury stock...                                                                                      (14,031)    (14,031)
Net income........                                                                             26,451                26,451
Foreign currency
 translation
 adjustment.......                                                                   (317)                             (317)
                                       ------ -------  -------       -----        -------    --------  --------    --------
Balance, June 26,
 1999.............                     15,358  15,358   49,500           0         (2,654)     86,902   (27,577)    121,529
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......                         41      41      837        (165)                                             713
Dividends paid....                                                                            (10,982)              (10,982)
Amortization of
 restricted stock
 awards...........                                                      50                                               50
Acquisition of
 treasury stock...                                                                                      (14,194)    (14,194)
Net income........                                                                             29,358                29,358
Foreign currency
 translation
 adjustment.......                                                                   (770)                             (770)
Net unrealized
 investment
 gains............                                                                     25                                25
                                       ------ -------  -------       -----        -------    --------  --------    --------
Balance, June 24,
 2000.............                     15,399  15,399   50,337        (115)        (3,399)    105,278   (41,771)    125,729
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......                        112     112    1,746        (188)                                (334)      1,336
Dividends paid....                                                                            (10,393)              (10,393)
Amortization of
 restricted stock
 awards...........                                                     146                                              146
Acquisition of
 treasury stock...                                                                                      (17,640)    (17,640)
Net income........                                                                             18,743                18,743
Foreign currency
 translation
 adjustment.......                                                                   (635)                             (635)
Net unrealized
 investment
 losses...........                                                                   (213)                             (213)
Net unrealized
 losses on
 derivatives held
 for hedging
 purposes.........                                                                 (3,019)                           (3,019)
Cumulative effect adjustment recorded
 upon the adoption of SFAS No. 133..                                                  391                               391
Net pension
 adjustment.......                                                                   (542)                             (542)
                                       ------ -------  -------       -----        -------    --------  --------    --------
Balance, June 30,
 2001.............                     15,511 $15,511  $52,083       $(157)       $(7,417)   $113,628  $(59,745)   $113,903
                                       ====== =======  =======       =====        =======    ========  ========    ========
<CAPTION>
                                       Comprehensive
                                          Income
                                       -------------
<S>                                    <C>
Balance, June 27,
 1998.............
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......
Dividends paid....
Acquisition of
 treasury stock...
Net income........                        $26,451
Foreign currency
 translation
 adjustment.......                           (317)
                                       -------------
Balance, June 26,
 1999.............                        $26,134
                                       =============
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......
Dividends paid....
Amortization of
 restricted stock
 awards...........
Acquisition of
 treasury stock...
Net income........                        $29,358
Foreign currency
 translation
 adjustment.......                           (770)
Net unrealized
 investment
 gains............                             25
                                       -------------
Balance, June 24,
 2000.............                        $28,613
                                       =============
Issuance of common
 stock to
 employees
 pursuant to stock
 plans including
 tax benefit......
Dividends paid....
Amortization of
 restricted stock
 awards...........
Acquisition of
 treasury stock...
Net income........                        $18,743
Foreign currency
 translation
 adjustment.......                           (635)
Net unrealized
 investment
 losses...........                           (213)
Net unrealized
 losses on
 derivatives held
 for hedging
 purposes.........                         (3,019)
Cumulative effect adjustment recorded
 upon the adoption of SFAS No. 133..          391
Net pension
 adjustment.......                           (542)
                                       -------------
Balance, June 30,
 2001.............                        $14,725
                                       =============
</TABLE>

See notes to consolidated financial statements.

                                      F-4
<PAGE>

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                     STATEMENTS OF CONSOLIDATED CASH FLOWS

   For the Fiscal Years Ended June 30, 2001, June 24, 2000 and June 26, 1999
                           (In thousands of dollars)

<TABLE>
<CAPTION>
                                                    2001      2000      1999
                                                  --------  --------  ---------
<S>                                               <C>       <C>       <C>
Cash Flows From Operating Activities:
Net income......................................  $ 18,743  $ 29,358  $  26,451
Adjustments to reconcile net income to net cash
 provided by operating activities:
 Depreciation...................................    16,464    14,168     12,432
 Amortization...................................    12,515    11,553     12,413
 Gain on pension settlement/curtailment.........       --        --        (259)
 (Gain)/loss on disposal of equipment...........       386      (175)       514
 Asset impairment loss..........................     2,207       --         --
 Deferred income taxes..........................       (32)    1,463       (640)
 Exit costs.....................................     7,145       --         --
 Provision for losses on accounts receivable....     4,659     4,203      4,151
 Employee benefit charges.......................       240       121      3,003
 Changes in assets and liabilities, net of
  acquisitions:
   Accounts receivable..........................     2,200    (7,294)    (5,685)
   Inventories and advertising materials........    (2,469)   (5,542)    (2,466)
   Prepaid expenses and other assets............       549    (1,165)       495
   Accounts payable.............................    (5,235)    3,457         32
   Income taxes payable.........................     2,682       606     (2,750)
   Other accrued expenses.......................    (4,483)    2,351     (2,083)
                                                  --------  --------  ---------
     Net cash provided by operating activities..    55,571    53,104     45,608
Cash Flows From Investing Activities:
Additions to property and equipment.............   (26,836)  (21,057)   (16,866)
Acquisition of businesses--net of cash
 acquired.......................................   (38,976)      --        (256)
Proceeds from sale of facilities and equipment..        29     1,258        877
Proceeds from sale of other assets..............       --        --         140
Investment in other assets......................       --    (13,369)       (20)
                                                  --------  --------  ---------
     Net cash used by investing activities......   (65,783)  (33,168)   (16,125)
Cash Flows From Financing Activities:
Repayment of debt...............................   (83,968)  (96,250)  (113,500)
Proceeds from credit line--net of issuance
 costs..........................................   125,900   101,406    100,500
Repayment of obligations under capital lease....    (1,007)     (592)       --
Proceeds from issuance of common stock..........     1,066       526      2,923
Acquisition of treasury stock...................   (17,640)  (14,194)   (14,031)
Dividends paid..................................   (10,393)  (10,982)   (11,511)
                                                  --------  --------  ---------
     Net cash provided (used) by financing
      activities................................    13,958   (20,086)   (35,619)
Effect of Exchange Rate Changes on Cash.........       (61)      (65)        48
                                                  --------  --------  ---------
Net Increase (Decrease) in Cash and Cash
 Equivalents....................................     3,685      (215)    (6,088)
Cash and Cash Equivalents at Beginning of Year..     3,469     3,684      9,772
                                                  --------  --------  ---------
Cash and Cash Equivalents at End of Year........  $  7,154  $  3,469  $   3,684
                                                  ========  ========  =========
Supplemental Cash Flow Disclosure:
Interest paid...................................  $ 13,331  $  8,417  $   8,867
                                                  ========  ========  =========
Income taxes paid...............................  $ 10,715  $ 14,514  $  20,232
                                                  ========  ========  =========
Stock issued pursuant to employee benefit
 plans..........................................  $    --   $    --   $   2,774
                                                  ========  ========  =========
Purchase of equipment under capital lease.......  $  1,451  $  3,021  $     --
                                                  ========  ========  =========
</TABLE>

See notes to consolidated financial statements.

                                      F-5
<PAGE>

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

   Description of Business and Basis of Consolidation--The financial
statements include the accounts of New England Business Service, Inc. and its
wholly-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company
sells primarily printed business products such as checks and business forms
and work/promotional apparel through a variety of channels, serves as a
reseller of packaging and shipping supplies and retail signage and designs,
sources and distributes embroidered and unembroidered apparel for ad
specialties applications.

   Fiscal Year--The Company's fiscal year ends the last Saturday of June. The
Company's results for fiscal year 2001 contained 53 weeks, whereas fiscal
years 2000 and 1999 contained 52 weeks.

   Significant Estimates--In the process of preparing its consolidated
financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources. Actual results may differ from these estimates.

   Foreign Currency Translation--The financial statements of the Company's
foreign subsidiaries are measured in the respective subsidiary's functional
currency and then translated into U.S. dollars. All balance sheet accounts
have been translated using the year-end rate of exchange, while income
statement accounts have been translated using the average rates prevailing
throughout the year. Resulting translation gains or losses are accumulated in
a separate component of stockholders' equity entitled "Accumulated other
comprehensive loss." Foreign currency transaction gains and losses, including
those related to intercompany transactions that are expected to be settled in
the short term are recorded directly in the income statement and are
immaterial in all periods presented; intercompany foreign currency transaction
gains and losses incurred on balances of a long term investment nature are
recorded as translation gains and losses.

   Cash and Cash Equivalents--The Company considers its holdings in short-term
money market accounts and certificates of deposit with an original maturity of
three months or less to be cash equivalents.

   Inventories--Inventories are generally carried at the lower of first-in,
first-out cost or market. At year end, inventories consisted of:

<TABLE>
<CAPTION>
                                                            2001        2000
                                                         ----------- -----------
   <S>                                                   <C>         <C>
   Raw Material......................................... $ 1,821,000 $ 1,804,000
   Work in Process......................................   1,459,000         --
   Finished Goods.......................................  39,319,000  22,774,000
                                                         ----------- -----------
     Total.............................................. $42,599,000 $24,578,000
                                                         =========== ===========
</TABLE>

   Long-Term Investments--In March 2000, the Company invested $12,900,000 and
$500,000, respectively, in the common stock of Advantage Business Services
Holdings, Inc. and the convertible preferred stock of WebNow.com, Inc. These
investments represent less than a 20% voting interest in these companies.
Also, the securities are not considered to be marketable equity securities
under SFAS 115 because both of the companies are currently privately held and,
hence, the securities are restricted and have no readily determinable market
value. These investments have been carried at cost and will periodically be
evaluated to determine whether a decline in fair value below the original cost
basis has occurred and is other than temporary. Both of the investments have
been classified as long-term assets on the consolidated balance sheet because
of their non-marketable nature and management's intent to hold these
investments for the long term.

   In the fourth quarter of fiscal 2001, the Company recognized an impairment
charge of $500,000 and wrote off its investment in WebNow, Inc.

                                      F-6
<PAGE>

   Direct Mail Advertising--The Company expenses the production costs of
advertising at the time the advertising is initiated, except for direct-
response advertising, which is capitalized and amortized over its expected
period of future benefit; this period is not in excess of six months. Direct-
response advertising consists primarily of product catalogs and associated
mailing costs. As of June 30, 2001 and June 24, 2000, $7,569,000 and
$10,773,000, respectively, were reported as direct advertising assets and
included in direct mail advertising materials, net and prepaid expenses in the
consolidated balance sheets. Advertising expense included in selling and
advertising was $61,030,000 in 2001, $59,243,000 in 2000, and $56,680,000 in
1999.

   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.

   Leased Property Under Capital Leases--Property under capital leases is
amortized over the lives of the respective leases or the estimated useful
lives of the assets whichever is shorter.

   Goodwill--Goodwill acquired is being amortized on a straight-line basis
over periods of 20 to 40 years. Accumulated amortization amounted to
$7,288,000 and $5,079,000 at June 30, 2001 and June 24, 2000, respectively.

   Customer Lists, Tradenames and Other Assets--Customer lists, tradenames and
other assets are amortized using the straight-line method or the effective-
interest method over their estimated lives. The ranges of estimated lives and
accumulated amortization balances for each category of assets are as follows:

<TABLE>
<CAPTION>
                                                           2001         2000
                                                       Accumulated  Accumulated
Description                                   Lives    Amortization Amortization
-----------                                 ---------- ------------ ------------
<S>                                         <C>        <C>          <C>
Customer lists............................. 2-18 years $29,776,000  $22,462,000
Tradenames.................................   40 years   2,727,000    1,907,000
Other assets:
  Covenant not to compete..................  2-5 years     801,000      390,000
  Debt issue costs.........................  3-5 years     537,000      294,000
  Assembled workforce......................    6 years   2,518,000    1,701,000
  Long-term contracts......................   16 years     331,000          --
  Bank referral agreements.................   20 years   1,141,000      771,000
</TABLE>

   Revenue Recognition--Revenue is recognized on product sales at the point in
time when persuasive evidence of an arrangement exists, the price is fixed and
final, delivery has occurred and there is reasonable assurance of collection
of the sales proceeds. The Company generally obtains purchase authorizations
from its customers for a specified amount of product at a specified price and
considers delivery to have occurred at the point of shipment. While the
Company does provide its customers with a right of return, revenue is not
deferred. Rather, a reserve for sales returns is provided in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 48 based on
significant historical experience.

   Income Taxes--The provision for income taxes is determined based upon the
Company's computed total income tax obligation for the year and the change in
the Company's deferred tax balances from year to year. Deferred income taxes
reflect the impact of temporary differences between assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes. Such deferred tax assets and liabilities are also adjusted to
reflect changes in the U.S. and applicable foreign tax laws when enacted and
changes in blended state tax rates. Future tax benefits are recognized to the
extent realization of such benefit is more likely than not to occur.


                                      F-7
<PAGE>

   Per Share Amounts--Basic earnings per share amounts are computed based upon
the weighted average number of shares of common stock outstanding during each
fiscal year less any contingently returnable shares. Diluted earnings per
share amounts are computed by also giving consideration to potentially
dilutive stock options outstanding and the above mentioned contingently
returnable shares. Common stock equivalents totaling approximately 1.7 million
outstanding stock options are not included in the computation of earnings per
share as they are anti-dilutive. A reconciliation of outstanding shares is
shown on the statements of consolidated income.

   Concentration of Credit Risk--The Company extends credit to approximately
1.8 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.

   Derivatives--In June 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". The Company has adopted this Statement in fiscal year
2001. Such adoption resulted in an initial credit of $391,000 (net of tax) to
Accumulated Other Comprehensive Loss.

   The Company is exposed to interest rate risk relating to its variable rate
debt. As part of its overall strategy to manage the level of exposure to the
risk of interest rate fluctuations, the Company uses interest rate swaps which
qualify and are designated as cash flow hedges.

   On the date the Company enters into a derivative contract, management
designates the derivative as a hedge of the identified cash flow exposure. The
Company does not enter into derivative transactions that do not qualify as
hedges.

   The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. In this documentation,
the Company specifically identifies the asset, liability, firm commitment, or
forecasted transaction that has been designated as a hedged item and states
how the hedging instrument is expected to hedge the risks related to the
hedged item. The Company formally measures effectiveness of its hedging
relationships both at the hedge inception and on an ongoing basis in
accordance with its risk management policy.

   The Company may discontinue hedge accounting prospectively when it is
determined that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item; when the derivative expires or
is sold, terminated, or exercised; or when the derivative is redesignated to
no longer be a hedge instrument.

   As discussed above, the Company designates certain derivatives as cash flow
hedges. For all qualifying and highly effective cash flow hedges, the changes
in the fair value of the derivative are recorded in other comprehensive income
(OCI) (see note 11). There can be, however, a portion of the hedge that is
deemed "ineffective" and which can result in a charge to the Company's income
statement. For the year ending June 30, 2001 the Company's ineffective portion
of the hedge was immaterial to interest expense.

   Impairment of Long-Lived Assets--The Company evaluates the recoverability
of long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
In fiscal 2001, the Company recognized an impairment charge of $1,707,000 for
the write-off of capitalized internal-use software related to an enterprise
resource planning system the Company no longer plans to implement. There were
no adjustments to the carrying value of any long-lived assets in 2000 or 1999.


                                      F-8
<PAGE>

   Accounting for Stock-Based Compensation--SFAS No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic-value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. When awards are made to consultants
or individuals who are other than employees, the Company does apply the
precepts of SFAS 123 and the Emerging Issue Task Force Consensus No. 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services."

   New Accounting Pronouncements--As described above, in the first quarter of
fiscal 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This adoption resulted in an initial
credit of $391,000 (net of tax) to Accumulated Other Comprehensive Loss.
However, the adoption of the Standard had an immaterial impact on net income
for the period.

   In the fourth quarter of fiscal 2001, the Company adopted Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition". This SAB was intended to clarify certain elements of revenue
recognition. It has been supplemented by a "frequently asked questions"
document. Adoption of this SAB did not materially impact the Company's revenue
recognition practices.

   In the fourth quarter of fiscal 2001, the Company adopted the Emerging
Issues Task Force Consensus No. 00-10, "Accounting for Shipping and Handling
Fees and Costs". The consensus states that a seller of goods should classify
fees attributable to shipping and handling in the income statement as
revenues. The Company had previously netted such fees against shipping and
handling costs in the cost of sales line. In fiscal years 2001, 2000 and 1999,
approximately $41,989,000, $37,667,000 and $33,456,000, respectively, which
previously would have reduced cost of sales, have been classified as revenues.
There was no effect on reported net income.

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations," which
supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 142
"Goodwill and Intangible Assets" which supercedes APB opinion No. 17,
"Intangible Assets". SFAS No. 141 eliminates the pooling-of-interests method
of accounting for business combinations and modifies the application of the
purchase accounting method. The elimination of the pooling-of-interests method
is effective for transactions initiated after June 30, 2001. The remaining
provisions of SFAS No. 141 will be effective for transactions accounted for
using the purchase method that are completed after June 30, 2001. SFAS No. 142
eliminates the current requirement to amortize goodwill and indefinite-lived
intangible assets, addresses the amortization of intangible assets with a
defined life and addresses the impairment testing and recognition for goodwill
and intangible assets. SFAS No. 142 will apply to goodwill and intangible
assets arising from transactions completed before and after the Statement's
effective date. SFAS No. 142 is effective for fiscal 2002. Adoption of these
statements will result in $98,347,000 of goodwill and tradenames, currently
being amortized over periods of 20 to 40 years, no longer requiring recurring
amortization. Additionally, an intangible asset called assembled workforce
will be reclassified to goodwill and will result in $2,382,000, currently
being amortized over a period of 6 years, no longer requiring recurring
amortization. No restatement of prior periods is required; instead a footnote
disclosure will identify the historical effect on earnings. In fiscal year
2002, approximately $3,900,000 which previously would have been amortized will
not require amortization.

   Reclassifications--Certain reclassifications have been made to the 2000 and
1999 financial statements to conform with the 2001 presentation.

2. 2000 Acquisition

   In July 2000, the Company acquired all the outstanding shares of
PremiumWear, Inc. The purchase price was $13.50 per share in cash and totaled
approximately $38,976,000 (net of cash acquired) for the shares plus debt
assumed of $3,856,000. The Company also incurred fees of approximately
$602,000 in connection with the acquisition. The acquisition was accounted for
using the purchase method of accounting. Accordingly,

                                      F-9
<PAGE>

PremiumWear's results of operations are included in the accompanying financial
statements from the date of acquisition. The purchase price, including
acquisition costs, was allocated to the net tangible assets acquired based on
the fair value of such assets and liabilities. The excess cost over fair value
of the net tangible assets acquired was $16,013,000, of which $5,300,000 and
$583,000 were allocated to long-term contracts and non-compete agreements,
respectively, and the balance of $10,130,000 to goodwill. The goodwill is
currently being amortized on a straight-line basis over a period of 20 years,
while the long-term contracts and non-compete agreements are being amortized
over their respective useful lives. Such amortization will be impacted in the
future by the Company's adoption of SFAS No. 142.

   The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company for the years ended June 30,
2001, June 24, 2000 and June 26, 1999 as though the acquisition described
above had occurred on the first day of the respective fiscal year. The pro
forma operating results are presented for comparative purposes only and do not
purport to present the Company's actual operating results had the acquisitions
been consummated on June 28, 1998 or results which may occur in the future:

<TABLE>
<CAPTION>
                                             2001         2000         1999
                                         ------------ ------------ ------------
   <S>                                   <C>          <C>          <C>
     Net sales.......................... $588,180,000 $575,610,000 $548,017,000
     Net income.........................   18,772,000   28,172,000   23,971,000
     Net income per diluted share.......         1.43         2.03         1.64
</TABLE>

   In connection with this transaction a complaint entitled "Perry Ellis
International, Inc. v. PremiumWear Inc.", was filed. The Company was
subsequently named a co-defendant. The amended complaint relates to a Right of
First Refusal Agreement dated as of May 22, 1996 (the "RFR Agreement") between
the plaintiff and PremiumWear, Inc., and to the Company's acquisition of all
the outstanding shares of PremiumWear in July 2000. In the amended complaint,
the plaintiff alleges breach of the RFR Agreement and breach of an implied
covenant of good faith and fair dealing against PremiumWear as a result of
PremiumWear's alleged failure to notify the plaintiff of certain discussions
between PremiumWear and the Company preceding the Company's agreement to
purchase all of the outstanding shares of PremiumWear. The amended complaint
also alleges that the Company tortiously interfered with the plaintiff's
rights under the RFR Agreement by allegedly inducing PremiumWear to breach its
obligations to the plaintiff under the RFR Agreement. The plaintiff is seeking
damages in an unspecified amount, attorneys' fees, interest and costs. The
Company believes the allegations in the amended complaint are without merit
and intends to defend the lawsuit vigorously.

3. Restructuring and Impairment of Assets

   During fiscal year 2001, the Company undertook two distinct restructuring
actions. The first involved a restructuring charge of $3,500,000 to provide
for costs primarily associated with the Company's decision to more closely
align its direct marketing and direct sales activities. As part of the
restructuring program, the McBee US headquarters has been relocated from
Parsippany, New Jersey to the existing RapidForms facility in Thorofare, New
Jersey. In addition, the McBee manufacturing plant in Damascus, Virginia has
been closed and a portion of leased warehousing space currently occupied by
Chiswick in Sudbury, Massachusetts has been vacated. In Canada, the McBee
sales and marketing organizations have been combined with NEBS Direct
Marketing and are operating under the NEBS name. Approximately 140 employees
have been affected by the restructuring either through elimination of their
positions or relocation. Pursuant to this plan, the following charges and
payments have been recorded:

<TABLE>
<CAPTION>
                                            Charge
                                Balance     for the   Payments or reductions    Balance
   Type of Liability         June 24, 2000   period       for the period     June 30, 2001
   -----------------         ------------- ---------- ---------------------- -------------
   <S>                       <C>           <C>        <C>                    <C>
   Employee termination
    Benefit costs..........       $--      $2,185,000      $(1,328,000)        $857,000
   Facility closure costs..        --       1,315,000         (643,000)         672,000
</TABLE>

   The second restructuring resulted in the Company recording an additional
restructuring charge of $3,645,000 to provide for costs associated with the
Company's decision to eliminate excess capacity by closing a manufacturing
facility in Ogden, Utah and a leased distribution facility in Sudbury,
Massachusetts, along with

                                     F-10
<PAGE>

other actions to reduce the workforce in various locations. Approximately 175
employees have been or will be affected by the restructuring, either through
elimination of their positions or relocation. Pursuant to this plan, the
following charges and payments have been recorded:

<TABLE>
<CAPTION>
                                Balance    Charge for Payments or reductions    Balance
   Type of Liability         June 24, 2000 the period     for the period     June 30, 2001
   -----------------         ------------- ---------- ---------------------- -------------
   <S>                       <C>           <C>        <C>                    <C>
   Employee termination
    benefit costs..........       $--      $2,900,000       $(509,000)        $2,391,000
   Facility closure costs..        --         745,000             --             745,000
</TABLE>

   The activities related to all restructuring actions identified above are
anticipated to be completed by the Company during fiscal year 2002.

4. Debt Obligations and Leases

   The Company has maintained a committed line of credit up to $200,000,000
over the past three years (the "Line of Credit"). In July 2001, subsequent to
the end of the fiscal year, the Company amended and restated the Line of
Credit to extend the maturity date to July 2004. Under the Line of Credit, the
Company has the option to borrow at the Eurodollar rate plus a spread or the
agent bank's base lending rate prevailing from time to time. The effective
interest rate as of June 30, 2001 and June 24, 2000 was 4.8% and 7.4%,
respectively. The credit agreement contains various restrictive covenants
which, among other things, require the Company to maintain certain minimum
levels of consolidated net worth and specific consolidated debt and fixed
charge ratios. The Company was in compliance with such covenants and as of
June 30, 2001, $178,500,000 was outstanding under this line. Debt issuance
costs incurred in connection with this facility are amortized over the term of
the agreement using the effective-interest method.

   In addition, the Company has entered into a revolving line of credit with a
bank in the amount of $10,000,000, maturing July 2002. The terms and
conditions of this line are substantially similar to the Line of Credit
described above. There were no borrowings outstanding under this arrangement
as of June 30, 2001.

   The Company has a $788,000 seven-year bank term loan with annual interest
of 9.25% maturing December 2006. The loan is secured by certain property,
plant and equipment at the Company's Tennessee distribution facility.

   The Company has $670,000 and $296,000 outstanding at June 30, 2001 under an
unsecured, uncommitted letter of credit line and standby letter of credit,
respectively.

   The Company leases facilities and equipment under long-term leases with
unrelated parties; several of these qualify as capitalized leases. The future
minimum rental commitments for leases of certain facilities and equipment are
as follows:

<TABLE>
<CAPTION>
                                                        Operating  Capitalized
   Fiscal Year Ended June                                Leases      Leases
   ----------------------                              ----------- -----------
   <S>                                                 <C>         <C>
   2002............................................... $ 5,808,000 $1,514,000
   2003...............................................   4,741,000  1,171,000
   2004...............................................   3,984,000    363,000
   2005...............................................   3,628,000    101,000
   2006...............................................   3,446,000      6,000
   Thereafter.........................................   2,025,000        --
                                                       ----------- ----------
   Total minimum lease payments....................... $23,632,000  3,155,000
                                                       ===========
   Less amount representing interest..................                282,000
   Present value of net minimum lease payments
    including current
                                                                   ----------
   maturities of $1,323,000...........................             $2,873,000
                                                                   ==========
</TABLE>

   The Company's investment in real property under capital leases (net) was
$2,676,000 and $2,428,000 in 2001 and 2000, respectively.

                                     F-11
<PAGE>

   Total rental expense was $7,674,000, $6,476,000 and $6,587,000, in 2001,
2000, and 1999, respectively. Included in those amounts were payments for
properties leased from a former executive officer of $1,174,000, $1,035,000
and $1,171,000 in 2001, 2000 and 1999, respectively.

5. Financial Instruments

   In order to minimize exposure to foreign currency fluctuations with respect
to foreign currency exposures, the Company may enter into forward exchange
rate contracts for the amount of the exposure. At June 30, 2001, the Company
had no outstanding forward currency contracts. Gains or losses on those
previously closed have been immaterial.

   The Company has entered into seven interest rate swap agreements with three
major commercial banks in order to effectively convert the interest rate of a
portion of the Company's outstanding revolving credit debt from a Eurodollar-
based floating rate to a fixed rate. The agreements expire on different dates,
and the total notional principal amount decreases over time. Although the
Company is exposed to credit and market risk in the event of future non-
performance by any of the banks, management has no reason to believe that such
an event will occur. Information regarding the agreements as of June 30, 2001
follows:

<TABLE>
<CAPTION>
                                         Fixed                     Agreement
   Notional Principal Amount         Interest Rate Fair Value   Expiration Date
   -------------------------         ------------- -----------  ----------------
   <S>                               <C>           <C>          <C>
   $15,000,000......................     5.71%     $  (165,000)  January 8, 2002
    25,000,000......................     6.44         (722,000) October 19, 2002
    25,000,000......................     4.69         (132,000) December 8, 2002
    25,000,000......................     6.95       (1,151,000)    March 7, 2003
    25,000,000......................     7.10       (1,178,000)    June 29, 2003
    25,000,000......................     6.91       (1,239,000)     July 7, 2003
    20,000,000......................     5.00           70,000      June 8, 2004
</TABLE>

   As of June 30, 2001 and June 24, 2000, the carrying value of all other
financial instruments approximated fair value.

6.  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 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. The Company
also has authorized but not issued 1,000,000 shares of $1.00 par value
preferred stock.

   On October 23, 1998, the Company's Board of Directors authorized the
repurchase of up to two million additional shares of the Company's common
stock over a two year period, replacing an earlier authorization. As of
October 20, 2000, the expiration of the 1998 authorization, 1,403,257 shares
had been purchased at a cumulative cost of $33,718,000. On October 20, 2000,
the Company's Board of Directors authorized the repurchase of up to two
million shares, replacing the expiring 1998 authorization. The new
authorization expires on October 31, 2003. As of June 30, 2001, 797,400 shares
had been purchased under the October 2000, authorization at a cumulative cost
of $12,147,000.

7. Stock Options And Awards

   At the Company's October 1997 annual meeting, the stockholders approved the
NEBS Key Employee and Eligible Director Stock Option and Stock Appreciation
Rights Plan (the "1997 Plan"). The 1997 Plan amended and restated the
Company's 1990 plan and 1994 plan and incorporated the two plans into the 1997
Plan. Under the 1997 Plan, the Company was authorized to issue 1,300,000
shares of common stock pursuant to the granting

                                     F-12
<PAGE>

of stock options or stock appreciation rights in addition to the shares
remaining available for issuance under the 1990 and 1994 option plans (these
plans had authorized the issuance of up to 1,200,000 and 1,000,000 shares,
respectively).

   In addition to shares issuable under these plans, the Company approved and
adopted the NEBS 2000 Stock Option Plan for PremiumWear Employees (the "2000
Plan"). Under the 2000 Plan, the Company was authorized to issue 105,083
shares of the Company's common stock pursuant to the granting of stock
options.

   Under the terms of the Company's stock option plans, options are granted to
purchase stock at fair market value on the date of the option grant. Options
granted have been exercisable in full in terms of up to nine years from the
date of grant and the options expire no later than ten years from the date of
grant. Generally, the options vest and become exercisable over a four year
period. As of June 30, 2001, 2,737,933 shares of common stock are reserved for
issuance under the Company's stock option plans, of which 2,437,037 are
subject to outstanding options and 300,896 remain available for future option
grants. During fiscal 2000, the Company repurchased outstanding options for
861,385 shares at a cost of $430,693 and charged such buyout amount to
compensation expense in general and administrative expenses.

   Options for 1,464,204, 1,158,775 and 1,053,769 shares were currently
exercisable under all option arrangements at June 30, 2001, June 24, 2000 and
June 26, 1999, respectively. There were no outstanding stock appreciation
rights under any of the plans during 2001, 2000 or 1999.

   A summary of activity under the Company's stock option plans during 2001,
2000, and 1999 follows:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                        Number of    Per Share       Average
                                         Shares     Option Price  Exercise Price
                                        ---------  -------------- --------------
   <S>                                  <C>        <C>            <C>
   June 27, 1998....................... 1,891,870  $14.75 - 33.13     $22.66
     Granted...........................   597,452   28.88 - 33.88      28.03
     Exercised.........................  (188,344)  14.75 - 30.00      19.03
     Expired...........................   (92,867)  15.38 - 33.13      28.51
                                        ---------
   June 26, 1999....................... 2,208,111   14.75 - 33.88      24.20
                                        ---------
     Granted...........................   407,300   13.88 - 27.69      27.35
     Repurchased.......................  (861,385)  25.75 - 33.88      28.34
     Exercised.........................   (30,233)  14.75 - 20.75      17.31
     Expired...........................  (112,070)  25.75 - 33.88      28.68
                                        ---------
   June 24, 2000....................... 1,611,723   14.75 - 33.88      22.63
                                        ---------
     Granted........................... 1,054,151   15.00 - 20.88      17.28
     Exercised.........................   (96,000)  14.75 - 19.75      15.27
     Expired...........................  (132,837)  15.00 - 30.00      19.90
                                        ---------
   June 30, 2001....................... 2,437,037   14.75 - 33.88      20.73
                                        =========
</TABLE>

   The following table presents information with regard to all stock options
outstanding at June 30, 2001:

<TABLE>
<CAPTION>
                                    Options Outstanding           Options Exercisable
                             --------------------------------- --------------------------
                                          Weighted-
                                           Average
                                          Remaining  Weighted-
                                         Contractual  Average                Weighted-
                               Number       Life     Exercise    Number       Average
   Range of Exercise Price   Outstanding   (years)     Price   Exercisable Exercise Price
   -----------------------   ----------- ----------- --------- ----------- --------------
   <S>                       <C>         <C>         <C>       <C>         <C>
   $13.88 - 16.56..........     733,789     7.94      $15.10      327,268      $15.19
    17.88 - 19.75..........     552,092     5.31       18.51      456,842       18.35
    20.13 - 21.50..........     405,456     7.97       20.85      163,581       20.78
    25.75 - 33.13..........     745,700     6.81       27.87      516,513       27.64
                              ---------     ----      ------    ---------      ------
                              2,437,037     7.09      $20.73    1,464,204      $21.20
                              =========     ====      ======    =========      ======
</TABLE>


                                     F-13
<PAGE>

   The Company applies APB Opinion No. 25 to account for its various stock
plans. Accordingly, pursuant to the terms of the plans, no compensation cost
has been recognized for the stock plans. However, if the Company had
determined compensation cost for stock option grants made since 1996 under the
provisions of SFAS No. 123, (the 1996 date coinciding with the adoption of
SFAS No. 123 for disclosure purposes), the Company's net income and net income
per share would have been reduced to the pro forma amounts shown below:

<TABLE>
<CAPTION>
                                               2001        2000        1999
                                            ----------- ----------- -----------
   <S>                                      <C>         <C>         <C>
   Net income:
     As reported........................... $18,743,000 $29,358,000 $26,451,000
     Pro forma.............................  16,827,000  27,921,000  24,911,000
   Net income per diluted share:
     As reported........................... $      1.43 $      2.12 $      1.81
     Pro forma.............................        1.28        2.01        1.70
</TABLE>

   The pro forma net income reflects the compensation cost only for those
options granted since 1996. Compensation cost is reflected over a stock
option's vesting period and compensation cost for options granted prior to
June 30, 1995 is not considered. Therefore, the full potential impact of
compensation cost for the Company's stock plans under SFAS No. 123 may not be
reflected in the pro forma net income amounts presented above.

   The fair value of each stock option granted in 2001, 2000 and 1999 under
the Company's stock option plans was estimated on the date of grant using the
Black-Scholes option-pricing model. The following key assumptions were used to
value grants issued for each year:

<TABLE>
<CAPTION>
                                  Weighted-
                                   Average        Average               Dividend
                                Risk Free Rate Expected Life Volatility  Yield
                                -------------- ------------- ---------- --------
   <S>                          <C>            <C>           <C>        <C>
   1999........................      5.94%       5.5 years     24.12%     2.8%
   2000........................      6.20%       5.5 years     21.49%     2.9%
   2001........................      4.73%       5.1 years     33.98%     4.6%
</TABLE>

   The weighted-average fair values per share of stock options granted during
2001, 2000 and 1999 were $4.11, $6.41 and $6.98, respectively. It should be
noted that the Black-Scholes option pricing model used in the calculation was
designed to value readily tradable stock options with relatively short lives.
The options granted to employees are not tradable and have contractual lives
of up to ten years. Management believes that the assumptions used and the
model applied to value the awards yield a reasonable estimate of the fair
value of the grants made under the circumstances.

   The Company also maintains a Stock Compensation Plan (the "Stock
Compensation Plan"). Under the Stock Compensation Plan, up to 300,000 shares
of common stock may be issued to the Company's directors and employees in lieu
of cash compensation otherwise payable. At June 30, 2001, 259,871 shares
remain reserved for issuance under the Stock Compensation Plan.

   During fiscal year 2001 and 2000, the Company awarded restricted stock to
several executive employees under the Stock Compensation Plan. For these
awards, which vest after three years, the fair market value of the shares is
expensed over the vesting period. The unamortized portion of deferred
compensation expense is recorded as a reduction of shareholder's equity.
Recipients of all restricted shares have the right to vote such shares and
receive dividends.

8. Benefit Plans

   The Company sponsors several 401(k) plans covering substantially all of the
Company's domestic employees. Contributions to the plans are made by way of
participant salary deferrals and Company contributions. Company contributions
include combinations of matching, fixed and discretionary contributions,

                                     F-14
<PAGE>

subject to a maximum Company obligation ranging from 4% to 9% of an employee's
eligible pay. The Company's aggregate contributions to the plans were
$7,017,000 in fiscal 2001, $6,638,000 in fiscal 2000, and $6,410,000 in fiscal
1999.

   During fiscal 1998, the Company amended one of its Canadian defined benefit
plans to freeze participation at December 31, 1997 and recorded a plan
curtailment gain of $313,000 associated with this action. The Company recorded
a plan settlement gain of $259,000 during 1999 related to the Canadian plan
termination.

   SFAS No. 87, "Employers' Accounting for Pensions," requires the accrual of
pension benefits during the years an employee provides service to the Company.
The Company has 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
each participant's annual earnings and years of service. Provision for this
benefit is charged to operations over the participant's term of employment.

   The following table sets forth the plans' funded status and obligations as
of June 30, 2001 and June 24, 2000:

<TABLE>
<CAPTION>
                                                          2001         2000
                                                       -----------  ----------
   <S>                                                 <C>          <C>
   Change in benefit obligation:
     Benefit obligation at beginning of year.........  $ 1,350,000  $1,064,000
     Service cost....................................      185,000     144,000
     Interest cost...................................      119,000      81,000
     Actuarial loss (excluding assumptions changes)..    1,280,000     235,000
     Actuarial loss/(gain) due to assumptions
      changes........................................      141,000    (174,000)
                                                       -----------  ----------
       Benefit obligation at end of year.............  $ 3,075,000  $1,350,000
                                                       ===========  ==========
   Funded status:
     Accumulated benefit obligation ("ABO") in excess
      of plan assets.................................  $ 3,075,000  $1,350,000
     Unrecognized net loss...........................   (1,481,000)    (65,000)
     Unrecognized prior service cost.................     (766,000)   (842,000)
                                                       -----------  ----------
       Net benefit liability.........................  $   828,000  $  443,000
                                                       ===========  ==========
   Amounts recognized in the consolidated balance
    sheets:
     Accrued benefit liability.......................  $ 2,526,000   $ 915,000
     Intangible asset................................     (766,000)   (472,000)
     Accumulated other comprehensive income..........     (932,000)        --
                                                       -----------  ----------
       Net amount recognized.........................  $   828,000  $  443,000
                                                       ===========  ==========
</TABLE>


   The components of net periodic benefit cost for 2001, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                      2001     2000      1999
                                                    -------- --------  --------
   <S>                                              <C>      <C>       <C>
   Service cost.................................... $185,000 $144,000  $ 71,000
   Interest cost...................................  119,000   81,000    36,000
   Amortization of prior service cost..............   77,000   77,000    38,000
   Recognized actuarial loss (gain)................    5,000   (5,000)      --
                                                    -------- --------  --------
     Net periodic benefit cost..................... $386,000 $297,000  $145,000
                                                    ======== ========  ========
</TABLE>

   For measurement purposes a 4.0% annual rate of increase in compensation
cost was assumed in 2001 and 2000.

   The weighted average discount rate used in determining the ABO was 7.25%
and 7.75% in 2001 and 2000, respectively.

                                     F-15
<PAGE>

   SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," 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 Company officers and
health and insurance benefits for certain PremiumWear, Inc. retirees. The
plans are contributory, and retirees' contributions are adjusted annually.

   The following table sets forth the plans' funded status and obligations as
of June 30, 2001 and June 24, 2000:

<TABLE>
<CAPTION>
                                                             2001       2000
                                                          ---------- ----------
   <S>                                                    <C>        <C>
   Accumulated postretirement benefit obligation
    ("APBO"):
     Retirees...........................................  $1,102,000 $  394,000
     Eligible active plan participants..................         --         --
     Other active plan participants.....................     499,000    447,000
                                                          ---------- ----------
       Total............................................   1,601,000    841,000
   Plan assets at fair value............................         --         --
     Accumulated postretirement benefit obligation in
      excess of plan assets.............................   1,601,000    841,000
     Unrecognized net gain..............................     551,000    493,000
                                                          ---------- ----------
       Net postretirement liability (included in accrued
        employee benefit expense).......................  $2,152,000 $1,334,000
                                                          ========== ==========
</TABLE>

   The components of net periodic postretirement benefits cost for 2001, 2000
and 1999 are as follows:

<TABLE>
<CAPTION>
                                                   2001      2000      1999
                                                 --------  --------  --------
   <S>                                           <C>       <C>       <C>
   Service cost................................. $ 71,000  $ 76,000  $ 62,000
   Interest on accumulated postretirement
    benefit obligation..........................   62,000    68,000    70,000
   Amortization of gain.........................  (41,000)  (17,000)  (14,000)
                                                 --------  --------  --------
     Net periodic postretirement cost........... $ 92,000  $127,000  $118,000
                                                 ========  ========  ========
</TABLE>

   For measurement purposes, a 7.0% annual rate of increase in the cost of
providing medical benefits was assumed in 2001 with a reduction to a trend
rate of 6% for fiscal 2002 and beyond.

   The weighted average discount rate used in determining the APBO was 7.5% in
2001 and 2000.

   The health care cost trend has an effect on the amounts reported. An
increase of 1% in the rate of increase would have had an effect of increasing
the APBO by $187,000 and the net periodic postretirement benefits cost by
$4,000.

9. Income Taxes

   The components of income before income taxes were as follows:

<TABLE>
<CAPTION>
                                               2001        2000         1999
                                            ----------- -----------  -----------
   <S>                                      <C>         <C>          <C>
   United States........................... $30,312,000 $46,166,000  $43,069,000
   Foreign.................................     414,000    (469,000)     673,000
                                            ----------- -----------  -----------
     Total................................. $30,726,000 $45,697,000  $43,742,000
                                            =========== ===========  ===========
</TABLE>

                                     F-16
<PAGE>

   Provisions for income taxes under SFAS No. 109 in 2001, 2000 and 1999
consist of:

<TABLE>
<CAPTION>
                                             2001         2000         1999
                                          -----------  -----------  -----------
   <S>                                    <C>          <C>          <C>
   Currently payable:
     Federal............................. $10,884,000  $15,270,000  $14,253,000
     State...............................     726,000     (126,000)   3,004,000
     Foreign.............................     405,000     (268,000)     674,000
                                          -----------  -----------  -----------
     Total...............................  12,015,000   14,876,000   17,931,000
   Deferred..............................     (32,000)   1,463,000     (640,000)
                                          -----------  -----------  -----------
       Total............................. $11,983,000  $16,339,000  $17,291,000
                                          ===========  ===========  ===========
</TABLE>

   The tax effects of significant items comprising the Company's net deferred
tax assets as of June 30, 2001 and June 24, 2000 are as follows:
<TABLE>
<CAPTION>
                                    2001                      2000
                           ------------------------  ------------------------
                             Current    Noncurrent     Current    Noncurrent
                           -----------  -----------  -----------  -----------
<S>                        <C>          <C>          <C>          <C>
Deferred tax assets:
  Accrued vacation........ $ 1,655,000               $ 1,550,000
  Allowance for doubtful
   accounts...............   1,762,000                 1,512,000
  Accrued expenses........   3,159,000                   906,000
  Sales returns and
   allowances.............     426,000                   360,000
  Inventory...............   2,468,000                 1,786,000
  Employee benefit
   reserves...............   3,040,000                 2,127,000
  Other comprehensive
   income.................   2,406,000
  Amortization of
   intangible assets......         --   $ 8,739,000          --   $ 6,780,000
  Depreciation............         --     2,509,000          --     1,590,000
  Net operating loss
   carryforward...........         --     4,730,000          --           --
  Business tax credit
   carryforward...........         --        69,000          --           --
  Other...................     217,000      939,000          --       426,000
Deferred tax liabilities:
  Amortization............         --    (5,153,000)         --    (3,690,000)
  Depreciation............         --    (8,635,000)         --    (6,066,000)
  Deferred mail
   advertising............  (1,338,000)         --    (1,446,000)         --
  Other...................  (2,040,000)    (669,000)    (315,000)    (822,000)
                           -----------  -----------  -----------  -----------
Net deferred tax
 assets/(liabilities)..... $11,755,000  $ 2,529,000  $ 6,480,000  $(1,782,000)
                           ===========  ===========  ===========  ===========
</TABLE>

   Current and non-current amounts have been further segregated on the balance
sheet due to the effect of different tax jurisdictions.

   As a result of the PremiumWear, Inc. acquisition, the Company has a net
operating loss carryforward for regular federal tax purposes of approximately
$15,635,000, which will begin to expire in 2005. The utilization of these
losses is subject to an annual limitation as set forth in IRC 382. The maximum
amount of net operating losses that may be utilized by the Company in any
period is limited to $2,176,000 per year. In addition, as a result of the
acquisition, the Company has general business tax credit carryforwards of
$69,000, which expire between 2001 and 2004.

   A reconciliation of the provisions for income taxes to the U.S. Federal
income tax statutory rates follows:

<TABLE>
<CAPTION>
                                                               2001  2000  1999
                                                               ----  ----  ----
     <S>                                                       <C>   <C>   <C>
     Statutory tax rate....................................... 35.0% 35.0% 35.0%
     State income taxes (less federal tax benefits)...........   .8   2.4   4.2
     Letter ruling benefit (less federal tax expense).........   --  (2.3)   --
     Other--net...............................................  3.2    .7    .3
                                                               ----  ----  ----
     Effective tax rate....................................... 39.0% 35.8% 39.5%
                                                               ====  ====  ====
</TABLE>

                                     F-17
<PAGE>

   The letter ruling benefit shown above is the result of a one-time tax
benefit due to a favorable state tax letter ruling received during fiscal year
2000 affecting prior years.

10. Segment Information

   In the first quarter of 2001, the Company changed its internal reporting
for segments. This change was precipitated by the acquisition of PremiumWear,
Inc. and the realignment of the Company's international subsidiaries. The
Company has now identified five reportable segments. Prior year figures have
been restated so as to match the current year presentation. The first is
"Direct Marketing-US" and represents those business operations that sell
primarily printed products such as checks and business forms to small
businesses through direct marketing in the United States. The second segment,
"Direct Sales-US," also sells primarily checks and business forms to small
businesses; however, they sell primarily through distributors or by directly
selling to the customer in the United States. The third segment, "Apparel",
utilizes independent sales representatives to market its specialty apparel
products and to solicit orders from customers in the promotional
products/advertising specialty industry. "Packaging and Display Products", the
fourth segment, primarily resells packaging and shipping supplies and retail
signage marketed through a combination of direct marketing and direct selling
efforts. The fifth segment, "International", sells primarily printed products
such as checks and business forms to small businesses in Europe and Canada
through direct marketing, distributors or by directly selling to the customer.

   The Company evaluates segment performance and allocates resources based on
a profit from operations measure. This measure is akin to income from
operations as reported on the statements of consolidated income in that it
excludes interest and other income and expense. This measure, however, also
excludes certain items that are reported within income from operations. These
include management incentive compensation, amortization, 401(k) expenses,
integration charges, restructuring charges, impairment charges and corporate
expenses. The chief operating decision-maker, in assessing segment results,
does not consider these items. In order to reconcile the segment numbers to
the Company's income before income taxes, adjustments representing the items
listed above totaling $56,283,000, $39,747,000 and $40,954,000 for the years
ended June 30, 2001, June 24, 2000 and June 26, 1999, respectively, need to be
made to the reported segment results.

   Net sales and profit from operations for each of the Company's business
segments are set forth below:

<TABLE>
<CAPTION>
                            Direct       Direct                 Packaging and
                         Marketing-US   Sales-US     Apparel   Display Products International    Total
                         ------------ ------------ ----------- ---------------- ------------- ------------
<S>                      <C>          <C>          <C>         <C>              <C>           <C>
2001
 Net sales.............. $299,135,000 $104,603,000 $56,853,000   $84,354,000     $41,146,000  $586,091,000
 Profit from
  operations............   69,097,000    8,661,000   2,677,000     3,729,000       2,845,000    87,009,000
 Adjustments listed
  above.................                                                                       (56,283,000)
 Income before income
  taxes.................                                                                        30,726,000
2000
 Net sales..............  299,908,000   99,196,000         --     82,023,000      41,926,000   523,053,000
 Profit from
  operations............   70,998,000    8,234,000         --      4,565,000       1,647,000    85,444,000
 Adjustments listed
  above.................                                                                       (39,747,000)
 Income before income
  taxes.................                                                                        45,697,000
1999
 Net sales..............  297,643,000   88,869,000         --     77,000,000      40,421,000   503,933,000
 Profit from
  operations............   67,797,000   10,741,000         --      3,874,000       2,284,000    84,696,000
 Adjustments listed
  above.................                                                                       (40,954,000)
 Income before income
  taxes.................                                                                        43,742,000
</TABLE>

                                     F-18
<PAGE>

11. Comprehensive Income

   Other Comprehensive Income consists of foreign currency translation
adjustments, unrealized gains/losses on investments and changes in the fair
market value of cash flow hedges. Comprehensive income for the year ending
June 30, 2001 also includes the impact of the Company's adoption of SFAS No.
133 discussed in note 1. The Company's comprehensive income is set forth
below:

<TABLE>
<CAPTION>
                                          June 30,     June 24,     June 26,
                                            2001         2000         1999
                                         -----------  -----------  -----------
   <S>                                   <C>          <C>          <C>
   Net Income..........................  $18,743,000  $29,358,000  $26,451,000
   Change in unrealized gains and
    losses on investments, net of tax..     (213,000)      25,000          --
   Change in foreign currency
    translation adjustments, net.......     (635,000)    (770,000)    (317,000)
   Pension adjustments, net of tax.....     (542,000)         --           --
   Unrealized losses on derivatives
    held for hedging purposes, net of
    tax................................   (3,019,000)         --           --
                                         -----------  -----------  -----------
   Other comprehensive income before
    cumulative effect adjustment.......   14,334,000   28,613,000   26,134,000
   Cumulative effect adjustment
    recorded upon the adoption of SFAS
    No. 133, net of tax................      391,000          --           --
                                         -----------  -----------  -----------
   Comprehensive Income................  $14,725,000  $28,613,000  $26,134,000
                                         ===========  ===========  ===========
</TABLE>

12. Quarterly Financial Information (Unaudited)

   The following financial information is in thousands of dollars, except per
share amounts.

<TABLE>
<CAPTION>
                                    First    Second   Third    Fourth   Total
                                   Quarter  Quarter  Quarter  Quarter    Year
                                   -------- -------- -------- -------- --------
   <S>                             <C>      <C>      <C>      <C>      <C>
   2001
     Net sales.................... $141,118 $166,475 $132,857 $145,641 $586,091
     Gross profit.................   79,195   95,093   74,472   81,873  330,633
     Income before income taxes...    4,630   14,429    5,815    5,852   30,726
     Net income...................    2,824    8,802    3,547    3,570   18,743
     Diluted earnings per share...      .21      .66      .27      .28     1.43
                                   ======== ======== ======== ======== ========
     Dividends per share.......... $    .20 $    .20 $    .20 $    .20 $    .80
                                   ======== ======== ======== ======== ========
   2000
     Net sales.................... $122,155 $147,592 $126,640 $126,666 $523,053
     Gross profit.................   73,475   87,732   74,812   75,853  311,872
     Income before income taxes...    9,779   14,206   10,825   10,887   45,697
     Net income...................    5,977    8,695    7,481    7,205   29,358
     Diluted earnings per share...      .42      .62      .55      .53     2.12
                                   ======== ======== ======== ======== ========
     Dividends per share.......... $    .20 $    .20 $    .20 $    .20 $    .80
                                   ======== ======== ======== ======== ========
</TABLE>

13. Subsequent Events

   In August 2001, the Company invested $17.7 million in the common stock of
Advantage Business Service Holdings, Inc. This investment is in addition to
the Company's current holdings at June 30, 2001 and in aggregate represents a
voting interest of 17.7%.

                                     F-19
<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 subsidiaries as of June 30, 2001 and June 24, 2000
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, 2001. Our audits also included the financial statement schedule
listed under Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 New England Business Service,
Inc. and subsidiaries as of June 30, 2001 and June 24, 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2001 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

   As discussed in Note 1 to the financial statements, in 2001 the Company
adopted SFAS 133 "Accounting for Derivative Instruments and Hedging Activity"
and EITF 00-10, "Accounting for Shipping and Handling Fees and Costs."

/s/ Deloitte & Touche LLP

Boston, Massachusetts
July 31, 2001

                                     F-20
<PAGE>

                                                                     SCHEDULE II

              NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS
                           (in thousands of dollars)

<TABLE>
<CAPTION>
                                        Additions
                          Balance at ---------------    Deductions  Balance at
                          Beginning   Charged              from       End of
                            Period   to Income Other    Reserves(2)   Period
                          ---------- --------- -----    ----------- ----------
<S>                       <C>        <C>       <C>      <C>         <C>
Reserves deducted from
 assets to which they
 apply:
 For doubtful accounts
  receivable:
  Year ended June 26,
   1999..................   4,257      4,151       0       3,509      4,899
  Year ended June 24,
   2000..................   4,899      4,203       0       4,065      5,037
  Year ended June 30,
   2001..................   5,037      4,659     422(1)    4,774      5,344
 For inventory
  obsolescence:
  Year ended June 26,
   1999..................   3,447      1,523       0       2,237      2,733
  Year ended June 24,
   2000..................   2,733      1,008       0       1,227      2,514
  Year ended June 30,
   2001..................   2,514      8,736   1,700(1)    7,355      5,595
Reserves included in
 liabilities:
 For sales returns and
  allowances:
  Year ended June 26,
   1999..................   1,166        985       0       1,166        985
  Year ended June 24,
   2000..................     985      1,059       0         985      1,059
  Year ended June 30,
   2001..................   1,059      1,021       0       1,059      1,021
</TABLE>
--------
(1)  Acquired in acquisitions.
(2)  Accounts written off.

                                      F-21
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
  3.1.1  Certificate of Incorporation of the Registrant. (Incorporated by
         reference to Exhibit 7(a) to the Company's Current Report on Form 8-K
         dated October 31, 1986.)

  3.1.2  Certificate of Merger of New England Business Service, Inc. (a
         Massachusetts corporation) and the Company, dated October 24, 1986
         amending the Certificate of Incorporation of the Company by adding
         Articles 14 and 15 thereto. (Incorporated by reference to Exhibit 7(a)
         to the Company's Current Report on Form 8-K dated October 31, 1986.)

  3.1.3  Certificate of Designations, Preferences and Rights of Series A
         Participating Preferred Stock of the Company, dated October 27, 1989.
         (Incorporated by reference to Exhibit (3)(c) to the Company's Annual
         Report on Form 10-K for the fiscal year ended June 30, 1995.)

  3.2    By-Laws of the Registrant, as amended through July 28, 2000.
         (Incorporated by reference to Exhibit 3.2 to the Company's Annual
         Report on Form 10-K for the fiscal year ended June 24, 2000.)

  4.1    Specimen stock certificate for shares of Common Stock, par value $1.00
         per share. (Incorporated by reference to Exhibit (4)(a) to the
         Company's Annual Report on Form 10-K for the fiscal year ended June
         30, 1995.)

  4.2    Amended and Restated Rights Agreement, dated as of October 27, 1989 as
         amended as of October 20, 1994 (the "Rights Agreement"), between New
         England Business Service, Inc. and Fleet National Bank (formerly known
         as BankBoston, N.A.), as rights agent, including as Exhibit B the
         forms of Rights Certificate and Election to Exercise. (Incorporated
         byreference to Exhibit 4 of the Company's Current Report on Form 8-K
         dated October 20,1994.)

 10.1    Second Amended and Restated Revolving Credit Agreement dated as of
         July 13, 2001, by and among the Company, Fleet National Bank, and
         certain other financial institutions; filed herewith.

 10.2    Revolving Credit Agreement dated as of July 13, 2001, by and between
         the Company and Fleet National Bank; filed herewith.

 10.3.1  Lease Agreement dated as of March 31, 1997, relating to 33 Union
         Avenue, Sudbury, Massachusetts ("33 Union Avenue Lease"); filed
         herewith.

 10.3.2  Amendment No. 1 to 33 Union Avenue Lease dated as of January 28, 1988;
         filed herewith.

 10.3.3  Assignment and Assumption Agreement as of September 27, 1999 relating
         to 33 Union Avenue Lease; filed herewith.

 10.4    Lease Agreement dated as of June 3, 1998, relating to 1055 East State
         Street, Athens, Ohio; filed herewith.

 10.5    Agreement and Plan of Merger, dated as of May 26, 2000, among the
         Company, Penguin Sub, Inc. and PremiumWear, Inc. (Incorporated by
         reference to Exhibit (d)(1) to the Company's Schedule TO dated June 9,
         2000.)

 10.6*   NEBS 1997 Key Employee and Eligible Director Stock Option and Stock
         Appreciation RightsPlan dated July 25, 1997 (including amendment and
         restatement of the NEBS 1990 KeyEmployee Stock Option and Stock
         Appreciation Rights Plan and the NEBS 1994 KeyEmployee and Eligible
         Director Stock Option and Stock Appreciation Rights Plan), amended
         through October 23, 1998. (Incorporated by reference to Exhibit 10.1
         to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         ended September 26, 1998.)

 10.7*   Stock Option Agreement dated February 2, 1996 between the Company and
         Robert J. Murray. (Incorporated by reference to Exhibit 10.8 to the
         Company's Annual Report on Form 10-K for the fiscal year ended June
         27, 1998.)
</TABLE>

                                      X-1
<PAGE>

<TABLE>

<CAPTION>
 Exhibit
  Number                               Description
 -------                               -----------
 <C>      <S>
 10.8*    NEBS Deferred Compensation Plan for Outside Directors. (Incorporated
          by reference to Exhibit (10)(d) to the Company's Annual Report on
          Form 10-K for the fiscal year ended June 25, 1982.)

 10.9.1*  New England Business Service, Inc. Deferred Compensation Plan dated
          June 25, 1994. (Incorporated by reference to Exhibit (10)(g) to the
          Company's Annual Report on Form 10-K for the fiscal year ended June
          30, 1995.)

 10.9.2*  First Restated Trust Agreement for the New England Business Service,
          Inc. Deferred Compensation Plan, restated effective April 1, 1998.
          (Incorporated by reference to Exhibit 10.11.2 to the Company's Annual
          Report on Form 10-K for the fiscal year ended June 27, 1998.)

 10.10*   Supplemental Retirement Plan for Executive Employees of New England
          Business Service ,Inc. (Incorporated by reference to Exhibit 10.3 to
          the Company's Quarterly Report on Form 10-Q for the fiscal quarter
          ended September 26, 1998.)

 10.11*   New England Business Service, Inc. Stock Compensation Plan dated July
          25, 1994, amended through October 23, 1998. (Incorporated by
          reference to Exhibit 10.2 to the Company's Quarterly Report on Form
          10-Q for the fiscal quarter ended September 26, 1998.)

 10.12*   Form of Restricted Stock Award Agreement issuable under the Company's
          Stock Compensation Plan in connection with the Executive Bonus Plans
          for 1999 and 2000 (Incorporated by reference to Exhibit 10.12 to the
          Company's Annual Report on Form 10-K for the fiscal year ended June
          26, 1999.)

 10.13*   Performance Restricted Stock Plan for 2002; file herewith.

 10.14*   Change in Control Severance Agreement dated August 2, 2001 between
          the Company and Robert J. Murray; filed herewith.

 10.15.1* Form of Change in Control Severance Agreement between the Company and
          certain executive officers of the Company; filed herewith.

 10.15.2* List of executive officers of the Company who have entered into
          Change in Control Severance Agreements and the dates thereof; filed
          herewith.

 10.16*   Employment Agreement dated May 26, 2000 between PremiumWear, Inc. and
          David E. Berg. (Incorporated by reference to Exhibit 99.4 (a) to the
          Current Report on Form 8-K dated May 26, 2000 of PremiumWear, Inc.
          (File No. 000-28501)).

 10.17.1* Amended and Restated Change in Control Severance Agreement dated as
          of May 22, 2000 between PremiumWear, Inc. and David E. Berg.
          (Incorporated by reference to Exhibit 99.3 to the Current Report on
          Form 8-K dated May 26, 2000 of PremiumWear, Inc. (File No. 000-
          28501)).

 10.17.2* First Amendment to Amended and Restated Change in Control Severance
          Agreement dated as of May 26, 2000 between PremiumWear, Inc. and
          David E. Berg. (Incorporated by reference to Exhibit 99.5 (a) to the
          Current Report on Form 8-K dated May 26, 2000 of PremiumWear, Inc.
          (File No. 000-28501)).

 10.18*   Employment Agreement dated June 29, 2001 between the Company and
          Richard T. Riley; filed herewith.

 10.19*   NEBS 2000 Stock Option Plan for PremiumWear Employees dated July 14,
          2000. (Incorporated by reference to Exhibit 99 to the Company's
          Registration Statement on Form S-8 (File No. 333-43028), filed on
          August 4, 2000).

 21       List of Subsidiaries.

</TABLE>

                                      X-2
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                             Description
 -------                            -----------
 <C>     <S>
 23      Independent Auditors Consent--Deloitte & Touche LLP.

 24      Power of Attorney (included in the signature page of this Annual
         Report on Form 10-K).
</TABLE>
--------
*  Identifies a management contract or compensatory plan or arrangement in
   which an executive officer or director of the Company participates.

                                      X-3