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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number 1-05492


NASHUA CORPORATION


(Exact Name of Registrant as Specified in its Charter)


|                                                                                                 |  |                                      
|------------------------------------------------------------------------------------------------ |  | -------------------------------------
|Massachusetts                                                                                    |  | 02-0170100                           
|(State or Other Jurisdiction of
    Incorporation or Organization)                               |  | (IRS Employer
    Identification No.)
|                                                                                                
|11 Trafalgar Square, Suite 201
    Nashua, New Hampshire(Address of Principal Executive Offices) |  | 03063(Zip Code)                      

Registrants telephone number, including area code:


(603) 880-2323


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


|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered
|                              |  |                                          
|Common Stock, par value $1.00 |  | New York Stock Exchange                  

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


None


þ o


þ


o þ




DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS



|                                                                  |                                                                                                                      |  |  |  |  |  |  | 
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                           
|                                                                  | Item 1. Business                                                                                                    
|                                                                  | Item 2. Properties                                                                                                  
|                                                                  | Item 3. Legal Proceedings                                                                                           
|                                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                                         
|PART II                                                          
|                                                                  | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                                  | Item 6. Selected Financial Data(1)                                                                                  
|                                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                 
|                                                                  | Item 8. Financial Statements and Supplementary Data                                                                 
|                                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.                       
|                                                                  | Item 9A. Controls and Procedures                                                                                    
|                                                                  | Item 9B. Other Information                                                                                          
|PART III                                                         
|                                                                  | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                                  | Item 11. Executive Compensation                                                                                     
|                                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|                                                                  | Item 13. Certain Relationships and Related Transactions                                                             
|                                                                  | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                                          
|                                                                  | Item 15. Exhibits and Financial Statement Schedules                                                                 
|SIGNATURES                                                       
|Ex-10.05 Change of Control and Severance Agreement Andrew Albert 
|Ex-10.06 Change of Control and Severance Agreement John Patenaude
|Ex-10.07 Change of Control and Severance Agreement Thomas Pagel  
|Ex-10.08 Change of Control and Severance Agreement Margaret Adams
|Ex-10.15 Named Executive 2005 Salaries                           
|Ex-10.16 Non-employee Director Compensation                      
|Ex-21.01 Subsidiaries of the Registrant                          
|Ex-23.01 Consent of Ernst & Young LLP                            
|Ex-31.01 Sect. 302 Certification of the C.E.O.                   
|Ex-31.02 Sect. 302 Certification of the C.F.O.                   
|Ex-32.01 Sect. 906 Certification of the C.E.O.                   
|Ex-32.02 Sect. 906 Certification of the C.F.O.                   



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PART I







|        |         
|------- | --------
|Item 1. | Business

General




www.nashua.com


Operating Segments












Label Products Segment








2



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Specialty Paper Products Segment
















3



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Imaging Supplies Segment










4



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Information About Major Customers




Development of New Products




Intellectual Property




Manufacturing Operations






| |   |                          
| | - | -------------------------
| |  | Nashua, New Hampshire    
|
| |  | Merrimack, New Hampshire 
|
| |  | Omaha, Nebraska          
|
| |  | Jefferson City, Tennessee
|
| |  | Morristown, Tennessee    
|
| |  | Vernon, California       
|
| |  | St. Louis, Missouri      



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Research and Development




Environmental Matters






6



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Executive Officers




|                   |  |     |    |  |          |                                                                                            
|------------------ |  | --- | -- |  | -------- | -------------------------------------------------------------------------------------------
|Name               |  | Age |    |  | Position
|                   |  |     |    |  |         
|Andrew B. Albert   |  |     | 59 |  |          | Chairman, President and Chief Executive Officer                                            
|John L. Patenaude  |  |     | 55 |  |          | Vice President  Finance, Chief Financial Officer and
    Treasurer                        
|Margaret S. Adams  |  |     | 49 |  |          | Vice President, Chief Information Officer and President of the
    Converted Paper Division
|Robert S. Amrein   |  |     | 50 |  |          | Vice President, General Counsel and Clerk/Secretary                                        
|Margaret M. Callan |  |     | 38 |  |          | Corporate Controller and Chief Accounting Officer                                          
|Donna J. DiGiovine |  |     | 43 |  |          | Vice President, President of the Toner Products Division and the
    Coated Paper Division 
|Thomas R. Pagel    |  |     | 48 |  |          | Vice President, President of the Label Products Division                                   

















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Employees






|                                                                              |  |               |     |  |          |  |               |                 |  |  |                | 
|----------------------------------------------------------------------------- |  | ------------- | --- |  | -------- |  | ------------- | --------------- |  |  | -------------- | 
|                                                                              |  | Approximate # |     |  |          |  |              
|                                                                              |  | of Employees  |     |  |          |  |              
|Union                                                                         |  | Covered       |     |  | Location |  |               | Expiration Date | 
|                                                                              |  |               |     |  |          |  |               |                 | 
|Paper, Allied Industrial, Chemical and Energy Workers
    International Union |  |               | 103 |  |          |  | Omaha, NE     |                 |  |  | March 31, 2007 | 
|Paper, Allied Industrial, Chemical and Energy Workers
    International Union |  |               | 120 |  |          |  | Merrimack, NH |                 |  |  | April 2, 2006  | 
|United Commercial Food Workers Union                                          |  |               | 43  |  |          |  | Vernon, CA    |                 |  |  | March 5, 2008  | 
|Other                                                                         |  |               | 8   |  |          |  | Merrimack, NH |                 |  |  | April 2, 2006  | 

Forward-Looking and Cautionary Statements




Risk Factors






| |                                 
| | --------------------------------
| | We face significant competition.



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| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increasing pricing pressures from competitors in the markets for
    our products;                                                                              
|
| |  | a faster decline than anticipated in the more mature, higher
    margin product lines, such as heat seal and dry gum products,
    due to changing technologies;
|
| |  | our ability to pass on raw material price increases to
    customers; and                                                                                       
|
| |  | our ability to capture market share in the radio frequency
    identification label market.                                                                     







| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Increases in raw material costs or the unavailability of
    raw materials may adversely affect our profitability.







| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Declining returns in the investment portfolio of our
    defined benefit plans will require us to increase cash
    contributions to the plans.



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| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Our future results may be adversely affected by receiving
    fewer savings from our corporate initiatives than
    expected.





| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | We are dependent on key personnel and on the retention and
    recruiting of key personnel for our future success.







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | New technologies or changes in consumer preferences may
    affect our ability to compete successfully.





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| |                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our strategy to acquire complementary businesses and to
    divest non-strategic businesses could cause our financial
    results to fluctuate and could expose us to significant business
    risks.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | We may be involved in litigation relating to our
    intellectual property rights, which may have an adverse impact
    on our business.







| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Our information systems are critical to our business, and
    a failure of those systems could materially harm us.



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| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Compliance with changing regulation of corporate
    governance and public disclosure may result in additional risks
    and expenses.








|        |           
|------- | ----------
|Item 2. | Properties





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Principal Properties


|                                 |                                    |              |  |         |                             |  |                                            
|-------------------------------- | ---------------------------------- | ------------ |  | ------- | --------------------------- |  | -------------------------------------------
|                                 |                                    | Total Square |  |         |                            
|Location                         |                                    | Footage      |  |         | Nature of Products Produced
|                                 |                                    |              |  |         |                            
|Corporate                        |                                    |              |  |         |                             | 
|                                 | Nashua, New Hampshire (leased)     |              |  | 5,000   | (1)                         |  | none (corporate offices)                   
|                                 | Park Ridge, Illinois (leased)      |              |  | 3,000   | (1)                         |  | none (administrative offices)              
|Specialty Paper Products Segment |                                    |              |  |         |                             | 
|                                 | Nashua, New Hampshire (leased)     |              |  | 3,000   | (1)                         |  | none (administrative offices)              
|                                 | Merrimack, New Hampshire           |              |  | 475,000 | (2)                         |  | coated paper products                      
|                                 | Jefferson City, Tennessee          |              |  | 198,000 |                             |  | converted paper products                   
|                                 | Morristown, Tennessee (leased)     |              |  | 80,000  |                             |  | converted paper products                   
|                                 | Vernon, California (leased)        |              |  | 61,000  |                             |  | converted paper products                   
|                                 | Park Ridge, Illinois (leased)      |              |  | 8,000   | (1)                         |  | none (corporate and administrative offices)
|                                 | Plymouth, Massachusetts (leased)   |              |  | 7,000   |                             |  | none (sales and administrative offices)    
|                                 | Kent, Washington (leased)          |              |  | 10,000  |                             |  | none (warehousing)                         
|Label Products Segment           |                                    |              |  |         |                             | 
|                                 | Omaha, Nebraska                    |              |  | 170,000 |                             |  | label products                             
|                                 | Jefferson City, Tennessee          |              |  | 60,000  |                             |  | label products                             
|                                 | St. Louis, Missouri (leased)       |              |  | 33,000  |                             |  | label products                             
|                                 | San Francisco, California (leased) |              |  | 1,000   |                             |  | none (administrative offices)              
|Imaging Supplies Segment         |                                    |              |  |         |                             | 
|                                 | Nashua, New Hampshire              |              |  | 203,000 |                             |  | dry toner and developer products           
|                                 | Merrimack, New Hampshire           |              |  | 112,000 |                             |  | dry toner and developer products           






|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our Specialty Paper Products segment and corporate staff share
    approximately 11,000 square feet of office space in Park
    Ridge, IL and 8,000 square feet of office space in Nashua,
    NH.
|   
|(2) | Our Specialty Paper Products segment utilizes approximately
    315,000 square feet and the remaining space is leased to
    third parties.                                                       






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



13



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






PART II







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



|     |      |         |   |      |         |  |   |         |  |  |         |       |  |      |   |       |  |  |   |       | 
|---- | ---- | ------- | - | ---- | ------- |  | - | ------- |  |  | ------- | ----- |  | ---- | - | ----- |  |  | - | ----- | 
|     |      | 1st     |   |      | 2nd     |  |   | 3rd     |  |  | 4th     |       |  |     
|     |      | Quarter |   |      | Quarter |  |   | Quarter |  |  | Quarter |       |  | Year |  
|     |      |         |   |      |         |  |   |         |  |  |         |       |  |      |  
|2004 |      |         |   |      |         |  |   |         |  |  |         |       |  |      |   |       |  |  |   |      
|     | High |         | $ | 9.04 |         |  | $ | 9.75    |  |  | $       | 11.20 |  |      | $ | 11.65 |  |  | $ | 11.65 | 
|     | Low  |         | $ | 8.20 |         |  | $ | 8.25    |  |  | $       | 9.09  |  |      | $ | 10.23 |  |  | $ | 8.20  | 
|2003 |      |         |   |      |         |  |   |         |  |  |         |       |  |      |   |       |  |  |   |      
|     | High |         | $ | 9.02 |         |  | $ | 9.48    |  |  | $       | 9.50  |  |      | $ | 9.08  |  |  | $ | 9.50  | 
|     | Low  |         | $ | 8.65 |         |  | $ | 8.73    |  |  | $       | 6.75  |  |      | $ | 7.93  |  |  | $ | 6.75  | 



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|        |                           
|------- | --------------------------
|Item 6. | Selected Financial Data(1)

Nashua Corporation and Subsidiaries


Five-Year Financial Review


|                                                                                        |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |       | 
|--------------------------------------------------------------------------------------- | ---------------------- | ----------------------------------------------- | ------- | ----- | ---- | - | ------- | ---- |  | - | ------- | ----- |  | ---- | ------- | ----- | - | - | ------- | ----- | 
|                                                                                        |                        | December 31,                                    |        
|                                                                                        |                        |                                                 |        
|                                                                                        |                        | 2004                                            |         |       | 2003 |   |         | 2002 |  |   | 2001    |       |  | 2000 |        
|                                                                                        |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |        
|                                                                                        |                        | (In thousands, except per share data, number of |        
|                                                                                        |                        | employees and percentages)                      |        
|Operations(2)                                                                           |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |      
|Net sales                                                                               |                        | $                                               | 289,217 |       |      | $ | 288,906 |      |  | $ | 283,190 |       |  | $    | 272,510 |       |   | $ | 253,122 |      
|Gross margin percentage                                                                 |                        |                                                 | 18.6    | %     |      |   | 18.6    | %    |  |   | 19.8    | %     |  |      | 20.5    | %     |   |   | 20.1    | %    
|Selling, distribution, general and administrative expenses as a
    percentage of sales |                        |                                                 | 15.6    | %     |      |   | 16.5    | %    |  |   | 16.9    | %     |  |      | 18.3    | %     |   |   | 19.5    | %    
|Income before interest and income taxes as a percentage of
    sales(3)                 |                        |                                                 | 2.5     | %     |      |   | 0.5     | %    |  |   | 1.9     | %     |  |      |        |       |   |   | 5.9     | %    
|Income (loss) before income taxes as a percentage of sales(3)                           |                        |                                                 | 2.1     | %     |      |   | 0.1     | %    |  |   | 1.4     | %     |  |      | (1.0    | )%    |   |   | 5.1     | %    
|Income (loss) as a percentage of sales(3)                                               |                        |                                                 | 1.3     | %     |      |   | 0.0     | %    |  |   | .8      | %     |  |      | (0.9    | )%    |   |   | 2.1     | %    
|Effective tax provision (benefit) rate                                                  |                        |                                                 | 38.5    | %     |      |   | 53.4    | %    |  |   | 39.5    | %     |  |      | (12.0   | )%    |   |   | 58.3    | %    
|Income (loss) before income taxes(3)                                                    |                        | $                                               | 6,158   |       |      | $ | 219     |      |  | $ | 3,828   |       |  | $    | (2,782  | )     |   | $ | 12,914  |      
|Net income (loss)(3)                                                                    |                        | $                                               | 3,787   |       |      | $ | 102     |      |  | $ | 2,316   |       |  | $    | (2,448  | )     |   | $ | 5,386   |      
|Basic and diluted earnings (loss) per common share:                                     |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |      
|                                                                                        | Basic                  |                                                 | $       | 0.63  |      |   | $       | 0.02 |  |   | $       | 0.40  |  |      | $       | (0.43 | ) |   | $       | 0.95  | 
|                                                                                        | Diluted                |                                                 | $       | 0.62  |      |   | $       | 0.02 |  |   | $       | 0.39  |  |      | $       | (0.43 | ) |   | $       | 0.95  | 
|Financial Position(2)                                                                   |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |      
|Working capital                                                                         |                        | $                                               | 31,662  |       |      | $ | 22,296  |      |  | $ | 21,011  |       |  | $    | 16,528  |       |   | $ | 22,531  |      
|Total assets                                                                            |                        | $                                               | 150,960 |       |      | $ | 151,676 |      |  | $ | 146,188 |       |  | $    | 145,046 |       |   | $ | 170,471 |      
|Non-current portion of long-term debt                                                   |                        | $                                               | 27,350  |       |      | $ | 24,200  |      |  | $ | 23,000  |       |  | $    | 23,280  |       |   | $ | 35,905  |      
|Total long-term obligations                                                             |                        | $                                               | 28,673  |       |      | $ | 27,468  |      |  | $ | 27,079  |       |  | $    | 25,740  |       |   | $ | 46,171  |      
|Total capital employed                                                                  |                        | $                                               | 96,698  |       |      | $ | 88,797  |      |  | $ | 87,018  |       |  | $    | 95,677  |       |   | $ | 118,048 |      
|Total debt as a percentage of capital employed                                          |                        |                                                 | 31.8    | %     |      |   | 31.1    | %    |  |   | 28.7    | %     |  |      | 26.4    | %     |   |   | 38.7    | %    
|Shareholders equity                                                                    |                        | $                                               | 65,948  |       |      | $ | 61,197  |      |  | $ | 62,018  |       |  | $    | 70,397  |       |   | $ | 72,337  |      
|Shareholders equity per common share                                                   |                        | $                                               | 10.62   |       |      | $ | 10.37   |      |  | $ | 10.66   |       |  | $    | 12.32   |       |   | $ | 12.79   |      
|Other Selected Data(2)                                                                  |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |      
|Investment in plant and equipment (excluding acquisitions)                              |                        | $                                               | 6,599   |       |      | $ | 4,307   |      |  | $ | 4,349   |       |  | $    | 2,375   |       |   | $ | 9,625   |      
|Depreciation and amortization                                                           |                        | $                                               | 7,900   |       |      | $ | 7,942   |      |  | $ | 7,581   |       |  | $    | 9,748   |       |   | $ | 9,304   |      
|Dividends per common share                                                              |                        |                                                 |        |       |      |   |        |      |  |   |        |       |  |      |        |       |   | $ | .01     |      
|Return (loss) on average shareholders equity                                           |                        |                                                 | 6.0     | %     |      |   | 0.2     | %    |  |   | 3.5     | %     |  |      | (3.4    | )%    |   |   | 7.7     | %    
|Common stock price range:                                                               |                        |                                                 |         |       |      |   |         |      |  |   |         |       |  |      |         |       |   |   |         |      
|                                                                                        | High                   |                                                 | $       | 11.65 |      |   | $       | 9.50 |  |   | $       | 10.20 |  |      | $       | 7.85  |   |   | $       | 10.31 | 
|                                                                                        | Low                    |                                                 | $       | 8.20  |      |   | $       | 6.75 |  |   | $       | 5.40  |  |      | $       | 3.06  |   |   | $       | 3.56  | 
|                                                                                        | Year-end closing price |                                                 | $       | 11.36 |      |   | $       | 8.50 |  |   | $       | 8.78  |  |      | $       | 5.87  |   |   | $       | 4.44  | 
|Number of employees from continuing operations                                          |                        |                                                 | 906     |       |      |   | 929     |      |  |   | 1,026   |       |  |      | 971     |       |   |   | 1,140   |      
|Average common shares outstanding                                                       |                        |                                                 | 6,209   |       |      |   | 5,869   |      |  |   | 5,783   |       |  |      | 5,696   |       |   |   | 5,649   |      






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 14 to our Consolidated Financial Statements for
    Selected Quarterly Financial Data required under Item 302
    of Regulation S-K.
|   
|(2) | See Note 2 to our Consolidated Financial Statements for a
    description of business changes relevant to this data.                         
|   
|(3) | Net income (loss) includes:                                                                                                                  

|                                                                       |  |                       |      |   |         |  |   |         |  |   |         |   |  |         |    |   |         |   |     |         |  |  |         |   |  |         |     |  |         |  |     |   |  |   |      |  |  |  |     |  
|---------------------------------------------------------------------- |  | --------------------- | ---- | - | ------- |  | - | ------- |  | - | ------- | - |  | ------- | -- | - | ------- | - | --- | ------- |  |  | ------- | - |  | ------- | --- |  | ------- |  | --- | - |  | - | ---- |  |  |  | --- | -
|                                                                       |  | 2004                  |      |   | 2003    |  |   | 2002    |  |   | 2001    |   |  | 2000    |   
|                                                                       |  |                       |      |   |         |  |   |         |  |   |         |   |  |         |   
|                                                                       |  | Dollars               |      |   | % Sales |  |   | Dollars |  |   | % Sales |   |  | Dollars |    |   | % Sales |   |     | Dollars |  |  | % Sales |   |  | Dollars |     |  | % Sales | 
|                                                                       |  |                       |      |   |         |  |   |         |  |   |         |   |  |         |    |   |         |   |     |         |  |  |         |   |  |         |     |  |         | 
|                                                                       |  | (Dollars in millions) |     
|Restructuring and other unusual (income) charges                       |  |                       |     |   |         |  |  |         |  | $ | (.1     | ) |  |         | 0  | % |         | $ | (.1 | )       |  |  | .1      | % |  | $       | 3.0 |  |         |  | 1.1 | % |  | $ | 1.0  |  |  |  | .4  | %
|Net (gain)/loss on settlement/ curtailment of postretirement
    plans |  | $                     | (1.0 | ) |         |  | 0 | %       |  | $ | 1.6     |   |  |         | .1 | % |         | $ | (.2 | )       |  |  | .1      | % |  |         |    |  |         |  |    |   |  |   |     |  |  |  |    |  
|Pension settlement income                                              |  |                       |     |   |         |  |  |         |  |   |        |   |  |         |   |   |         |   |    |         |  |  |        |   |  |         |    |  |         |  |    |   |  | $ | 18.6 |  |  |  | 7.3 | %

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview






| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | Building shareholder value,                                                                                                
|
| |  | Building customer relationships by developing, acquiring and
    delivering high-quality products and services,            
|
| |  | Investment in equipment and processes which increase
    efficiencies and lower our cost structure,                        
|
| |  | Investing strategically in higher-margin businesses where we see
    greater opportunities for growth,                     
|
| |  | Resolving legacy issues that in the past have affected our
    profitability and occupied an inordinate amount of time, and
|
| |  | Opportunistically pursuing non-commodity business where we can
    clearly add value.                                      













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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In December 2004, we purchased property consisting of land and
    building contiguous to our Jefferson City, Tennessee campus to
    be utilized for manufacturing by our Specialty Paper Products
    segment. We expect to move our wide-format manufacturing from
    Morristown, Tennessee to Jefferson City, Tennessee in the second
    quarter of 2005. The acquisition was financed by the issuance of
    industrial revenue bonds by the Industrial Revenue Board of
    Jefferson City, Tennessee, which is supported by an irrevocable
    letter of credit in the amount of $2.8 million issued by
    our lenders. Proceeds in excess of the cost of the building will
    be utilized to retrofit the building and purchase equipment
    utilized in Jefferson City, Tennessee.
|
| |  | In December 2004, we executed a purchase and sale agreement with
    Southern New Hampshire Services to sell our land and buildings
    located in Nashua, New Hampshire for $2.0 million. The
    proposed transaction is expected to close by June 2006. The
    agreement is subject to the potential buyers ability to
    obtain financing.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | During the fourth quarter of 2004 our strategic agreement with
    Parlex Corporation expired in accordance with its terms. We are
    in the process of negotiating cross-licensing agreements for use
    of the press printed circuit technology by both parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | During the third quarter of 2004 we recognized a
    $.9 million non-cash pre tax gain related to the transfer
    of the liability for retiree death benefits to Minnesota Life, a
    subsidiary of Securian Financial Group. As part of the
    transaction, Minnesota Life has assumed the liability for, and
    the administration of, death benefits for approximately 580 of
    our retirees. The agreement was effective October 1, 2004
    and included a $2.4 million one-time premium payment to
    Minnesota Life.                                                                                                                                                                                                                                                              





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In December 2003, we acquired the assets of the Magellan
    wide-format graphics product line from PM Co. L.L.C. This
    acquisition was consistent with our strategy of adding value
    with new products and services that leverage our converting and
    distribution capabilities. Operating activity relating to this
    product line is reported in our Specialty Paper Products segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In November 2003, we acquired the assets of the supermarket
    label product line from Zebra Technologies, Inc. The supermarket
    label business markets and distributes pressure sensitive direct
    thermal labels used solely for marking prepackaged meat,
    produce, deli and bakery items in supermarkets, grocery and
    convenience stores. Operating activity relating to this product
    line is reported under our Label Products segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Our 2003 results were negatively impacted by a fourth quarter
    one-time, non-cash charge of $1.6 million related to
    postretirement healthcare benefits for union employees located
    in New Hampshire. In December 2002, we eliminated a
    postretirement healthcare benefit for all employees retiring
    after December 31, 2002. The benefit provided employees who
    had 10 years of service and retired at age 60 or older
    with access to medical insurance through age 65. In 2002,
    we recognized a $1.6 million non-cash gain for the
    termination of this postretirement healthcare benefit for hourly
    union employees located in New Hampshire. The unions
    subsequently filed a grievance against the termination of the
    postretirement healthcare benefits for union employees which was
    heard by an arbitrator in July 2003. The arbitrator ruled in
    favor of the unions on October 24, 2003, and we
    subsequently appealed the arbitrators opinion in the
    U.S. District Court in New Hampshire on November 24,
    2003. After filing the appeal of the arbitrators ruling,
    we held unsuccessful discussions with the unions in an attempt
    to resolve and mitigate the impact of the arbitrators
    ruling. Our appeal is currently pending.
|
| |  | In connection with workforce reductions in 2003, we incurred
    severance charges of $1.6 million which were offset by
    approximately $2.1 million of same year savings. These
    workforce reductions reflect our initiatives to streamline
    processes and control costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the fourth quarter of 2003, we incurred a one-time $330,000
    charge related to the settlement of future obligations under an
    employment contract in which we were required to fund a split
    dollar life insurance policy on behalf of our Chief Executive
    Officer, Andrew Albert. Future funding of these types of
    insurance policies is now prohibited under the Sarbanes-Oxley
    Act. As part of the agreement, Mr. Albert repaid Nashua
    $313,000 for insurance premiums previously paid by us.
    Therefore, the settlement had a negligible impact on our cash
    flow.                                                                                                                                                                                                                                                  
|
| |  | In February 2003, we entered into a strategic agreement with
    Parlex Corporation to cooperate in the development of flexible
    circuit technology incorporating proprietary printing and
    plating technologies. The agreement created an organization,
    Stratos Technology, LLC, of which we owned 50 percent, that
    drew on both parties relative expertise in ink and printed
    circuit technology, label converting and the design, application
    and production of flexible circuits. Under the agreement,
    Stratos Technology worked to develop innovative products for use
    in the automotive and cellular markets.                                                                                                                                                                                                        
|
| |  | In February 2003, we acquired the assets and assumed certain
    liabilities of The Label Company from Bunzl Distribution and
    signed a multi-year agreement to supply Bunzl with label
    products. The Label Company had primarily been a supplier of
    supermarket, promotional and product identification labels
    mainly for Bunzl and other customers. The acquisition added
    flexibility to our label manufacturing operations, provided
    additional volume to our coating facility within our Specialty
    Paper Products segment and enhanced our relationship with a
    valued and long-standing customer. The Label Company had 2002
    sales of approximately $9.0 million. Operating activity
    relating to the assets of The Label Company is reported under
    our Label Products segment from the date of acquisition.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the fourth quarter of 2002, we recorded a non-cash charge
    of $11.4 million to shareholders equity because as of
    December 31, 2002, the accumulated benefit obligations of
    our company-sponsored pension plans exceeded the fair value of
    the assets of the plans due to declines in the fair market value
    of equities held by the plans and decreases in our expected
    return on plan assets and discount rate resulting from current
    economic trends. This charge was net of $7.5 million in tax
    benefits, which are included in other assets and reflect an
    increase in our deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | During the fourth quarter of 2002, we reached an agreement with
    the Appeals office of the United States Internal Revenue Service
    regarding the outstanding proposed assessment of federal income
    tax for the years 1992 to 1994 as more fully discussed in
    Note 7 to our Consolidated Financial Statements included in
    Item 8 of Part II of this Annual Report on
    Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In October 2002, our Board of Directors approved changes to The
    Nashua Corporation Retirement Plan for Salaried Employees, The
    Supplemental Executive Retirement Plan and postretirement
    benefit plans, which were effective as of December 31,
    2002. As a result of these changes, we recognized a gain of
    $2.7 million related to the elimination of certain benefits
    related to our retiree medical and death benefit plans and a
    gain of $.2 million from the buy out of a portion of
    existing retirees death benefits, largely offset by a loss
    of $2.7 million related to freezing benefits provided by
    the salaried pension plans. This excluded the gain related to
    the buy out of additional existing retirees death
    benefits, which was completed in the first quarter of 2003.
    Employees impacted by the freeze in pension benefits are
    eligible to participate in Nashuas profit sharing plan
    beginning in 2003. Profit sharing contributions must be approved
    by our Board of Directors and are discretionary.
|
| |  | In June 2002, we completed our shareholder-approved
    reincorporation from Delaware to Massachusetts. The
    reincorporation eliminated certain restrictions on our ability
    to borrow funds and our new corporate charter increased
    shareholder rights and reduced our corporate expenses. In
    connection with our reincorporation, our authorized capital was
    reduced from 40 million shares of common stock and
    2 million shares of preferred stock, each with a par value
    of $1 per share, to 20 million shares of common stock,
    par value $1 per share. As part of the reincorporation, the                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 1,023,068 shares of common stock held in treasury were
    retired with their cost above par value allocated on a pro rata
    basis against additional paid-in capital and retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In June 2002, we acquired out of bankruptcy some of the assets
    of Dietzgen LLC, including trademarks, trade names, customer
    lists and certain equipment and inventories. Dietzgen, an
    after-market provider of wide-format digital media and imaging
    supplies for the architectural, engineering and construction
    markets, filed for protection under Chapter 11 of the
    U.S. Bankruptcy Code on January 31, 2002. Operating
    activity relating to the assets acquired from Dietzgen is
    reported as part of our Specialty Paper Products segment from
    the date of acquisition.
|
| |  | During the first quarter of 2002, we entered into a three-year
    secured financing agreement with LaSalle Bank, NA and Fleet
    National Bank. This agreement provides us with a revolving line
    of credit of up to $30 million and a term loan of
    $10 million as more fully described in Note 5 to our
    Consolidated Financial Statements included in Item 8 of
    Part II of this Annual Report on Form 10-K.                                                                                                                                                                                   
|
| |  | In April 2002, we acquired the assets of CIS, a privately held
    manufacturer and marketer of security and fraud prevention
    products for the point-of-sale transaction industry and of
    inkjet and toner cartridges. The products of CIS include
    multi-color ribbons and specialized inks that prevent
    unauthorized duplication of cash register receipts. Operating
    activity relating to the assets acquired from CIS is reported as
    part of our Specialty Paper Products segment from the date of
    acquisition.                                                                   

Consolidated Results of Operations




| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | The consolidated results of operations should be read in
    conjunction with the individual segment results.

|                                                                                     |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |         |       |   |  |       |       |  
|------------------------------------------------------------------------------------ | ------------------------- | ------------- | ---- | ----- | ---- | - | ---- | -------------- | - | - | -------- | ----- | - | ---- | ------- | ----- | - |  | ----- | ----- | -
|                                                                                     |                           |               |      |       |      |   |      | Percent Change |  
|                                                                                     |                           |               |      |       |      |   |      |                |  
|                                                                                     |                           |               |      |       |      |   |      | 2004 vs.       |   |   | 2003 vs. |      
|                                                                                     |                           | 2004          |      |       | 2003 |   |      | 2002           |   |   | 2003     |       |   | 2002 |        
|                                                                                     |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |        
|                                                                                     |                           | (In millions) |     
|Net sales                                                                            |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |         |       |   |  |       |      
|                                                                                     | Label Products            |               | $    | 104.3 |      |   | $    | 101.8          |   |   | $        | 100.8 |   |      |         | 2.5   |   |  |       | 1.0   |  
|                                                                                     | Specialty Paper Products  |               |      | 168.0 |      |   |      | 169.0          |   |   |          | 160.7 |   |      |         | (0.6  | ) |  |       | 5.2   |  
|                                                                                     | Imaging Supplies          |               |      | 22.1  |      |   |      | 23.5           |   |   |          | 24.0  |   |      |         | (6.0  | ) |  |       | (2.1  | )
|                                                                                     | Eliminating               |               |      | (5.2  | )    |   |      | (5.4           | ) |   |          | (2.3  | ) |      |         |      |   |  |       |      |  
|                                                                                     |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |        
|                                                                                     | Consolidated Net Sales    |               |      | 289.2 |      |   |      | 288.9          |   |   |          | 283.2 |   |      |         | 0.1   |   |  |       | 2.0   |  
|Gross margin                                                                         |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |         |       |   |  |       |      
|                                                                                     | Label Products            |               |      | 18.8  |      |   |      | 17.3           |   |   |          | 17.9  |   |      |         | 8.7   |   |  |       | (3.4  | )
|                                                                                     | Specialty Paper Products  |               |      | 31.2  |      |   |      | 31.9           |   |   |          | 32.6  |   |      |         | (2.2  | ) |  |       | (2.1  | )
|                                                                                     | Imaging Supplies          |               |      | 3.9   |      |   |      | 4.6            |   |   |          | 5.6   |   |      |         | (15.2 | ) |  |       | (17.9 | )
|                                                                                     |                           |               |      |       |      |   |      |                |   |   |          |       |   |      |        
|                                                                                     | Consolidated Gross margin |               |      | 53.9  |      |   |      | 53.8           |   |   |          | 56.1  |   |      |         | 0.2   |   |  |       | (4.1  | )
|Gross margin %                                                                       |                           |               | 18.6 | %     |      |   | 18.6 | %              |   |   | 19.8     | %     |   |      |        |       |   |  |      |      
|Selling and distribution expenses                                                    |                           |               | 25.1 |       |      |   | 27.2 |                |   |   | 28.1     |       |   |      | (7.7    | )     |   |  | (3.2  | )    
|General and administrative expenses                                                  |                           |               | 20.1 |       |      |   | 20.6 |                |   |   | 19.8     |       |   |      | (2.4    | )     |   |  | 4.0   |      
|Research and development expenses                                                    |                           |               | 2.1  |       |      |   | 2.5  |                |   |   | 3.1      |       |   |      | (16.0   | )     |   |  | (19.4 | )    
|Net loss (gain) on settlement/curtailment of pension and
    postretirement benefits |                           |               | (1.0 | )     |      |   | 1.6  |                |   |   | (.2      | )     |   |      |        |       |   |  |      |      
|Loss from equity investments                                                         |                           |               | .4   |       |      |   | .5   |                |   |   | .1       |       |   |      | (20.0   | )     |   |  |      |      
|Restructuring and other unusual (income) charges                                     |                           |               |     |       |      |   | (.1  | )              |   |   | (.1      | )     |   |      |        |       |   |  |      |      
|Interest expense, net                                                                |                           |               | 1.0  |       |      |   | 1.3  |                |   |   | 1.5      |       |   |      | (23.1   | )     |   |  | (13.3 | )    
|Income before income taxes                                                           |                           |               | 6.2  |       |      |   | .2   |                |   |   | 3.8      |       |   |      | 3,000.0 |       |   |  | (94.7 | )    
|Net income                                                                           |                           | $             | 3.8  |       |      | $ | .1   |                |   | $ | 2.3      |       |   |      | 3,700.0 |       |   |  | (95.7 | )    

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| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The increase from 2003 to 2004 was primarily due to increased
    sales in our Label Products segment, which was partially offset
    by decreases in our Specialty Paper Products segment and in our
    Imaging Supplies segment.    
|
| |  | The 2.0 percent increase from 2002 to 2003 was primarily
    due to increased sales in our Specialty Paper Products and Label
    Products segments partially offset by a slight decrease in sales
    in our Imaging Supplies segment.
|
| |  | Net sales for each of our business segments is discussed in
    detail below under Results of Operations by Reportable
    Operating Segment.                                                                                        





| |   |                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The margin percent in 2004 compared to 2003 improved in our
    Label Products segment and decreased in both our Specialty Paper
    Products and Imaging Supplies segments.                                                                                                                   
|
| |  | The margin percent decrease from 2002 to 2003 was a result of
    lower margins in all of our segments. The $2.3 million
    decrease in gross margin in 2003 was due primarily to an
    unfavorable product mix, pricing pressures, and volume declines
    within some of our product lines.
|
| |  | Gross margin for each of our business segments is discussed in
    detail below under Results of Operations by Reportable
    Operating Segment.                                                                                                                                             





| |   |                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $2.1 million decrease from 2003 to 2004 was primarily
    due to decreases across each of our segments, with
    $1.1 million from our Label Products segment,
    $.8 million from our Specialty Paper Products segment, and
    $.1 million from our Imaging Supplies segment.
|
| |  | In 2003, increases of $.7 million in expenses in the
    Specialty Paper Products segment were offset by reductions of
    $.6 million in the Imaging Supplies segment and
    $1.0 million in the Label Products segment compared to 2002.                                         
|
| |  | Selling and distribution expenses for each of our business
    segments is discussed in detail below under Results of
    Operations by Reportable Operating Segment.                                                                                                             





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The decrease in 2004 compared to 2003 was driven by decreased
    expenses of $1.2 million in our Specialty Paper Products
    segment and $.2 million in lower corporate expenses, which
    was partially offset by increased expenses of $.7 million
    in our Label Products segment and $.2 million in our
    Imaging Supplies segment. The decrease in corporate expenses in
    2004 was primarily due to lower legal expenses, rental expenses
    and expense pertaining to a settlement of obligations under our
    Chief Executive Officers employment contract which more
    than offset increased directors fees which included a cash
    payment in lieu of stock options, employee incentive expenses
    and professional fees related to our review of strategic
    alternatives.
|
| |  | The increase in 2003 compared to 2002 was driven by
    $1.2 million of increased expenses in our Specialty Paper
    Products segment offsetting a $.3 million decrease in
    corporate expenses. The decrease in corporate expenses in 2003
    was primarily due to lower legal fees, training costs, staffing
    and pension administration costs which more than offset a
    $.3 million expense relating to severance                                                                                                                                                                                                                                                                                                                                                                            

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| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | costs associated with the reduction of corporate staff and a
    $.3 million expense pertaining to a settlement of
    obligations under our Chief Executive Officers employment
    contract.
|
| |  | General and administrative expenses for each of our business
    segments is discussed below under Results of Operations by
    Reportable Operating Segment.                                





| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $.4 million decrease in 2004 compared to 2003 was
    primarily due to lower expenses related to headcount reductions
    in our Specialty Paper Products and Imaging Supplies segments.                       
|
| |  | The $.6 million decrease in 2003 compared to 2002 was
    primarily due to a shift in quality control related costs from
    research and development to manufacturing in our Specialty Paper
    Products segment.
|
| |  | Research and development expenses for each of our business
    segments is discussed below under Results of Operations by
    Reportable Operating Segment.                                                      





| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The decline in net interest expense in 2004 from 2003 was
    primarily due to interest income related to a 1993 interest
    matter with the Internal Revenue Service.
|
| |  | The decline in net interest expense in 2003 from 2002 was
    primarily due to lower interest rates.                                                                   











| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $6.0 million increase in our pretax income from 2003 to
    2004 was mainly due to improved profitability in our Label
    Products and Specialty Paper Products segments, as well as the
    gain on the postretirement death benefits and the interest
    income from the 1993 interest matter, which were partially
    offset by a pretax loss in our Imaging Supplies segment.                                                                          
|
| |  | The $3.6 million decrease in our pretax income from 2002 to
    2003 was primarily due to lower profitability in our Specialty
    Paper Products and Imaging Supplies segments and an incurred
    expense resulting from the reversal of a curtailment adjustment
    related to the postretirement healthcare benefits for union
    employees located in New Hampshire, which were partially offset
    by higher profitability in our Label Products segment.



22



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Results of Operations by Reportable Operating Segment


Label Products Segment


|                                                                |  |               |       |   |      |   |       |                |  |   |          |   |  |      |       |   |  |  |       |  
|--------------------------------------------------------------- |  | ------------- | ----- | - | ---- | - | ----- | -------------- |  | - | -------- | - |  | ---- | ----- | - |  |  | ----- | -
|                                                                |  |               |       |   |      |   |       | Percent Change | 
|                                                                |  |               |       |   |      |   |       |                | 
|                                                                |  |               |       |   |      |   |       | 2004 vs.       |  |   | 2003 vs. |  
|                                                                |  | 2004          |       |   | 2003 |   |       | 2002           |  |   | 2003     |   |  | 2002 |      
|                                                                |  |               |       |   |      |   |       |                |  |   |          |   |  |      |      
|                                                                |  | (In millions) |      
|Net sales                                                       |  | $             | 104.3 |   |      | $ | 101.8 |                |  | $ | 100.8    |   |  |      | 2.5   |   |  |  | 1.0   |  
|Gross margin                                                    |  |               | 18.8  |   |      |   | 17.3  |                |  |   | 17.9     |   |  |      | 8.7   |   |  |  | (3.4  | )
|Gross margin %                                                  |  |               | 18.0  | % |      |   | 17.0  | %              |  |   | 17.7     | % |  |      |      |   |  |  |      |  
|Selling and distribution expenses                               |  |               | 6.3   |   |      |   | 7.4   |                |  |   | 8.4      |   |  |      | (14.9 | ) |  |  | (11.9 | )
|General and administrative expenses                             |  |               | 4.5   |   |      |   | 3.8   |                |  |   | 3.8      |   |  |      | 18.4  |   |  |  |      |  
|Other                                                           |  |               | .4    |   |      |   | .3    |                |  |   | .2       |   |  |      | 33.3  |   |  |  | 50.0  |  
|Income from operations before interest, taxes and unusual items |  | $             | 7.6   |   |      | $ | 5.8   |                |  | $ | 5.5      |   |  |      | 31.0  |   |  |  | 5.5   |  





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $2.5 million, or 2.5 percent increase, in 2004
    compared to 2003 primarily resulted from a $5.7 million
    increase in our automatic identification product line, which was
    partially offset by a $1.2 million sales decline in our EDP
    product line, $.8 million in our supermarket scale product
    line, $.6 million in the retail shelf production line,
    $.5 million in the inform product line, and a
    $.1 million decline in other product lines. The increase in
    automatic identification label sales resulted primarily from
    incremental business gained from a major customer. The decreased
    sales in our supermarket scale product line is primarily a
    result of lost business which is partially offset by incremental
    sales from the acquisition of the assets of The Label Company on
    February 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The $1.0 million, or 1 percent, increase in 2003
    compared to 2002 was driven by incremental supermarket sales of
    $7.7 million from the acquired Label Company business,
    which more than offset a decrease in sales of $5.7 million
    in the remaining supermarket thermal product line. The lower
    supermarket thermal sales were primarily due to the loss of a
    major customer, as well as continued pricing pressures due to
    overcapacity in the label industry. Other factors included
    $2.5 million of increased sales in the automatic
    identification product line, offset by decreases of
    $1.4 million in the EDP product line, $.7 million in
    the retail shelf product line, $.4 million in the ticket
    product line, $.5 million in the inform product line and
    $.5 million in other product lines. The increase in
    automatic identification label sales was the result of new
    business from a five-year contract executed in the fourth
    quarter of 2002. The decrease in retail shelf sales was due to
    the reduction of inventory by a major customer. The decrease in
    the ticket product line sales was primarily due to the loss of a
    major cinema customer due to consolidation within the theater
    industry. Our sales in the EDP product line were negatively
    impacted by a sluggish economy, changing technology and lower
    sales to charitable organizations.





| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The gross margin increase of $1.5 million in 2004 compared
    to 2003 was primarily due to a favorable mix of products sold
    and higher sales volume as well as improved manufacturing
    performance partially through the successful implementation of
    improved manufacturing equipment.

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| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The gross margin decrease of $.6 million in 2003 compared
    to 2002 was primarily due to unfavorable product mix and pricing
    pressures exacerbated by certain Internet auctions and the
    overcapacity in the label industry, partially offset by
    manufacturing efficiencies and material cost reductions.











Specialty Paper Products Segment


|                                                                |  |               |       |   |      |   |       |                |  |   |          |   |  |      |       |   |  |  |       |  
|--------------------------------------------------------------- |  | ------------- | ----- | - | ---- | - | ----- | -------------- |  | - | -------- | - |  | ---- | ----- | - |  |  | ----- | -
|                                                                |  |               |       |   |      |   |       | Percent Change | 
|                                                                |  |               |       |   |      |   |       |                | 
|                                                                |  |               |       |   |      |   |       | 2004 vs.       |  |   | 2003 vs. |  
|                                                                |  | 2004          |       |   | 2003 |   |       | 2002           |  |   | 2003     |   |  | 2002 |      
|                                                                |  |               |       |   |      |   |       |                |  |   |          |   |  |      |      
|                                                                |  | (In millions) |      
|Net sales                                                       |  | $             | 168.0 |   |      | $ | 169.0 |                |  | $ | 160.7    |   |  |      | (0.6  | ) |  |  | 5.2   |  
|Gross margin                                                    |  |               | 31.2  |   |      |   | 31.9  |                |  |   | 32.6     |   |  |      | (2.2  | ) |  |  | (2.1  | )
|Gross margin %                                                  |  |               | 18.6  | % |      |   | 18.9  | %              |  |   | 20.3     | % |  |      |      |   |  |  |      |  
|Selling and distribution expenses                               |  |               | 17.5  |   |      |   | 18.3  |                |  |   | 17.6     |   |  |      | (4.4  | ) |  |  | 4.0   |  
|General and administrative expenses                             |  |               | 6.8   |   |      |   | 8.0   |                |  |   | 6.8      |   |  |      | (15.0 | ) |  |  | 17.6  |  
|Research and development expenses                               |  |               | .7    |   |      |   | .9    |                |  |   | 1.7      |   |  |      | (11.1 | ) |  |  | (47.1 | )
|Other                                                           |  |               |      |   |      |   | .3    |                |  |   |         |   |  |      |      |   |  |  |      |  
|Income from operations before interest, taxes and unusual items |  | $             | 6.2   |   |      | $ | 4.4   |                |  | $ | 6.5      |   |  |      | 38.6  |   |  |  | (32.3 | )





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $1.0 million decrease in 2004 compared to 2003 resulted
    from decreased sales of $2.8 million in our bond, dry gum,
    carbonless, ribbon and fax paper product lines,
    $3.2 million in our retail product lines, $3.2 million
    in our cut-sheet paper product line, $2.8 million in our
    ticket and tag product lines and $.8 million in our heat
    seal products, which is partially offset by increased sales of

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | $7.1 million in our wide-format product line,
    $2.9 million in our thermal product line, $1.6 million
    in our financial receipt product line and $.2 million in
    our other product lines. The continued shift in printing
    technologies in point-of-sale (POS) equipment from impact
    to thermal printers and price increases due to the partial pass
    through of increased raw material cost to our customers resulted
    in the increased sales of our thermal POS products. The increase
    in our wide-format product line resulted primarily from new
    customer business. The decrease in retail sales was primarily
    due to the temporary loss in the second quarter of a major
    customer, which returned during the fourth quarter of 2004. Heat
    seal and dry gum are mature product lines, which continue to
    decline due to technology changes. The decrease in the thermal
    ticket and tag product lines results from the loss of airline
    ticket business. The lower cut-sheet paper products sales
    resulted from the sale of our customer list and the exit of this
    product line during the third quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The $8.3 million increase in 2003 compared to 2002 resulted
    from increased sales of $10.2 million of thermal products,
    $6.5 million of wide-format products and $1.7 million
    of our fraud prevention products which were partially offset by
    a $5.7 million decrease in sales of bond, dry gum,
    carbonless, ticket and tag, ribbon and fax paper products,
    $1.9 million decrease in sales volume of cut-sheet paper
    products, $1.2 million decrease in sales of heat seal
    product, and a net decrease in sales of $1.3 million of
    other product lines. The continued shift in printing
    technologies from impact to thermal printers resulted in lower
    sales of bond and carbonless products and increased thermal
    product sales. In addition, we gained incremental volume from an
    additional location from an existing thermal customer. The
    increase in sales of our wide-format products resulted from the
    Dietzgen product line acquired in June 2002, as well as gaining
    major customers during the third quarter of 2003. The increase
    in the fraud prevention product sales is related to the Computer
    Imaging Supplies acquisition in April 2002. The decline in the
    carbonless, dry gum, and heat seal product lines was due to
    movement to competing technologies as these products become
    mature. The movement to kiosk in the airline boarding pass
    market caused a decline in ticket and tag products. The lower
    cut-sheet paper products sales resulted from the sale of our
    customer list and the exit of this product line during the third
    quarter of 2003.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The gross margin percentage decline in 2004 was due primarily to
    decreased margins associated with competitive pricing related to
    thermal products used in POS applications and face sheet sold to
    laminators, lower absorption of production costs due to lower
    production volume in our paper coating operation, and sales
    declines in the higher margin heat seal and dry gum product
    lines. The rate of sales decline for these mature product lines
    may have an impact on the future gross margin in this segment.                                                                                                                                                         
|
| |  | The gross margin percentage decline in 2003 was due to an
    unfavorable sales mix, competitive pricing pressure for thermal
    products, severance costs and workers compensation expenses.
    Margins declined due to increased sales of our lower margin
    thermal products, lower sales in our higher margin heat seal
    product line and lower absorption of production costs related to
    the decrease in production volume in our paper coating business.
    As indicated above in the segment sales section, mature product
    lines such as heat seal and dry gum, which provide significantly
    higher margins than thermal products, are declining due to
    technological changes.



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Imaging Supplies Segment


|                                                                           |  |               |      |   |      |   |      |                |  |   |          |   |  |      |       |   |  |  |       |  
|-------------------------------------------------------------------------- |  | ------------- | ---- | - | ---- | - | ---- | -------------- |  | - | -------- | - |  | ---- | ----- | - |  |  | ----- | -
|                                                                           |  |               |      |   |      |   |      | Percent Change | 
|                                                                           |  |               |      |   |      |   |      |                | 
|                                                                           |  |               |      |   |      |   |      | 2004 vs.       |  |   | 2003 vs. |  
|                                                                           |  | 2004          |      |   | 2003 |   |      | 2002           |  |   | 2003     |   |  | 2002 |      
|                                                                           |  |               |      |   |      |   |      |                |  |   |          |   |  |      |      
|                                                                           |  | (In millions) |     
|Net sales                                                                  |  | $             | 22.1 |   |      | $ | 23.5 |                |  | $ | 24.0     |   |  |      | (6.0  | ) |  |  | (2.1  | )
|Gross margin                                                               |  |               | 3.9  |   |      |   | 4.6  |                |  |   | 5.6      |   |  |      | (15.2 | ) |  |  | (17.9 | )
|Gross margin %                                                             |  |               | 17.6 | % |      |   | 19.6 | %              |  |   | 23.4     | % |  |      |      |   |  |  |      |  
|Selling and distribution expenses                                          |  |               | 1.4  |   |      |   | 1.5  |                |  |   | 2.1      |   |  |      | (6.7  | ) |  |  | (28.6 | )
|General and administrative expenses                                        |  |               | 1.4  |   |      |   | 1.1  |                |  |   | 1.1      |   |  |      | 27.3  |   |  |  |      |  
|Research and development expenses                                          |  |               | 1.3  |   |      |   | 1.5  |                |  |   | 1.5      |   |  |      | (13.3 | ) |  |  |      |  
|Other                                                                      |  |               |     |   |      |   | .1   |                |  |   |         |   |  |      |      |   |  |  |      |  
|Income (loss) from operations before interest, taxes and unusual
    items |  | $             | (.2  | ) |      | $ | .4   |                |  | $ | .9       |   |  |      |      |   |  |  | (55.6 | )





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $1.4 million, or 6.0 percent, decline in sales in
    2004 was driven by a decrease in sales volume of Ricoh and Xerox
    compatible toners, which was partially offset by an increase in
    sales of Océ compatible toners. The lower sales of Ricoh
    compatible toner were primarily driven by an inventory
    correction by a major customer during the fourth quarter of
    2004. The lower sales of Xerox compatible toner were due to the
    partial loss of a major customer and the decline in more mature
    products. We expect that the sales of mature products will
    continue to decline. The increase in Océ compatible toner
    sales was due to a new product introduction in 2004.
|
| |  | The $.5 million, or 2.1 percent, decline in sales in
    2003 was driven by a decrease in sales volume of Ricoh, Xerox,
    Océ and Kodak compatible toners, which were partially
    offset by an increase in sales of IBM compatible toners and
    resin products. The lower volume of Ricoh, Xerox, Océ and
    Kodak compatible toners resulted both from products that are
    nearing the end of their life cycle and difficulties in
    commercializing certain toners. The increase in IBM compatible
    toner and resin sales result from the addition of new customers
    in 2003.                                                                                                                    



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Liquidity, Capital Resources and Financial Condition




|                                                 |  |                     |      |   |      |   |       |      |  |   |      |  
|------------------------------------------------ |  | ------------------- | ---- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                                 |  | For the Years Ended |     
|                                                 |  | December 31,        |     
|                                                 |  |                     |     
|Cash Provided by (Used in):                      |  | 2004                |      |   | 2003 |   |       | 2002 | 
|                                                 |  |                     |      |   |      |   |       |      | 
|                                                 |  | (In millions)       |     
|Operating activities                             |  | $                   | 1.3  |   |      | $ | 8.6   |      |  | $ | 6.1  |  
|Investing activities                             |  |                     | (5.5 | ) |      |   | (10.6 | )    |  |   | (6.0 | )
|Financing activities                             |  |                     | 4.0  |   |      |   | 2.6   |      |  |   | 0    |  
|Activities of discontinued operations            |  |                     | (0.1 | ) |      |   | (0.5  | )    |  |   | (0.1 | )
|                                                 |  |                     |      |   |      |   |       |      | 
|Increase (decrease) in cash and cash equivalents |  | $                   | (0.3 | ) |      | $ | 0.1   |      |  | $ | 0    |  
|                                                 |  |                     |      |   |      |   |       |      | 

Cash provided by operating activities








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Cash used in investing activities








Cash provided by and used in financing activities








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| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | extended the term of the credit facility to February 28,
    2007;                                                                                                                                                                                                                                                                                                  
|
| |  | modified the definition of fixed charge coverage ratio to
    provide that (1) the ratio is based on our adjusted EBITDA
    and (2) payments of principal of funded debt, included in
    the calculation of the fixed charge coverage ratio, are limited
    to the last four principal payments;                                                                 
|
| |  | replaced the definition and covenant relating to the total debt
    to EBITDA ratio with a definition and covenant relating to the
    funded debt to adjusted EBITDA ratio;                                                                                                                                                                                        
|
| |  | eliminated the covenant relating to minimum adjusted EBITDA;                                                                                                                                                                                                                                                                                                        
|
| |  | adjusted the interest rate on loans outstanding under the credit
    facility to provide that the interest rate is based on the
    funded debt to adjusted EBITDA ratio and that the interest rate
    is, at our option, either (1) a range from zero to
    .25 percent over the base rate (prime) or (2) a
    range from 1.5 percent to 2.0 percent over LIBOR;
|
| |  | modified the definitions of Revolving Outstandings and Stated
    Amount to include the IRB Letter of Credit;                                                                                                                                                                                                                                                       
|
| |  | adjust the letter of credit commitment amount to include the IRB
    Letter of Credit;                                                                                                                                                                                                                                                                              
|
| |  | adjust the covenants on the limitations on debt and liens to
    exclude the debt to the IDB and related liens; and                                                                                                                                                                                                                                                 
|
| |  | adjust the description of any non-payment of other debt to
    include debt arising under the Reimbursement Agreement relating
    to the IRB Letter of Credit.                                                                                                                                                                                                     





|                                                |  |                          |  |                  
|----------------------------------------------- |  | ------------------------ |  | -----------------
|                                                |  |                          |  | December 31, 2004
|Covenant                                        |  | Requirement              |  | Compliance       
|                                                |  |                          |  |                  
|Maintain a fixed charge coverage ratio          |  | Not less than 1.1 to 1.0 |  | 1.5 to 1.0       
|Maintain a funded debt to adjusted EBITDA ratio |  | Less than 2.75 to 1.0    |  | 2.27 to 1.0      







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Future obligations




|                                    |  |                |       |  |      |   |       |      |  |   |        |        |  |      |     |  |      |   |     |       |  |   |       |  |  |   |        | 
|----------------------------------- |  | -------------- | ----- |  | ---- | - | ----- | ---- |  | - | ------ | ------ |  | ---- | --- |  | ---- | - | --- | ----- |  | - | ----- |  |  | - | ------ | 
|                                    |  |                |       |  |      |   |       |      |  |   |        | Beyond |  |      |    
|                                    |  | 2005           |       |  | 2006 |   |       | 2007 |  |   | 2008   |        |  | 2009 |     |  | 2009 |   |     | Total | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |        |  |      |     |  |      |   |     |       | 
|                                    |  | (In thousands) |      
|Term portion of long-term debt      |  | $              | 3,400 |  |      | $ | 3,400 |      |  | $ | 100    |        |  | $    |    |  |      | $ |    |       |  | $ |      |  |  | $ | 6,900  | 
|Revolving portion of long-term debt |  |                |      |  |      |   |      |      |  |   | 21,050 |        |  |      |    |  |      |   |    |       |  |   |      |  |  |   | 21,050 | 
|Notes payable                       |  |                | 710   |  |      |   | 250   |      |  |   |       |        |  |      |    |  |      |   |    |       |  |   |      |  |  |   | 960    | 
|Industrial revenue bond             |  |                |      |  |      |   |      |      |  |   |       |        |  |      |    |  |      |   |    |       |  |   | 2,800 |  |  |   | 2,800  | 
|Energy-related purchase obligations |  |                | 574   |  |      |   |      |      |  |   |       |        |  |      |    |  |      |   |    |       |  |   |      |  |  |   | 574    | 
|Capital leases                      |  |                | 184   |  |      |   | 84    |      |  |   | 22     |        |  |      |    |  |      |   |    |       |  |   |      |  |  |   | 290    | 
|Non-cancelable operating leases     |  |                | 626   |  |      |   | 505   |      |  |   | 460    |        |  |      | 346 |  |      |   | 149 |       |  |   | 166   |  |  |   | 2,252  | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |        |  |      |     |  |      |   |     |       | 
|                                    |  | $              | 5,494 |  |      | $ | 4,239 |      |  | $ | 21,632 |        |  | $    | 346 |  |      | $ | 149 |       |  | $ | 2,966 |  |  | $ | 34,826 | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |        |  |      |     |  |      |   |     |       | 



Litigation and Other Matters






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Application of Critical Accounting Policies




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Accounts Receivable  Allowance for Doubtful
Accounts




Inventories  Slow Moving and Obsolescence




Goodwill




Pension and Other Postretirement Benefits




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Deferred Tax Assets




Environmental Reserves




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New Accounting Pronouncements











|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                  |                                                |                                       |         |       |      |   |         |       |  |   |         |       | 
|--------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | ------- | ----- | ---- | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                  |                                                | Year Ended December 31,               |        
|                                                                                  |                                                |                                       |        
|                                                                                  |                                                | 2004                                  |         |       | 2003 |   |         | 2002  | 
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|                                                                                  |                                                | (In thousands, except per share data) |        
|Net sales                                                                         |                                                | $                                     | 289,217 |       |      | $ | 288,906 |       |  | $ | 283,190 |      
|Cost of products sold                                                             |                                                |                                       | 235,345 |       |      |   | 235,101 |       |  |   | 227,102 |      
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Gross margin                                                                      |                                                |                                       | 53,872  |       |      |   | 53,805  |       |  |   | 56,088  |      
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Selling and distribution expenses                                                 |                                                |                                       | 25,148  |       |      |   | 27,208  |       |  |   | 28,119  |      
|General and administrative expenses                                               |                                                |                                       | 19,985  |       |      |   | 20,560  |       |  |   | 19,720  |      
|Research and development expense                                                  |                                                |                                       | 2,126   |       |      |   | 2,469   |       |  |   | 3,139   |      
|Net loss (gain) on settlement/curtailment of pension and
    postretirement plans |                                                |                                       | (971    | )     |      |   | 1,599   |       |  |   | (181    | )    
|Restructuring and other unusual income                                            |                                                |                                       |        |       |      |   | (68     | )     |  |   | (88     | )    
|Loss from equity investment                                                       |                                                |                                       | 416     |       |      |   | 523     |       |  |   | 59      |      
|Interest expense                                                                  |                                                |                                       | 1,323   |       |      |   | 1,295   |       |  |   | 1,494   |      
|Interest income                                                                   |                                                |                                       | (313    | )     |      |   |        |       |  |   | (2      | )    
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Income before income taxes                                                        |                                                |                                       | 6,158   |       |      |   | 219     |       |  |   | 3,828   |      
|Provision for income taxes                                                        |                                                |                                       | 2,371   |       |      |   | 117     |       |  |   | 1,512   |      
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Net income                                                                        |                                                | $                                     | 3,787   |       |      | $ | 102     |       |  | $ | 2,316   |      
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Per share amounts:                                                                |                                                |                                       |         |       |      |   |         |       |  |   |         |      
|                                                                                  | Net income per common share                    |                                       | $       | 0.63  |      |   | $       | 0.02  |  |   | $       | .40   | 
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|                                                                                  | Net income per common share, assuming dilution |                                       | $       | 0.62  |      |   | $       | 0.02  |  |   | $       | .39   | 
|                                                                                  |                                                |                                       |         |       |      |   |         |       | 
|Average shares outstanding:                                                       |                                                |                                       |         |       |      |   |         |       |  |   |         |      
|                                                                                  | Common shares                                  |                                       |         | 6,011 |      |   |         | 5,869 |  |   |         | 5,783 | 
|                                                                                  | Common shares, assuming dilution               |                                       |         | 6,130 |      |   |         | 5,999 |  |   |         | 5,873 | 



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NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


|                                            |                                                                                                                                   |                                                  |                                            |         |         |         |        |         |         |         | 
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                            |                                                                                                                                   | December 31,                                     |                                           
|                                            |                                                                                                                                   |                                                  |                                           
|                                            |                                                                                                                                   | 2004                                             |                                            |         | 2003    |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   | (In thousands, except                            |                                           
|                                            |                                                                                                                                   | share data)                                      |                                           
|ASSETS                                     
|Current assets                              |                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Cash and cash equivalents                                                                                                         |                                                  | $                                          | 884     |         |         | $      | 1,183   |        
|                                            | Restricted cash                                                                                                                   |                                                  |                                            | 1,202   |         |         |        |        |        
|                                            | Accounts receivable                                                                                                               |                                                  |                                            | 33,501  |         |         |        | 31,665  |        
|                                            | Inventories:                                                                                                                      |                                                  |                                            |         |         |         |        |         |        
|                                            |                                                                                                                                   | Raw materials                                    |                                            |         | 14,124  |         |        |         | 11,399  |        
|                                            |                                                                                                                                   | Work in process                                  |                                            |         | 3,260   |         |        |         | 3,450   |        
|                                            |                                                                                                                                   | Finished goods                                   |                                            |         | 7,841   |         |        |         | 7,886   |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 25,225                                     |         |         |         | 22,735 |        
|                                            | Other current assets                                                                                                              |                                                  |                                            | 4,493   |         |         |        | 5,205   |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 65,305                                     |         |         |         | 60,788 |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|Plant and equipment:                        |                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Land                                                                                                                              |                                                  |                                            | 1,322   |         |         |        | 902     |        
|                                            | Buildings and improvements                                                                                                        |                                                  |                                            | 31,201  |         |         |        | 28,920  |        
|                                            | Machinery and equipment                                                                                                           |                                                  |                                            | 66,013  |         |         |        | 62,689  |        
|                                            | Construction in progress                                                                                                          |                                                  |                                            | 1,002   |         |         |        | 875     |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 99,538                                     |         |         |         | 93,386 |        
|                                            | Accumulated depreciation                                                                                                          |                                                  |                                            | (59,693 | )       |         |        | (52,609 | )      
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 39,845                                     |         |         |         | 40,777 |        
|Goodwill                                    |                                                                                                                                   |                                                  | 31,516                                     |         |         |         | 31,471 |        
|Intangibles, net of amortization            |                                                                                                                                   |                                                  | 1,451                                      |         |         |         | 1,781  |        
|Loans to related parties                    |                                                                                                                                   |                                                  | 957                                        |         |         |         | 1,208  |        
|Other assets                                |                                                                                                                                   |                                                  | 11,886                                     |         |         |         | 15,651 |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | Total assets                               |         | $       | 150,960 |        |         | $       | 151,676 | 
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                           
|LIABILITIES AND SHAREHOLDERS EQUITY       
|Current liabilities                         |                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Accounts payable                                                                                                                  |                                                  | $                                          | 16,751  |         |         | $      | 20,474  |        
|                                            | Accrued expenses                                                                                                                  |                                                  |                                            | 12,782  |         |         |        | 14,368  |        
|                                            | Current maturities of long-term debt                                                                                              |                                                  |                                            | 3,400   |         |         |        | 3,400   |        
|                                            | Current maturities of notes payable to related parties                                                                            |                                                  |                                            | 710     |         |         |        | 250     |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 33,643                                     |         |         |         | 38,492 |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|Long-term debt, less current portion        |                                                                                                                                   |                                                  | 27,350                                     |         |         |         | 24,200 |        
|Notes payable to related parties            |                                                                                                                                   |                                                  | 250                                        |         |         |         | 960    |        
|Other long-term liabilities                 |                                                                                                                                   |                                                  | 23,769                                     |         |         |         | 26,827 |        
|Commitments and contingencies (see Note 11) |                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|Shareholders equity:                       |                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Common stock, par value $1.00; authorized
    20,000,000 shares; Issued 6,208,834 shares in 2004 and
    5,902,734 shares in 2003 |                                                  |                                            | 6,209   |         |         |        | 5,903   |        
|                                            | Additional paid-in capital                                                                                                        |                                                  |                                            | 15,484  |         |         |        | 14,515  |        
|                                            | Retained earnings                                                                                                                 |                                                  |                                            | 57,264  |         |         |        | 53,477  |        
|                                            | Accumulated other comprehensive loss:                                                                                             |                                                  |                                            |         |         |         |        |         |        
|                                            |                                                                                                                                   | Minimum pension liability adjustment, net of tax |                                            |         | (13,009 | )       |        |         | (12,698 | )      
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | 65,948                                     |         |         |         | 61,197 |        
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        
|                                            |                                                                                                                                   |                                                  | Total liabilities and shareholders equity |         | $       | 150,960 |        |         | $       | 151,676 | 
|                                            |                                                                                                                                   |                                                  |                                            |         |         |        



37



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##### Table of Contents



NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |         |   |   |         |       |  |   |        |         |  
|----------------------------------------------- | ------------------------------------------------ | --------------------------------- | ---------- | - | --------- | - | ------ | -------------- |  | - | ------------- | - |  | -------- | ---------- | - | ---- | - | ------- | -------- |  | - | ------- | ------- | - | - | ------- | ----- |  | - | ------ | ------- | -
|                                                |                                                  |                                   |            |   |           |   |        | Accumulated    |  |   |               |   | 
|                                                |                                                  | Common Stock                      |            |   | Addl     |   |        | Treasury Stock |  |   | Other         |   |  |          |            |  
|                                                |                                                  |                                   |            |   | Paid-In   |   |        |                |  |   | Comprehensive |   |  | Retained |            |   |     
|                                                |                                                  | Shares                            |            |   | Par Value |   |        | Capital        |  |   | Shares        |   |  | Cost     |            |   | Loss |   |         | Earnings |  |   | Total   |        
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|                                                |                                                  | (In thousands, except share data) |           
|Balance, December 31, 2001                      |                                                  |                                   | 6,886,649  |   |           | $ | 6,887  |                |  | $ | 15,901        |   |  |          | (1,023,818 | ) |      | $ | (14,922 | )        |  |   |        |         |   | $ | 62,531  |       |  | $ | 70,397 |        
|Stock issued for director compensation          |                                                  |                                   | 13,428     |   |           |   | 13     |                |  |   | 77            |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 90     |        
|Stock issued for executive compensation         |                                                  |                                   |           |   |           |   |       |                |  |   | (6            | ) |  |          | 750        |   |      |   | 11      |          |  |   |        |         |   |   |        |       |  |   | 5      |        
|Stock options exercised and related tax benefit |                                                  |                                   | 53,600     |   |           |   | 54     |                |  |   | 259           |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 313    |        
|Restricted stock forfeiture                     |                                                  |                                   | (60,000    | ) |           |   | (60    | )              |  |   | (295          | ) |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | (355   | )      
|Deferred compensation                           |                                                  |                                   |           |   |           |   |       |                |  |   | 328           |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 328    |        
|Deferred compensation forfeiture                |                                                  |                                   |           |   |           |   |       |                |  |   | 355           |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 355    |        
|Retirement of treasury shares                   |                                                  |                                   | (1,023,068 | ) |           |   | (1,023 | )              |  |   | (2,416        | ) |  |          | 1,023,068  |   |      |   | 14,911  |          |  |   |        |         |   |   | (11,472 | )     |  |   |       |        
|Comprehensive income (loss):                    |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |         |   |   |         |       |  |   |        |        
|                                                | Net income                                       |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   |         |        |   |   |         | 2,316 |  |   |        | 2,316   |  
|                                                | Minimum pension liability adjustment, net of tax |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   | $       | (11,431 | ) |   |         |      |  |   |        | (11,431 | )
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Comprehensive loss                              |                                                  |                                   |           |   |           |   |       |                |  |   |              |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | (9,115 | )      
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Balance, December 31, 2002                      |                                                  |                                   | 5,870,609  |   |           | $ | 5,871  |                |  | $ | 14,203        |   |  |          |           |   |      |   |        |          |  | $ | (11,431 | )       |   | $ | 53,375  |       |  | $ | 62,018 |        
|Stock options exercised and related tax benefit |                                                  |                                   | 52,125     |   |           |   | 52     |                |  |   | 282           |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 334    |        
|Restricted stock forfeiture                     |                                                  |                                   | (20,000    | ) |           |   | (20    | )              |  |   | (306          | ) |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | (326   | )      
|Deferred compensation                           |                                                  |                                   |           |   |           |   |       |                |  |   | 10            |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 10     |        
|Deferred compensation forfeiture                |                                                  |                                   |           |   |           |   |       |                |  |   | 326           |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 326    |        
|Comprehensive income (loss):                    |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |         |   |   |         |       |  |   |        |        
|                                                | Net income                                       |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   |         |        |   |   |         | 102   |  |   |        | 102     |  
|                                                | Minimum pension liability adjustment, net of tax |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   | $       | (1,267  | ) |   |         |      |  |   |        | (1,267  | )
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Comprehensive loss                              |                                                  |                                   |           |   |           |   |       |                |  |   |              |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | (1,165 | )      
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Balance, December 31, 2003                      |                                                  | $                                 | 5,902,734  |   |           | $ | 5,903  |                |  | $ | 14,515        |   |  |          |           |   |      |   |        |          |  | $ | (12,698 | )       |   | $ | 53,477  |       |  | $ | 61,197 |        
|Stock options exercised and related tax benefit |                                                  |                                   | 170,100    |   |           |   | 170    |                |  |   | 1,105         |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 1,275  |        
|Restricted stock issued                         |                                                  |                                   | 136,000    |   |           |   | 136    |                |  |   | (136          | ) |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   |       |        
|Comprehensive income (loss):                    |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |         |   |   |         |       |  |   |        |        
|                                                | Net income                                       |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   |         |        |   |   |         | 3,787 |  |   |        | 3,787   |  
|                                                | Minimum pension liability adjustment, net of tax |                                   |            |  |           |   |        |               |  |   |               |  |  |          |            |  |      |   |         |         |  |   | $       | (311    | ) |   |         |      |  |   |        | (311    | )
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Comprehensive income                            |                                                  |                                   |           |   |           |   |       |                |  |   |              |   |  |          |           |   |      |   |        |          |  |   |        |         |   |   |        |       |  |   | 3,476  |        
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        
|Balance, December 31, 2004                      |                                                  | $                                 | 6,208,834  |   |           | $ | 6,209  |                |  | $ | 15,484        |   |  |          |           |   |      |   |        |          |  | $ | (13,009 | )       |   | $ | 57,264  |       |  | $ | 65,948 |        
|                                                |                                                  |                                   |            |   |           |   |        |                |  |   |               |   |  |          |            |   |      |   |         |          |  |   |         |        



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##### Table of Contents



NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |       |        |        |  
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------- | ------ | ------ | ------ | ------ | ----- | ------ | ------- | ------- | ----- | ------ | ------ | -
|                                                                                             |                                                                                                | Year Ended December 31,                                         |                                                
|                                                                                             |                                                                                                |                                                                 |                                                
|                                                                                             |                                                                                                | 2004                                                            |                                                 |        | 2003   |        |        | 2002  |       
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|                                                                                             |                                                                                                | (In thousands)                                                  |                                                
|Cash Flows from Operating Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|Net income                                                                                   |                                                                                                | $                                                               | 3,787                                           |        |        | $      | 102    |       |        | $       | 2,316   |      
|Adjustments to reconcile net income to cash provided by
    continuing operating activities: |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|                                                                                             | Depreciation and amortization                                                                  |                                                                 |                                                 | 7,900  |        |        |        | 7,942 |        |         |         | 7,581 |       
|                                                                                             | Deferred income taxes                                                                          |                                                                 |                                                 | 2,371  |        |        |        | 281   |        |         |         | 1,603 |       
|                                                                                             | Stock based compensation                                                                       |                                                                 |                                                 |       |        |        |        | 92    |        |         |         | 423   |       
|                                                                                             | Tax benefit from exercised stock options                                                       |                                                                 |                                                 | 187    |        |        |        |      |        |         |         |      |       
|                                                                                             | Net loss (gain) on curtailment of pension and
    postretirement plans                         |                                                                 |                                                 | (971   | )      |        |        | 1,599 |        |         |         | (181  | )     
|                                                                                             | Loss on sale/disposal of fixed assets                                                          |                                                                 |                                                 | 8      |        |        |        | 45    |        |         |         | 42    |       
|                                                                                             | Equity in loss from unconsolidated joint ventures                                              |                                                                 |                                                 | 416    |        |        |        | 523   |        |         |         | 59    |       
|                                                                                             | Death benefit premiums purchase (see note 12)                                                  |                                                                 |                                                 | (2,416 | )      |        |        |      |        |         |         |      |       
|                                                                                             | Change in operating assets and liabilities, net of effects from
    acquisition of businesses: |                                                                 |                                                 |        |        |        |        |       |        |         |         |       |       
|                                                                                             |                                                                                                | Restricted cash                                                 |                                                 |        | (1,202 | )      |        |       |       |         |         |       |       |       
|                                                                                             |                                                                                                | Accounts receivable                                             |                                                 |        | (1,836 | )      |        |       | (733   | )       |         |       | (2,554 | )     
|                                                                                             |                                                                                                | Inventories                                                     |                                                 |        | (2,459 | )      |        |       | (1,588 | )       |         |       | 1,418  |       
|                                                                                             |                                                                                                | Tax receivable                                                  |                                                 |        |       |        |        |       |       |         |         |       | (517   | )     
|                                                                                             |                                                                                                | Other assets, other current assets and loans to related parties |                                                 |        | 823    |        |        |       | (658   | )       |         |       | (1,433 | )     
|                                                                                             |                                                                                                | Accounts payable                                                |                                                 |        | (3,723 | )      |        |       | 2,423  |         |         |       | (1,623 | )     
|                                                                                             |                                                                                                | Accrued expenses                                                |                                                 |        | (1,400 | )      |        |       | (454   | )       |         |       | (3,207 | )     
|                                                                                             |                                                                                                | Other long-term liabilities                                     |                                                 |        | (177   | )      |        |       | (969   | )       |         |       | 2,156  |       
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|                                                                                             |                                                                                                |                                                                 | Cash provided by operating activities           |        |        | 1,308  |        |       |        | 8,605   |         |       |        | 6,083  |  
|Cash Flows from Investing Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|Investment in plant and equipment                                                            |                                                                                                |                                                                 | (6,599                                          | )      |        |        | (4,307 | )     |        |         | (4,349  | )    
|Investment in unconsolidated joint venture                                                   |                                                                                                |                                                                 |                                                |        |        |        | (325   | )     |        |         |        |      
|Proceeds from sale of plant and equipment                                                    |                                                                                                |                                                                 | 67                                              |        |        |        | 21     |       |        |         | 90      |      
|Business acquisitions, net of cash acquired                                                  |                                                                                                |                                                                 | (126                                            | )      |        |        | (6,020 | )     |        |         | (1,700  | )    
|Proceeds from surrender of retired executive life insurance
    policies                     |                                                                                                |                                                                 | 1,117                                           |        |        |        |       |       |        |         |        |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|                                                                                             |                                                                                                |                                                                 | Cash used in investing activities               |        |        | (5,541 | )      |       |        | (10,631 | )       |       |        | (5,959 | )
|Cash Flows from Financing Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|Net proceeds from revolving portion of long-term debt                                        |                                                                                                |                                                                 | 3,750                                           |        |        |        | 300    |       |        |         | 1,662   |      
|Principal repayments on term portion of long-term debt                                       |                                                                                                |                                                                 | (3,400                                          | )      |        |        | (2,700 | )     |        |         | (2,000  | )    
|Principal repayment on note payable to related parties                                       |                                                                                                |                                                                 | (250                                            | )      |        |        | (250   | )     |        |         |        |      
|Repayment on refinancing                                                                     |                                                                                                |                                                                 |                                                |        |        |        |       |       |        |         | (27,630 | )    
|Proceeds from Industrial Revenue Bond                                                        |                                                                                                |                                                                 | 2,800                                           |        |        |        |       |       |        |         |        |      
|Proceeds from refinancing                                                                    |                                                                                                |                                                                 |                                                |        |        |        | 5,000  |       |        |         | 27,688  |      
|Proceeds from shares exercised under stock option plans                                      |                                                                                                |                                                                 | 1,089                                           |        |        |        | 272    |       |        |         | 239     |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|                                                                                             |                                                                                                |                                                                 | Cash provided by (used in) financing activities |        |        | 3,989  |        |       |        | 2,622   |         |       |        | (41    | )
|Cash used in activities of discontinued operations                                           |                                                                                                |                                                                 | (55                                             | )      |        |        | (498   | )     |        |         | (61     | )    
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Increase (decrease) in cash and cash equivalents                                             |                                                                                                |                                                                 | (299                                            | )      |        |        | 98     |       |        |         | 22      |      
|Cash and cash equivalents at beginning of year                                               |                                                                                                |                                                                 | 1,183                                           |        |        |        | 1,085  |       |        |         | 1,063   |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Cash and cash equivalents at end of year                                                     |                                                                                                | $                                                               | 884                                             |        |        | $      | 1,183  |       |        | $       | 1,085   |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Supplemental Disclosures of Cash Flow Information                                            |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|Interest paid (net of amount capitalized)                                                    |                                                                                                | $                                                               | 1,068                                           |        |        | $      | 1,198  |       |        | $       | 1,452   |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Income taxes paid for continuing operations, net                                             |                                                                                                | $                                                               | 282                                             |        |        | $      | 94     |       |        | $       | 203     |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Supplemental Schedule of Non-Cash Investing and Financing
    Activities                     |                                                                                                |                                                                 |                                                 |        |        |        |        |       |        |         |         |      
|Fair value of assets acquired in acquisitions                                                |                                                                                                | $                                                               | 208                                             |        |        | $      | 6,314  |       |        | $       | 4,694   |      
|Accrued liability to purchase Dietzgen inventories                                           |                                                                                                |                                                                 |                                                |        |        |        |       |       |        |         | (1,052  | )    
|Note payable with Computer Imaging Supplies, Inc.                                            |                                                                                                |                                                                 |                                                |        |        |        |       |       |        |         | (1,000  | )    
|Liabilities assumed in acquisitions                                                          |                                                                                                |                                                                 | (82                                             | )      |        |        | (294   | )     |        |         | (942    | )    
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       
|Cash paid for acquisitions                                                                   |                                                                                                | $                                                               | 126                                             |        |        | $      | 6,020  |       |        | $       | 1,700   |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |       |       



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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|        |                                           
|------- | ------------------------------------------
|Note 1: | Summary of Significant Accounting Policies

Description of the Company




Segment and Related Information










Basis of Consolidation




Revenue Recognition




Environmental Expenditures






Shipping Costs




Research and Development




Use of Estimates




40



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##### Table of Contents



NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Cash Equivalents




Restricted Cash




Accounts Receivable




Inventories




Plant and Equipment






|                           |  |  |              | 
|-------------------------- |  |  | ------------ | 
|Buildings and improvements |  |  | 5  40 years | 
|Machinery and equipment    |  |  | 3  20 years | 



Goodwill and Intangible Assets




41



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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Stock-Based Compensation




|                                                                                                                                                  |                       |                           |       |      |      |   |      |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------- | ----- | ---- | ---- | - | ---- | ---- |  | - | ----- | ---- | 
|                                                                                                                                                  |                       | Year Ended December 31,   |      
|                                                                                                                                                  |                       |                           |      
|                                                                                                                                                  |                       | 2004                      |       |      | 2003 |   |      | 2002 | 
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|                                                                                                                                                  |                       | (In thousands, except per |      
|                                                                                                                                                  |                       | share data)               |      
|Net income as reported                                                                                                                            |                       | $                         | 3,787 |      |      | $ | 102  |      |  | $ | 2,316 |     
|Add: Stock-based employee compensation expense included in the
    determination of net income as reported, net of related tax
    effects        |                       |                           |      |      |      |   | 43   |      |  |   | 259   |     
|Deduct: Stock-based employee compensation expense determined
    under the fair value based method for all awards, net of related
    tax effects |                       |                           | (78   | )    |      |   | (107 | )    |  |   | (683  | )   
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|Pro forma net income                                                                                                                              |                       | $                         | 3,709 |      |      | $ | 38   |      |  | $ | 1,892 |     
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|Earnings per share:                                                                                                                               |                       |                           |       |      |      |   |      |      |  |   |       |     
|                                                                                                                                                  | Basic  as reported   |                           | $     | 0.63 |      |   | $    | 0.02 |  |   | $     | 0.40 | 
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|                                                                                                                                                  | Basic  pro forma     |                           | $     | 0.62 |      |   | $    | 0.01 |  |   | $     | 0.33 | 
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|                                                                                                                                                  | Diluted  as reported |                           | $     | 0.62 |      |   | $    | 0.02 |  |   | $     | 0.39 | 
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 
|                                                                                                                                                  | Diluted  pro forma   |                           | $     | 0.61 |      |   | $    | 0.01 |  |   | $     | 0.32 | 
|                                                                                                                                                  |                       |                           |       |      |      |   |      |      | 

Income Taxes




Concentrations of Credit Risk




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Concentrations of Labor




Concentrations of Supply




Fair Value of Financial Instruments




Earnings per Common and Common Equivalent Share




New Accounting Pronouncements






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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|        |                 
|------- | ----------------
|Note 2: | Business Changes

Business Acquisitions












Strategic Alliance




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Discontinued Operations




|                                                        |  |                |        |   |      |   |        |  
|------------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                        |  | At December 31 |       
|                                                        |  |                |       
|                                                        |  | 2004           |        |   | 2003 |  
|                                                        |  |                |        |   |      |  
|                                                        |  | (In thousands) |       
|Assets                                                  |  | $              | 930    |   |      | $ | 930    |  
|Liabilities                                             |  |                | (3,502 | ) |      |   | (3,727 | )
|                                                        |  |                |        |   |      |  
|Net assets and (liabilities) of discontinued operations |  | $              | (2,572 | ) |      | $ | (2,797 | )
|                                                        |  |                |        |   |      |  







|        |                  
|------- | -----------------
|Note 3: | Intangible Assets



|                                 |  |                      |       |          |              |   |         |              |  |  |         | 
|-------------------------------- |  | -------------------- | ----- | -------- | ------------ | - | ------- | ------------ |  |  | ------- | 
|                                 |  | At December 31, 2004 |      
|                                 |  |                      |      
|                                 |  |                      |       | Weighted |             
|                                 |  | Gross                |       |          |              |   | Average |             
|                                 |  | Carrying             |       |          | Accumulated  |   |         | Amortization | 
|                                 |  | Amount               |       |          | Amortization |   |         | Period       | 
|                                 |  |                      |       |          |              |   |         |              | 
|                                 |  | (In thousands)       |      
|Trademarks and trade names       |  | $                    | 560   |          |              | $ | 220     |              |  |  | 9 years | 
|Licensing agreement              |  |                      | 230   |          |              |   | 126     |              |  |  | 5 years | 
|Customer relationships and lists |  |                      | 1,062 |          |              |   | 421     |              |  |  | 9 years | 
|Customer contracts               |  |                      | 620   |          |              |   | 340     |              |  |  | 4 years | 
|Non-competition agreements       |  |                      | 100   |          |              |   | 55      |              |  |  | 5 years | 
|Patented technology              |  |                      | 90    |          |              |   | 49      |              |  |  | 5 years | 
|                                 |  |                      |       |          |              |   |         |              | 
|                                 |  | $                    | 2,662 |          |              | $ | 1,211   |              |  |  |         | 
|                                 |  |                      |       |          |              |   |         |              | 

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |                                  |   |     |     | 
|------------------------------------ | -------------------------------- | - | --- | --- | 
|Amortization Expense:                |                                  |   |     |    
|For the year ended December 31, 2003 |                                  | $ | 481 |    
|For the year ended December 31, 2004 |                                  | $ | 441 |    
|Estimated for the year ending:       |                                  |   |     |    
|                                     | December 31, 2005                |   | $   | 389 | 
|                                     | December 31, 2006                |   | $   | 345 | 
|                                     | December 31, 2007                |   | $   | 208 | 
|                                     | December 31, 2008                |   | $   | 91  | 
|                                     | December 31, 2009 and thereafter |   | $   | 57  | 
|                                     | December 31, 2010 and thereafter |   | $   | 361 | 



|        |         
|------- | --------
|Note 4: | Goodwill



|                                                                                         |  |                  |        |  |                |   |        |       |  |   |        | 
|---------------------------------------------------------------------------------------- |  | ---------------- | ------ |  | -------------- | - | ------ | ----- |  | - | ------ | 
|                                                                                         |  | Specialty Paper  |        |  | Label Products |   |        |      
|                                                                                         |  | Products Segment |        |  | Segment        |   |        | Total | 
|                                                                                         |  |                  |        |  |                |   |        |       | 
|                                                                                         |  | (In thousands)   |       
|Balance as of January 1, 2004                                                            |  | $                | 14,142 |  |                | $ | 17,329 |       |  | $ | 31,471 | 
|Adjustments to goodwill resulting from the acquisition of The
    Label Company business |  |                  |       |  |                |   | 45     |       |  |   | 45     | 
|                                                                                         |  |                  |        |  |                |   |        |       | 
|Balance as of December 31, 2004                                                          |  | $                | 14,142 |  |                | $ | 17,374 |       |  | $ | 31,516 | 
|                                                                                         |  |                  |        |  |                |   |        |       | 





|        |             
|------- | ------------
|Note 5: | Indebtedness





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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | extended the term of the credit facility to February 28,
    2007;                                                                                                                                                                                                                                                                                                  
|
| |  | modified the definition of fixed charge coverage ratio to
    provide that (1) the ratio is based on our adjusted EBITDA
    and (2) payments of principal of funded debt, included in
    the calculation of the fixed charge coverage ratio, are limited
    to the last four principal payments;                                                                 
|
| |  | replaced the definition and covenant relating to the total debt
    to EBITDA ratio with a definition and covenant relating to the
    funded debt to adjusted EBITDA ratio;                                                                                                                                                                                        
|
| |  | eliminated the covenant relating to minimum adjusted EBITDA;                                                                                                                                                                                                                                                                                                        
|
| |  | adjusted the interest rate on loans outstanding under the credit
    facility to provide that the interest rate is based on the
    funded debt to adjusted EBITDA ratio and that the interest rate
    is, at our option, either (1) a range from zero to
    .25 percent over the base rate (prime) or (2) a
    range from 1.5 percent to 2.0 percent over LIBOR;
|
| |  | modified the definitions of Revolving Outstandings and Stated
    Amount to include the IRB Letter of Credit;                                                                                                                                                                                                                                                       
|
| |  | adjusts the letter of credit commitment amount to include the
    IRB Letter of Credit;                                                                                                                                                                                                                                                                             
|
| |  | adjust the covenants on the limitations on debt and liens to
    exclude the debt to the IDB and related liens; and                                                                                                                                                                                                                                                 
|
| |  | adjust the description of any non-payment of other debt to
    include debt arising under the Reimbursement Agreement relating
    to the IRB Letter of Credit.                                                                                                                                                                                                     





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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |                |       |  |      |   |       |      |  |   |        |  |        |   |   |       |  |   |       |  |  |   |        | 
|----------------------------------- |  | -------------- | ----- |  | ---- | - | ----- | ---- |  | - | ------ |  | ------ | - | - | ----- |  | - | ----- |  |  | - | ------ | 
|                                    |  | 2005           |       |  | 2006 |   |       | 2007 |  |   | 2008   |  | Beyond |   |   | Total | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |  |        |   |   |       | 
|                                    |  | (In thousands) |      
|Term portion of long-term debt      |  | $              | 3,400 |  |      | $ | 3,400 |      |  | $ | 100    |  |        | $ |  |       |  | $ |      |  |  | $ | 6,900  | 
|Revolving portion of long-term debt |  |                |      |  |      |   |      |      |  |   | 21,050 |  |        |   |  |       |  |   |      |  |  |   | 21,050 | 
|Industrial revenue bond             |  |                |      |  |      |   |      |      |  |   |       |  |        |   |  |       |  |   | 2,800 |  |  |   | 2,800  | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |  |        |   |   |       |  |  
|                                    |  | $              | 3,400 |  |      | $ | 3,400 |      |  | $ | 21,150 |  |        | $ |  |       |  | $ | 2,800 |  |  | $ | 30,750 | 
|                                    |  |                |       |  |      |   |       |      |  |   |        |  |        |   |   |       |  |  



|        |                                 
|------- | --------------------------------
|Note 6: | Notes Payable to Related Parties







|                                 |  |                |     |  |      |   |     |       |  |   |     | 
|-------------------------------- |  | -------------- | --- |  | ---- | - | --- | ----- |  | - | --- | 
|                                 |  | 2005           |     |  | 2006 |   |     | Total | 
|                                 |  |                |     |  |      |   |     |       | 
|                                 |  | (In thousands) |    
|Notes payable to related parties |  | $              | 710 |  |      | $ | 250 |       |  | $ | 960 | 
|                                 |  |                |     |  |      |   |     |       | 



|        |             
|------- | ------------
|Note 7: | Income Taxes



|          |               |                            |   |       |       |  |   |      |      |   |   |       |       |  
|--------- | ------------- | -------------------------- | - | ----- | ----- |  | - | ---- | ---- | - | - | ----- | ----- | -
|          |               | 2004                       |   |       | 2003  |  |   | 2002 |     
|          |               |                            |   |       |       |  |   |      |     
|          |               | (In thousands)             |  
|Current:  |               |                            |   |       |       |  |   |      |      |   |   |      
|          | United States |                            | $ |      |       |  | $ | (147 | )    |   | $ | (91   | )    
|          | State         |                            |   |      |       |  |   | (17  | )    |   |   |      |      
|          |               |                            |   |       |       |  |   |      |     
|          |               | Total current              |   |       |      |  |   |      | (164 | ) |   |       | (91   | )
|Deferred: |               |                            |   |       |       |  |   |      |      |   |   |      
|          | United States |                            |   | 2,080 |       |  |   | 257  |      |   |   | 1,362 |      
|          | State         |                            |   | 291   |       |  |   | 24   |      |   |   | 241   |      
|          |               |                            |   |       |       |  |   |      |     
|          |               | Total deferred             |   |       | 2,371 |  |   |      | 281  |   |   |       | 1,603 |  
|          |               |                            |   |       |       |  |   |      |     
|          |               | Provision for income taxes |   | $     | 2,371 |  |   | $    | 117  |   |   | $     | 1,512 |  
|          |               |                            |   |       |       |  |   |      |     

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                               |                         |                |        |        |      |   |        |        | 
|-------------------------------------------------------------- | ----------------------- | -------------- | ------ | ------ | ---- | - | ------ | ------ | 
|                                                               |                         | 2004           |        |        | 2003 |  
|                                                               |                         |                |        |        |      |  
|                                                               |                         | (In thousands) |       
|Depreciation                                                   |                         | $              | (1,423 | )      |      | $ | (1,124 | )     
|Other                                                          |                         |                | (358   | )      |      |   | (372   | )     
|                                                               |                         |                |        |        |      |  
|Gross deferred tax liabilities                                 |                         |                | (1,781 | )      |      |   | (1,496 | )     
|Restructuring                                                  |                         |                |       |        |      |   | 496    |       
|Pension and postretirement benefits                            |                         |                | 8,402  |        |      |   | 8,818  |       
|State net operating loss carryforwards and other state credits |                         |                | 2,359  |        |      |   | 1,922  |       
|Alternative minimum tax and general business credits           |                         |                | 1,428  |        |      |   | 1,434  |       
|Accrued expenses                                               |                         |                | 633    |        |      |   | 931    |       
|Inventory reserves                                             |                         |                | 558    |        |      |   | 1,000  |       
|Bad debt reserves                                              |                         |                | 341    |        |      |   | 419    |       
|Other                                                          |                         |                | 961    |        |      |   | 2,175  |       
|                                                               |                         |                |        |        |      |  
|Gross deferred tax asset                                       |                         |                | 14,682 |        |      |   | 17,195 |       
|Deferred tax assets valuation allowance                        |                         |                | (600   | )      |      |   | (600   | )     
|                                                               |                         |                |        |        |      |  
|                                                               | Net deferred tax assets |                | $      | 12,301 |      |   | $      | 15,099 | 
|                                                               |                         |                |        |        |      |  



|                                        |                    |      |      |      |      |  |      |      |   |  |      |      |  
|--------------------------------------- | ------------------ | ---- | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                        |                    | 2004 |      |      | 2003 |  |      | 2002 |  
|                                        |                    |      |      |      |      |  |      |      |  
|United States federal statutory rate    |                    |      | 35.0 | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|State taxes, net of federal tax benefit |                    |      | 2.9  |      |      |  | 2.0  |      |   |  | 4.1  |     
|Non-deductible meals and entertainment  |                    |      | .5   |      |      |  | 12.3 |      |   |  | .4   |     
|Other, net                              |                    |      | .1   |      |      |  | 4.1  |      |   |  |     |     
|                                        |                    |      |      |      |      |  |      |      |  
|                                        | Effective tax rate |      |      | 38.5 | %    |  |      | 53.4 | % |  |      | 39.5 | %
|                                        |                    |      |      |      |      |  |      |      |  







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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|        |                     
|------- | --------------------
|Note 8: | Shareholders Equity





|        |                                   
|------- | ----------------------------------
|Note 9: | Stock Option and Stock Award Plans









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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                                               |  |        |          |          |       |   |       |        |          |  |         |   |  |          |       |  |       |  |         |   |  |   |       | 
|-------------------------------------------------------------- |  | ------ | -------- | -------- | ----- | - | ----- | ------ | -------- |  | ------- | - |  | -------- | ----- |  | ----- |  | ------- | - |  | - | ----- | 
|                                                               |  | 2004   |          |          | 2003  |   |       | 2002   |         
|                                                               |  |        |          |          |       |   |       |        |         
|                                                               |  |        |          | Weighted |       |   |       |        | Weighted |  |         |   |  | Weighted |      
|                                                               |  |        |          | Average  |       |   |       |        | Average  |  |         |   |  | Average  |      
|                                                               |  |        |          | Exercise |       |   |       |        | Exercise |  |         |   |  | Exercise |      
|                                                               |  | Shares |          |          | Price |   |       | Shares |          |  | Price   |   |  | Shares   |       |  | Price | 
|                                                               |  |        |          |          |       |   |       |        |          |  |         |   |  |          |       |  |       | 
|Outstanding beginning of year                                  |  |        | 806,175  |          |       | $ | 7.58  |        |          |  | 905,500 |   |  | $        | 7.75  |  |       |  | 909,500 |   |  | $ | 7.68  | 
|Granted                                                        |  |        | 10,000   |          |       |   | 9.61  |        |          |  |        |   |  |          |      |  |       |  | 61,200  |   |  |   | 6.72  | 
|Exercised                                                      |  |        | (170,100 | )        |       |   | 6.40  |        |          |  | (52,125 | ) |  |          | 5.23  |  |       |  | (53,600 | ) |  |   | 4.45  | 
|Forfeited  non-vested                                         |  |        |         |          |       |   |      |        |          |  | (17,175 | ) |  |          | 6.27  |  |       |  | (4,025  | ) |  |   | 6.74  | 
|Forfeited  exercisable                                        |  |        | (58,350  | )        |       |   | 14.98 |        |          |  | (24,200 | ) |  |          | 15.47 |  |       |  | (6,075  | ) |  |   | 11.00 | 
|Expired                                                        |  |        | (5,500   | )        |       |   | 26.02 |        |          |  | (5,825  | ) |  |          | 26.27 |  |       |  | (1,500  | ) |  |   | 28.13 | 
|                                                               |  |        |          |          |       |   |       |        |          |  |         |   |  |          |       |  |       | 
|Outstanding end of year                                        |  |        | 582,225  |          |       |   | 7.04  |        |          |  | 806,175 |   |  | $        | 7.58  |  |       |  | 905,500 |   |  | $ | 7.75  | 
|Options exercisable at end of year                             |  |        | 572,225  |          |       |   | 7.00  |        |          |  | 791,175 |   |  | $        | 7.59  |  |       |  | 732,000 |   |  | $ | 8.19  | 
|Weighted average fair value of options granted during the year |  |        |         |          |       | $ | 3.64  |        |          |  |        |   |  |          |      |  |       |  |        |   |  | $ | 2.85  | 

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |  |                     |         |          |                     |  |           |          |  |          |             |  |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | -------- | ------------------- |  | --------- | -------- |  | -------- | ----------- |  |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |         |          | Options Exercisable | 
|                         |  |                     |         |          |                     | 
|                         |  |                     |         | Weighted |                     |  | Number    |          |  | Weighted |            
|                         |  | Number              |         |          | Weighted Average    |  |           | Average  |  |          | Exercisable |  |  | Average  |        
|                         |  | Outstanding         |         |          | Remaining           |  |           | Exercise |  |          | at          |  |  | Exercise |        
|Range of Exercise Prices |  | at 12/31/04         |         |          | Contractual Life    |  |           | Price    |  |          | 12/31/04    |  |  | Price    |        
|                         |  |                     |         |          |                     |  |           |          |  |          |             |  |  |          |        
|$ 4.01  $ 4.38          |  |                     | 170,100 |          |                     |  | 6.1 years |          |  | $        | 4.12        |  |  |          | 170,100 |  |  | $ | 4.12  | 
|$ 5.70  $ 6.63          |  |                     | 190,025 |          |                     |  | 6.4 years |          |  | $        | 6.02        |  |  |          | 190,025 |  |  | $ | 6.02  | 
|$ 6.65  $ 6.70          |  |                     | 46,200  |          |                     |  | 7.2 years |          |  | $        | 6.67        |  |  |          | 46,200  |  |  | $ | 6.67  | 
|$ 8.06  $ 8.63          |  |                     | 65,300  |          |                     |  | 5.4 years |          |  | $        | 8.17        |  |  |          | 65,300  |  |  | $ | 8.17  | 
|$ 9.61  $11.63          |  |                     | 49,100  |          |                     |  | 5.3 years |          |  | $        | 10.20       |  |  |          | 39,100  |  |  | $ | 10.36 | 
|$12.37  $19.75          |  |                     | 61,500  |          |                     |  | 2.6 years |          |  | $        | 14.82       |  |  |          | 61,500  |  |  | $ | 14.82 | 
|                         |  |                     |         |          |                     |  |           |          |  |          |             |  |  |          |        
|$ 4.01  $19.75          |  |                     | 582,225 |          |                     |  | 5.8 years |          |  | $        | 7.04        |  |  |          | 572,225 |  |  | $ | 7.00  | 



|                                                               |  |      |         |  |      |   |         |      |  |   |         |  
|-------------------------------------------------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | -
|                                                               |  | 2004 |         |  | 2003 |   |         | 2002 | 
|                                                               |  |      |         |  |      |   |         |      | 
|Restricted stock outstanding at beginning of year              |  |      |        |  |      |   | 53,334  |      |  |   | 146,667 |  
|Granted                                                        |  |      | 136,000 |  |      |   |        |      |  |   |        |  
|Forfeited and converted                                        |  |      |        |  |      |   | (53,334 | )    |  |   | (93,333 | )
|                                                               |  |      |         |  |      |   |         |      | 
|Restricted stock outstanding at end of year                    |  |      | 136,000 |  |      |   |        |      |  |   | 53,334  |  
|Weighted average fair value per restricted share at grant date |  | $    | 3.47    |  |      | $ |        |      |  | $ |        |  
|Weighted average share price at grant date                     |  | $    | 9.00    |  |      | $ |        |      |  | $ |        |  



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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                           |                  |            |                                    |       |      |  |     |      |  |  |           |      | 
|-------------------------- | ---------------- | ---------- | ---------------------------------- | ----- | ---- |  | --- | ---- |  |  | --------- | ---- | 
|                           |                  | Grant Year |                                   
|                           |                  |            |                                   
|                           |                  | 2004       |                                    |       | 2003 |  |     | 2002 | 
|                           |                  |            |                                    |       |      |  |     |      | 
|Volatility of Share Price: |                  |            |                                    |       |      |  |     |      |  |  |           |     
|                           | Options          |            |                                    | 34.0% |      |  |     | N/A  |  |  |           | 36%  | 
|                           | Restricted stock |            |                                    | 33.8% |      |  |     |     |  |  |           |     | 
|Dividend yield:            |                  |            |                                    |       |      |  |     |      |  |  |           |     
|                           | Options          |            |                                    |      |      |  |     |     |  |  |           |     | 
|                           | Restricted stock |            |                                    |      |      |  |     |     |  |  |           |     | 
|Interest rate:             |                  |            |                                    |       |      |  |     |      |  |  |           |     
|                           | Options          |            |                                    | 3.6%  |      |  |     | N/A  |  |  |           | 4.7% | 
|                           | Restricted stock |            |                                    | 3.3%  |      |  |     |     |  |  |           |     | 
|Expected life of options   |                  |            | 5.5  years                         |       |      |  | N/A |      |  |  | 5.7 years |     
|Valuation methodology:     |                  |            |                                    |       |      |  |     |      |  |  |           |     
|                           | Options          |            | Black-Scholes Option Pricing Model
|                           | Restricted stock |            | Binomial Pricing Model            





|         |                   
|-------- | ------------------
|Note 10: | Earnings Per Share



|                                            |                                                                |                                       |       |       |               |  |     |           |  |   |   |      | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ----- | ----- | ------------- |  | --- | --------- |  | - | - | ---- | 
|                                            |                                                                | Year Ended December 31, 2004          |      
|                                            |                                                                |                                       |      
|                                            |                                                                | Income                                |       |       | Shares        |  |     | Per Share | 
|                                            |                                                                | (Numerator)                           |       |       | (Denominator) |  |     | Amount    | 
|                                            |                                                                |                                       |       |       |               |  |     |           | 
|                                            |                                                                | (In thousands, except per share data) |      
|Net income                                  |                                                                | $                                     | 3,787 |       |               |  |    |           |  | $ |  |     
|                                            |                                                                |                                       |       |       |               |  |     |           | 
|Basic EPS:                                  |                                                                |                                       |       |       |               |  |     |           |  |   |   |     
|                                            | Net income available to common shareholders                    |                                       | $     | 3,787 |               |  |     | 6,011     |  |   | $ | 0.63 | 
|Effect of dilutive securities stock options |                                                                |                                       |      |       |               |  | 119 |           |  |   |  |     
|                                            |                                                                |                                       |       |       |               |  |     |           | 
|Diluted EPS:                                |                                                                |                                       |       |       |               |  |     |           |  |   |   |     
|                                            | Net income available to common shareholders, assuming dilution |                                       | $     | 3,787 |               |  |     | 6,130     |  |   | $ | 0.62 | 

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                            |                                                                |                                       |     |     |               |  |     |           |  |   |   |     | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | --- | --- | ------------- |  | --- | --------- |  | - | - | --- | 
|                                            |                                                                | Year Ended December 31, 2003          |    
|                                            |                                                                |                                       |    
|                                            |                                                                | Income                                |     |     | Shares        |  |     | Per Share | 
|                                            |                                                                | (Numerator)                           |     |     | (Denominator) |  |     | Amount    | 
|                                            |                                                                |                                       |     |     |               |  |     |           | 
|                                            |                                                                | (In thousands, except per share data) |    
|Net income                                  |                                                                | $                                     | 102 |     |               |  |    |           |  | $ |  |    
|                                            |                                                                |                                       |     |     |               |  |     |           | 
|Basic EPS:                                  |                                                                |                                       |     |     |               |  |     |           |  |   |   |    
|                                            | Net income available to common shareholders                    |                                       | $   | 102 |               |  |     | 5,869     |  |   | $ | .02 | 
|Effect of dilutive securities stock options |                                                                |                                       |    |     |               |  | 130 |           |  |   |  |    
|                                            |                                                                |                                       |     |     |               |  |     |           | 
|Diluted EPS:                                |                                                                |                                       |     |     |               |  |     |           |  |   |   |    
|                                            | Net income available to common shareholders, assuming dilution |                                       | $   | 102 |               |  |     | 5,999     |  |   | $ | .02 | 
|                                            |                                                                |                                       |     |     |               |  |     |           | 

|                                            |                                                                |                                       |       |       |               |  |    |           |  |   |   |     | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ----- | ----- | ------------- |  | -- | --------- |  | - | - | --- | 
|                                            |                                                                | Year Ended December 31, 2002          |      
|                                            |                                                                |                                       |      
|                                            |                                                                | Income                                |       |       | Shares        |  |    | Per Share | 
|                                            |                                                                | (Numerator)                           |       |       | (Denominator) |  |    | Amount    | 
|                                            |                                                                |                                       |       |       |               |  |    |           | 
|                                            |                                                                | (In thousands, except per share data) |      
|Net income                                  |                                                                | $                                     | 2,316 |       |               |  |   |           |  | $ |  |    
|                                            |                                                                |                                       |       |       |               |  |    |           | 
|Basic EPS:                                  |                                                                |                                       |       |       |               |  |    |           |  |   |   |    
|                                            | Net income available to common shareholders                    |                                       | $     | 2,316 |               |  |    | 5,783     |  |   | $ | .40 | 
|Effect of dilutive securities Stock options |                                                                |                                       |      |       |               |  | 90 |           |  |   |  |    
|                                            |                                                                |                                       |       |       |               |  |    |           | 
|Diluted EPS:                                |                                                                |                                       |       |       |               |  |    |           |  |   |   |    
|                                            | Net income available to common shareholders, assuming dilution |                                       | $     | 2,316 |               |  |    | 5,873     |  |   | $ | .39 | 
|                                            |                                                                |                                       |       |       |               |  |    |           | 





|         |                              
|-------- | -----------------------------
|Note 11: | Commitments and Contingencies



|                                    |  |                |       |  |      |   |     |      |  |   |      |        |  |      |     |  |      |   |     |       |  |   |     |  |  |   |       | 
|----------------------------------- |  | -------------- | ----- |  | ---- | - | --- | ---- |  | - | ---- | ------ |  | ---- | --- |  | ---- | - | --- | ----- |  | - | --- |  |  | - | ----- | 
|                                    |  |                |       |  |      |   |     |      |  |   |      | Beyond |  |      |    
|                                    |  | 2005           |       |  | 2006 |   |     | 2007 |  |   | 2008 |        |  | 2009 |     |  | 2009 |   |     | Total | 
|                                    |  |                |       |  |      |   |     |      |  |   |      |        |  |      |     |  |      |   |     |       | 
|                                    |  | (In thousands) |      
|Energy-related purchase obligations |  | $              | 574   |  |      | $ |    |      |  | $ |     |        |  | $    |    |  |      | $ |    |       |  | $ |    |  |  | $ | 574   | 
|Capital leases                      |  |                | 184   |  |      |   | 84  |      |  |   | 22   |        |  |      |    |  |      |   |    |       |  |   |    |  |  |   | 290   | 
|Non-cancelable operating leases     |  |                | 626   |  |      |   | 505 |      |  |   | 460  |        |  |      | 346 |  |      |   | 149 |       |  |   | 166 |  |  |   | 2,252 | 
|                                    |  |                |       |  |      |   |     |      |  |   |      |        |  |      |     |  |      |   |     |       | 
|                                    |  | $              | 1,384 |  |      | $ | 589 |      |  | $ | 482  |        |  | $    | 346 |  |      | $ | 149 |       |  | $ | 166 |  |  | $ | 3,116 | 
|                                    |  |                |       |  |      |   |     |      |  |   |      |        |  |      |     |  |      |   |     |       | 





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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|         |                        
|-------- | -----------------------
|Note 12: | Postretirement Benefits

Defined Contribution Plan






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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Pension Plans




Retiree Health Care and Other Benefits




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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------- | -------------- | -------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                       |  |                  |         | Postretirement |         
|                                                                                       |  | Pension Benefits |         |                | Benefits |  
|                                                                                       |  |                  |         |                |          |  
|                                                                                       |  | 2004             |         |                | 2003     |   |         | 2004 |  |   | 2003   |  
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|                                                                                       |  | (In thousands)   |        
|Change in benefit obligation                                                           |  |                  |         |                |          |   |         |      |  |   |        |   |  |   |        |  
|Projected benefit obligation at beginning of year                                      |  | $                | 81,721  |                |          | $ | 70,917  |      |  | $ | 4,791  |   |  | $ | 3,893  |  
|Service cost                                                                           |  |                  | 834     |                |          |   | 771     |      |  |   | 58     |   |  |   | 60     |  
|Interest cost                                                                          |  |                  | 4,877   |                |          |   | 4,624   |      |  |   | 215    |   |  |   | 289    |  
|Curtailment/ Settlement                                                                |  |                  | (274    | )              |          |   |        |      |  |   | (1,820 | ) |  |   | 944    |  
|Actuarial loss (gain)                                                                  |  |                  | 2,082   |                |          |   | 7,651   |      |  |   | (508   | ) |  |   | 204    |  
|Benefits paid                                                                          |  |                  | (2,547  | )              |          |   | (2,242  | )    |  |   | (451   | ) |  |   | (599   | )
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Projected benefit obligation at end of year                                            |  | $                | 86,693  |                |          | $ | 81,721  |      |  | $ | 2,285  |   |  | $ | 4,791  |  
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Change in plan assets                                                                  |  |                  |         |                |          |   |         |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at beginning of year                                         |  | $                | 64,659  |                |          | $ | 55,368  |      |  |   |       |   |  |   |       |  
|Actual return on plan assets                                                           |  |                  | 6,420   |                |          |   | 11,249  |      |  |   |       |   |  |   |       |  
|Employer contribution                                                                  |  |                  | 458     |                |          |   |        |      |  |   | 2,695  |   |  |   | 599    |  
|Settlement                                                                             |  |                  | (172    | )              |          |   |        |      |  |   |       |   |  |   |       |  
|Benefits paid                                                                          |  |                  | (2,547  | )              |          |   | (1,958  | )    |  |   | (2,695 | ) |  |   | (599   | )
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Fair value of plan assets at end of year                                               |  | $                | 68,818  |                |          | $ | 64,659  |      |  | $ |       |   |  | $ |       |  
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Reconciliation of funded status                                                        |  |                  |         |                |          |   |         |      |  |   |        |   |  |   |        |  
|Funded status                                                                          |  | $                | (17,875 | )              |          | $ | (17,062 | )    |  | $ | (2,285 | ) |  | $ | (4,790 | )
|Unrecognized net actuarial (gain)/loss                                                 |  |                  | 21,512  |                |          |   | 21,005  |      |  |   | (1,038 | ) |  |   | (2,171 | )
|Unrecognized prior service cost                                                        |  |                  | 1,615   |                |          |   | 1,883   |      |  |   | (382   | ) |  |   | (448   | )
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Net amount recognized                                                                  |  | $                | 5,252   |                |          | $ | 5,826   |      |  | $ | (3,705 | ) |  | $ | (7,409 | )
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|The amount recognized in our consolidated balance sheet
    consists of the following: |  |                  |         |                |          |   |         |      |  |   |        |   |  |   |        |  
|Pension/postretirement liability                                                       |  | $                | (17,875 | )              |          | $ | (17,062 | )    |  | $ | (3,705 | ) |  | $ | (7,409 | )
|Accumulated other comprehensive loss                                                   |  |                  | 21,512  |                |          |   | 21,005  |      |  |   |       |   |  |   |       |  
|Intangible asset                                                                       |  |                  | 1,615   |                |          |   | 1,883   |      |  |   |       |   |  |   |       |  
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  
|Net amount recognized                                                                  |  | $                | 5,252   |                |          | $ | 5,826   |      |  | $ | (3,705 | ) |  | $ | (7,409 | )
|                                                                                       |  |                  |         |                |          |   |         |      |  |   |        |  

Assumptions:


|                                                                                    |  |                  |     |   |                         |  |     |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|----------------------------------------------------------------------------------- |  | ---------------- | --- | - | ----------------------- |  | --- | ---- |  |  | ---- | - |  | ---- | --- | - | ---- |  | --- | - |  |  | ---- | -
|                                                                                    |  | Pension Benefits |     |   | Postretirement Benefits | 
|                                                                                    |  |                  |     |   |                         | 
|                                                                                    |  | 2004             |     |   | 2003                    |  |     | 2002 |  |  | 2004 |   |  | 2003 |     |   | 2002 | 
|                                                                                    |  |                  |     |   |                         |  |     |      |  |  |      |   |  |      |     |   |      | 
|Weighted-average assumptions used to determine net benefit
    costs:               |  |                  |     |   |                         |  |     |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|Discount rate                                                                       |  |                  | 6.0 | % |                         |  | 6.5 | %    |  |  | 7.25 | % |  |      | 6.0 | % |      |  | 6.5 | % |  |  | 7.25 | %
|Expected return on plan assets                                                      |  |                  | 8.5 | % |                         |  | 8.5 | %    |  |  | 9.00 | % |  |      |    |   |      |  |    |   |  |  |     |  
|Average rate of compensation increase                                               |  |                  | N/A |   |                         |  | 3.0 | %    |  |  | 3.50 | % |  |      |    |   |      |  |    |   |  |  |     |  
|Weighted-average assumptions used to determine benefit
    obligations at year end: |  |                  |     |   |                         |  |     |      |  |  |      |   |  |      |     |   |      |  |     |   |  |  |      |  
|Discount rate                                                                       |  |                  | 6.0 | % |                         |  | 6.0 | %    |  |  | 6.5  | % |  |      | 6.0 | % |      |  | 6.0 | % |  |  | 6.5  | %
|Average rate of compensation increase                                               |  |                  | N/A |   |                         |  | N/A |      |  |  | 3.0  | % |  |      | N/A |   |      |  |    |   |  |  |     |  



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|           |  |  |      |  
|---------- |  |  | ---- | -
|One year   |  |  | 11.5 | %
|Five years |  |  | 5.3  | %
|Ten years  |  |  | 11.0 | %



|                  |  |      |    |   |             |  |    |  
|----------------- |  | ---- | -- | - | ----------- |  | -- | -
|                  |  | 2004 |    |   | 2005 Target | 
|                  |  |      |    |   |             | 
|Asset Category    |  |      |    |   |             |  |    |  
|Equity Securities |  |      | 57 | % |             |  | 55 | %
|Fixed Income      |  |      | 43 | % |             |  | 45 | %





|                              |  |               |      | 
|----------------------------- |  | ------------- | ---- | 
|                              |  | (In millions) |     
|Investments                   |  |               |      | 
|Large cap equities            |  | $             | 21.6 | 
|Small cap equities            |  |               | 10.9 | 
|International equities        |  |               | 6.5  | 
|High yield bonds              |  |               | 5.3  | 
|Fixed income/bond investments |  |               | 24.3 | 
|Cash                          |  |               | .2   | 
|                              |  |               |     
|Total                         |  | $             | 68.8 | 
|                              |  |               |     

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |  |                 |      |  |                 |   |      |                 |  |   |                |  |  |   |     | 
|--------- |  | --------------- | ---- |  | --------------- | - | ---- | --------------- |  | - | -------------- |  |  | - | --- | 
|          |  | Retirement Plan |      |  | Hourly          |   |      | Supplemental    |  |   |               
|          |  | for Salaried    |      |  | Employees       |   |      | Executive       |  |   |               
|          |  | Employees       |      |  | Retirement Plan |   |      | Retirement Plan |  |   | Postretirement | 
|          |  |                 |      |  |                 |   |      |                 |  |   |                | 
|          |  | (In millions)   |     
|2005      |  | $               | 1.5  |  |                 | $ | 1.0  |                 |  | $ | .3             |  |  | $ | .4  | 
|2006      |  |                 | 1.7  |  |                 |   | 1.1  |                 |  |   | .3             |  |  |   | .3  | 
|2007      |  |                 | 1.9  |  |                 |   | 1.3  |                 |  |   | .3             |  |  |   | .3  | 
|2008      |  |                 | 2.1  |  |                 |   | 1.4  |                 |  |   | .3             |  |  |   | .2  | 
|2009      |  |                 | 2.3  |  |                 |   | 1.6  |                 |  |   | .3             |  |  |   | .2  | 
|2010-2014 |  |                 | 15.3 |  |                 |   | 11.3 |                 |  |   | 1.6            |  |  |   | 1.1 | 



|                                         |  |                  |        |   |                         |   |        |      |  |   |        |   |  |      |      |   |      |   |      |   |  |   |      |  
|---------------------------------------- |  | ---------------- | ------ | - | ----------------------- | - | ------ | ---- |  | - | ------ | - |  | ---- | ---- | - | ---- | - | ---- | - |  | - | ---- | -
|                                         |  | Pension Benefits |        |   | Postretirement Benefits |  
|                                         |  |                  |        |   |                         |  
|                                         |  | 2004             |        |   | 2003                    |   |        | 2002 |  |   | 2004   |   |  | 2003 |      |   | 2002 |  
|                                         |  |                  |        |   |                         |   |        |      |  |   |        |   |  |      |      |   |      |  
|                                         |  | (In thousands)   |       
|Components of net periodic (income) cost |  |                  |        |   |                         |   |        |      |  |   |        |   |  |      |      |   |      |   |      |   |  |   |      |  
|Service cost                             |  | $                | 834    |   |                         | $ | 771    |      |  | $ | 1,473  |   |  | $    | 58   |   |      | $ | 60   |   |  | $ | 120  |  
|Interest cost                            |  |                  | 4,877  |   |                         |   | 4,624  |      |  |   | 4,459  |   |  |      | 215  |   |      |   | 289  |   |  |   | 432  |  
|Expected return on plan assets           |  |                  | (5,832 | ) |                         |   | (5,760 | )    |  |   | (5,715 | ) |  |      |     |   |      |   |     |   |  |   |     |  
|Amortization of prior service cost       |  |                  | 268    |   |                         |   | 268    |      |  |   | 836    |   |  |      | (65  | ) |      |   | (65  | ) |  |   | (106 | )
|Recognized net actuarial (gain)          |  |                  | 858    |   |                         |   | 159    |      |  |   |       |   |  |      | (246 | ) |      |   | (246 | ) |  |   | (195 | )
|Amortization of transition obligation    |  |                  |       |   |                         |   | (107   | )    |  |   | (123   | ) |  |      |     |   |      |   |     |   |  |   |     |  
|                                         |  |                  |        |   |                         |   |        |      |  |   |        |   |  |      |      |   |      |  
|Net periodic (income) cost               |  | $                | 1,005  |   |                         | $ | (45    | )    |  | $ | 930    |   |  | $    | (38  | ) |      | $ | 38   |   |  | $ | 251  |  
|                                         |  |                  |        |   |                         |   |        |      |  |   |        |   |  |      |      |   |      |  



|                                                             |  |               |      |  |      |   |      |             |  |   |      |  |  |     |      |  |             |   |      |  |  |   |      | 
|------------------------------------------------------------ |  | ------------- | ---- |  | ---- | - | ---- | ----------- |  | - | ---- |  |  | --- | ---- |  | ----------- | - | ---- |  |  | - | ---- | 
|                                                             |  | 2004          |      |  | 2003 |  
|                                                             |  |               |      |  |      |  
|                                                             |  | PBO           |      |  | ABO  |   |      | Plan Assets |  |   | PBO  |  |  | ABO |      |  | Plan Assets |  
|                                                             |  |               |      |  |      |   |      |             |  |   |      |  |  |     |      |  |             |  
|                                                             |  | (In millions) |     
|Supplemental Executive Retirement Plan                       |  | $             | 3.1  |  |      | $ | 3.1  |             |  | $ |     |  |  | $   | 3.4  |  |             | $ | 3.4  |  |  | $ |     | 
|Hourly Employees Retirement Plan of Nashua Corporation       |  | $             | 36.3 |  |      | $ | 36.3 |             |  | $ | 31.0 |  |  | $   | 33.7 |  |             | $ | 33.7 |  |  | $ | 29.0 | 
|Retirement Plan for Salaried Employees of Nashua Corporation |  | $             | 47.3 |  |      | $ | 47.3 |             |  | $ | 37.8 |  |  | $   | 44.7 |  |             | $ | 44.7 |  |  | $ | 35.6 | 



|                                                        |  |                |     |  |                |   |      |  
|------------------------------------------------------- |  | -------------- | --- |  | -------------- | - | ---- | -
|                                                        |  | 1-Percentage   |     |  | 1-Percentage   |  
|                                                        |  | Point Increase |     |  | Point Decrease |  
|                                                        |  |                |     |  |                |  
|                                                        |  | (In thousands) |    
|Effect on total of service and interest cost components |  | $              | 11  |  |                | $ | (10  | )
|Effect on accumulated postretirement benefit obligation |  | $              | 118 |  |                | $ | (109 | )

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|         |                             
|-------- | ----------------------------
|Note 13: | Information About Operations





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Label Products: which converts, prints and sells
    pressure sensitive labels and tags to distributors and end-users.                                                                                                                                                                                                                                                                                                                                                                  
|
| | (2) Specialty Paper Products: which coats and converts
    various converted paper products sold primarily to domestic
    converters and resellers, end-users and private-label
    distributors. Our Specialty Paper segments product scope
    includes thermal papers, bond papers, carbonless paper,
    specialty printed papers, such as financial receipts and
    point-of-sale receipts, wide-format media papers, dry-gum
    papers, heat seal papers, small rolls and ribbons.
|
| | (3) Imaging Supplies: which produces and sells copier
    supplies (primarily toner and developer) to distributors,
    value-added resellers and end-users.                                                                                                                                                                                                                                                                                                                                



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STATEMENTS  (Continued)










|                         |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |      |      |       |   |      |      |       |   |      |      |       | 
|------------------------ | -------------------------------------------------------------- | ------------- | ----- | -------------------- | ------------ | - | ----- | ------------------- | ----- | - | ----- | ---- | ----- | ---- | --- | ---- | ---- | - | --- | ---- | -- | - | ---- | ---- | --- | ---- | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | 
|                         |                                                                |               |       | Income (Loss) Before |              |   |      
|                         |                                                                | Net Sales     |       |                      | Income Taxes |   |       | Identifiable Assets |      
|                         |                                                                |               |       |                      |              |   |       |                     |      
|                         |                                                                | 2004          |       |                      | 2003         |   |       | 2002                |       |   | 2004  |      |       | 2003 |     |      | 2002 |   |     | 2004 |    |   | 2003 |      |     | 2002 |     
|                         |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |     
|                         |                                                                | (In millions) |      
|By Reportable Segment:   |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |      |      |       |   |      |      |       |   |      |     
|Label Products           |                                                                | $             | 104.3 |                      |              | $ | 101.8 |                     |       | $ | 100.8 |      |       | $    | 7.6 |      |      | $ | 5.8 |      |    | $ | 5.5  |      |     | $    | 48.5 |      |       | $ | 48.2 |      |       | $ | 41.3 |     
|Specialty Paper Products |                                                                |               | 168.0 |                      |              |   | 169.0 |                     |       |   | 160.7 |      |       |      | 6.2 |      |      |   | 4.4 |      |    |   | 6.5  |      |     |      | 67.5 |      |       |   | 63.9 |      |       |   | 66.7 |     
|Imaging Supplies         |                                                                |               | 22.1  |                      |              |   | 23.5  |                     |       |   | 24.0  |      |       |      | (.2 | )    |      |   | .4  |      |    |   | .9   |      |     |      | 11.0 |      |       |   | 12.5 |      |       |   | 13.5 |     
|Reconciling Items:       |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |      |      |       |   |      |      |       |   |      |     
|                         | Eliminations                                                   |               |       | (5.2                 | )            |   |       | (5.4                | )     |   |       | (2.4 | )     |      |     |     |      |   |     |     |    |   |      |     |     |      |      |     |       |   |      |     |       |   |      |     |      
|                         | Other(1)                                                       |               |       |                     |              |   |       |                    |       |   |       | .1   |       |      |     |     |      |   |     |     |    |   |      |     |     |      |      |     |       |   |      |     |       |   |      |     |      
|                         | Unallocated corporate expenses and assets                      |               |       |                     |              |   |       |                    |       |   |       |     |       |      |     | (7.4 | )    |   |     | (7.6 | )  |   |      | (7.9 | )   |      |      | 24.0 |       |   |      | 27.1 |       |   |      | 24.7 |      
|                         | Interest expense, net                                          |               |       |                     |              |   |       |                    |       |   |       |     |       |      |     | (1.0 | )    |   |     | (1.3 | )  |   |      | (1.5 | )   |      |      |     |       |   |      |     |       |   |      |     |      
|                         | Net gain on curtailment/freeze of pension/postretirement plans |               |       |                     |              |   |       |                    |       |   |       |     |       |      |     | 1.0  |      |   |     | (1.6 | )  |   |      | .2   |     |      |      |     |       |   |      |     |       |   |      |     |      
|                         | Restructuring and other unusual items                          |               |       |                     |              |   |       |                    |       |   |       |     |       |      |     |     |      |   |     | .1   |    |   |      | .1   |     |      |      |     |       |   |      |     |       |   |      |     |      
|                         |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |     
|                         |                                                                | Consolidated  |       | $                    | 289.2        |   |       | $                   | 288.9 |   |       | $    | 283.2 |      |     | $    | 6.2  |   |     | $    | .2 |   |      | $    | 3.8 |      |      | $    | 151.0 |   |      | $    | 151.7 |   |      | $    | 146.2 | 
|                         |                                                                |               |       |                      |              |   |       |                     |       |   |       |      |       |      |     |      |      |   |     |      |    |   |      |      |     |      |     






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Includes activity from operations which falls below the
    quantitative thresholds for a reportable segment.

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |           |                      |     |                |              |   |     |      |     |   |      |    |     |      |     |    |      |   |     |    |     |   |     |    |     | 
|------------------------ | --------- | -------------------- | --- | -------------- | ------------ | - | --- | ---- | --- | - | ---- | -- | --- | ---- | --- | -- | ---- | - | --- | -- | --- | - | --- | -- | --- | 
|                         |           |                      |     | Depreciation & |             
|                         |           | Capital Expenditures |     |                | Amortization |  
|                         |           |                      |     |                |              |  
|                         |           | 2004                 |     |                | 2003         |   |     | 2002 |     |   | 2004 |    |     | 2002 |     |    | 2003 |  
|                         |           |                      |     |                |              |   |     |      |     |   |      |    |     |      |     |    |      |  
|                         |           | (In millions)        |     |                |             
|Label Products           |           | $                    | 2.1 |                |              | $ | 2.2 |      |     | $ | 1.8  |    |     | $    | 2.5 |    |      | $ | 2.4 |    |     | $ | 2.2 |   
|Specialty Paper Products |           |                      | 3.9 |                |              |   | 1.0 |      |     |   | 1.6  |    |     |      | 3.7 |    |      |   | 3.8 |    |     |   | 3.6 |   
|Imaging Supplies         |           |                      | .4  |                |              |   | .4  |      |     |   | .5   |    |     |      | 1.3 |    |      |   | 1.4 |    |     |   | 1.5 |   
|Reconciling Items:       |           |                      |     |                |              |   |     |      |     |   |      |    |     |      |     |    |      |   |     |    |     |   |     |   
|                         | Corporate |                      |     | .2             |              |   |     | .7   |     |   |      | .4 |     |      |     | .4 |      |   |     | .3 |     |   |     | .3 |    
|                         |           |                      |     |                |              |   |     |      |     |   |      |    |     |      |     |    |      |  
|                         |           | Consolidated         |     | $              | 6.6          |   |     | $    | 4.3 |   |      | $  | 4.3 |      |     | $  | 7.9  |   |     | $  | 7.9 |   |     | $  | 7.6 | 
|                         |           |                      |     |                |              |   |     |      |     |   |      |    |     |      |     |    |      |  



|                   |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |   |      |      |      |   |      |      |      | 
|------------------ | ----------------------- | --------------------- | ----- | - | ----------------- | - | ----- | ---- | ----- | - | ----- | - | ----- | ---- | ---- | --- | ---- | - | ---- | ---- | ---- | - | ---- | ---- | ---- | 
|                   |                         | Net Sales from        |       |   |                  
|                   |                         | Continuing Operations |       |   | Long-Lived Assets |  
|                   |                         |                       |       |   |                   |  
|                   |                         | 2004                  |       |   | 2003              |   |       | 2002 |       |   | 2004  |   |       | 2003 |      |     | 2002 |  
|                   |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |  
|                   |                         | (In millions)         |      
|By Geographic Area |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |   |      |      |      |   |      |     
|United States      |                         | $                     | 289.2 |   |                   | $ | 288.9 |      |       | $ | 283.2 |   |       | $    | 75.3 |     |      | $ | 79.0 |      |      | $ | 78.7 |     
|Reconciling Items: |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |   |      |      |      |   |      |     
|                   | Discontinued Operations |                       |       |  |                   |   |       |     |       |   |       |  |       |      |      | .9  |      |   |      | .9   |      |   |      | .9   |     
|                   | Deferred tax assets     |                       |       |  |                   |   |       |     |       |   |       |  |       |      |      | 9.5 |      |   |      | 11.4 |      |   |      | 10.2 |     
|                   |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |  
|                   |                         | Consolidated          |       | $ | 289.2             |   |       | $    | 288.9 |   |       | $ | 283.2 |      |      | $   | 85.7 |   |      | $    | 91.3 |   |      | $    | 89.8 | 
|                   |                         |                       |       |   |                   |   |       |      |       |   |       |   |       |      |      |     |      |  



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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                        
|-------- | ---------------------------------------
|Note 14: | Quarterly Operating Results (Unaudited)



|        |                                     |                                      |   |        |         |  |   |         |      |  |         |        |       |      |   |        |       |  |   |         |       | 
|------- | ----------------------------------- | ------------------------------------ | - | ------ | ------- |  | - | ------- | ---- |  | ------- | ------ | ----- | ---- | - | ------ | ----- |  | - | ------- | ----- | 
|        |                                     | 1st                                  |   |        | 2nd     |  |   | 3rd     |      |  | 4th     |        |       |     
|        |                                     | Quarter                              |   |        | Quarter |  |   | Quarter |      |  | Quarter |        |       | Year |  
|        |                                     |                                      |   |        |         |  |   |         |      |  |         |        |       |      |  
|        |                                     | (In millions, except per share data) |  
|2004    |                                     |                                      |   |        |         |  |   |         |      |  |         |        |       |      |   |        |       |  |   |        
|        | Net sales                           |                                      | $ | 71,232 |         |  | $ | 72,625  |      |  | $       | 72,120 |       |      | $ | 73,240 |       |  | $ | 289,217 |      
|        | Gross margin                        |                                      |   | 13,945 |         |  |   | 13,613  |      |  |         | 13,780 |       |      |   | 12,534 |       |  |   | 53,872  |      
|        | Net income                          |                                      |   | 931    |         |  |   | 941     |      |  |         | 1,669  |       |      |   | 246    |       |  |   | 3,787   |      
|        | Earnings per common share           |                                      |   | .16    |         |  |   | .16     |      |  |         | .28    |       |      |   | .04    |       |  |   | .63     |      
|        | Market price:                       |                                      |   |        |         |  |   |         |      |  |         |        |       |      |   |        |       |  |   |         |      
|        |                                     | High                                 |   |        | 9.04    |  |   |         | 9.75 |  |         |        | 11.20 |      |   |        | 11.65 |  |   |         | 11.65 | 
|        |                                     | Low                                  |   |        | 8.20    |  |   |         | 8.25 |  |         |        | 9.09  |      |   |        | 10.23 |  |   |         | 8.20  | 
|2003(1) |                                     |                                      |   |        |         |  |   |         |      |  |         |        |       |      |   |        |       |  |   |        
|        | Net sales                           |                                      | $ | 67,193 |         |  | $ | 72,431  |      |  | $       | 74,075 |       |      | $ | 75,207 |       |  | $ | 288,906 |      
|        | Gross margin                        |                                      |   | 12,598 |         |  |   | 13,421  |      |  |         | 14,024 |       |      |   | 13,762 |       |  |   | 53,805  |      
|        | Net income (loss)(2)                |                                      |   | 176    |         |  |   | 118     |      |  |         | 697    |       |      |   | (889   | )     |  |   | 102     |      
|        | Earnings (loss) per common share(2) |                                      |   | .03    |         |  |   | .02     |      |  |         | .12    |       |      |   | (.15   | )     |  |   | .02     |      
|        | Market price:                       |                                      |   |        |         |  |   |         |      |  |         |        |       |      |   |        |       |  |   |         |      
|        |                                     | High                                 |   |        | 9.02    |  |   |         | 9.48 |  |         |        | 9.50  |      |   |        | 9.08  |  |   |         | 9.50  | 
|        |                                     | Low                                  |   |        | 8.65    |  |   |         | 8.73 |  |         |        | 6.75  |      |   |        | 7.93  |  |   |         | 6.75  | 






|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We acquired the operations assets of The Label Company from
    Bunzl Distribution in February 2003, as described in
    Note 2. The operations of The Label Company have been
    included in our quarterly operating results since the date of
    acquisition.                                                                                   
|   
|(2) | Our fourth quarter includes restructuring income of $68,000
    resulting from a net reduction to previously established
    reserves and a loss of $1.6 million resulting from the
    adjustment to the curtailment of postretirement plans of our
    union employees located in New Hampshire, as described in
    Notes 2 and 12, respectively.

Note 15:     Common Stock
Information






|         |                
|-------- | ---------------
|Note 16: | Related Parties

Leases with Related Parties






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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Notes Payable to Related Parties




Loans to Related Parties




|                                                                             |  |                |      |   |         |   |     |       |  |   |      |  
|---------------------------------------------------------------------------- |  | -------------- | ---- | - | ------- | - | --- | ----- |  | - | ---- | -
|                                                                             |  | Chief          |      |   | Other   |   |     |      
|                                                                             |  | Executive      |      |   | Related |   |     |      
|                                                                             |  | Officer        |      |   | Party   |   |     | Total | 
|                                                                             |  |                |      |   |         |   |     |       | 
|                                                                             |  | (In thousands) |     
|Acquired upon acquisition of Rittenhouse Paper Company on
    April 17, 2000 |  | $              | 160  |   |         | $ | 195 |       |  | $ | 355  |  
|Net premiums paid in 2001                                                    |  |                | 154  |   |         |   | 214 |       |  |   | 368  |  
|Net premiums paid in 2002                                                    |  |                |     |   |         |   | 250 |       |  |   | 250  |  
|Net premiums paid in 2003                                                    |  |                |     |   |         |   | 235 |       |  |   | 235  |  
|Net premiums paid in 2004                                                    |  |                |     |   |         |   | 63  |       |  |   | 63   |  
|Settlement of obligation (see below)                                         |  |                | (314 | ) |         |   |    |       |  |   | (314 | )
|                                                                             |  |                |      |   |         |   |     |       | 
|Balance at December 31, 2004                                                 |  | $              | 0    |   |         | $ | 957 |       |  | $ | 957  |  
|                                                                             |  |                |      |   |         |   |     |       | 
|Collateralized cash surrender value of life insurance policies               |  | $              | 0    |   |         | $ | 813 |       |  | $ | 813  |  
|                                                                             |  |                |      |   |         |   |     |       | 



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SCHEDULE II


NASHUA CORPORATION AND SUBSIDIARIES


VALUATION AND QUALIFYING ACCOUNTS


|                   |                                                               |                |   |       |           |  |   |            |            |  |             |        |      |  |   |     | 
|------------------ | ------------------------------------------------------------- | -------------- | - | ----- | --------- |  | - | ---------- | ---------- |  | ----------- | ------ | ---- |  | - | --- | 
|                   |                                                               | Balance at     |   |       |           |  |   |            |           
|                   |                                                               | Previous       |   |       |           |  |   |            | Balance at | 
|                   |                                                               | End of Year    |   |       | Additions |  |   | Deductions |            |  | End of Year |       
|                   |                                                               |                |   |       |           |  |   |            |            |  |             |       
|                   |                                                               | (In thousands) |  
|DECEMBER 31, 2004: |                                                               |                |   |       |           |  |   |            |            |  |             |        |      |  |   |    
|                   | Allowance for doubtful accounts                               |                | $ | 861   |           |  | $ | 105        | (a)        |  | $           | (312   | )(b) |  | $ | 654 | 
|                   | Valuation allowance on state net operating loss carryforwards |                | $ | 600   |           |  | $ |           |            |  | $           |       |      |  | $ | 600 | 
|DECEMBER 31, 2003: |                                                               |                |   |       |           |  |   |            |            |  |             |        |      |  |   |    
|                   | Allowance for doubtful accounts                               |                | $ | 677   |           |  | $ | 432        | (a)        |  | $           | (248   | )(b) |  | $ | 861 | 
|                   | Valuation allowance on state net operating loss carryforwards |                | $ | 600   |           |  |   |           |            |  |             |       |      |  | $ | 600 | 
|DECEMBER 31, 2002: |                                                               |                |   |       |           |  |   |            |            |  |             |        |      |  |   |    
|                   | Allowance for doubtful accounts                               |                | $ | 1,241 |           |  | $ | 411        | (a)        |  | $           | (975   | )(b) |  | $ | 677 | 
|                   | Valuation allowance on state net operating loss carryforwards |                | $ | 1,885 |           |  | $ |           |            |  | $           | (1,285 | )    |  | $ | 600 | 






|    |                                                               
|--- | --------------------------------------------------------------
|(a) | Includes recoveries and amounts charged to costs and expenses.



|    |  |                                        
|--- |  | ---------------------------------------
|(b) |  | Includes accounts deemed uncollectible.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP





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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure.








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures








Item 9B.     Other
Information







PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant

Directors




Executive Officers of the Registrant




Code of Ethics




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NYSE Corporate Governance Listing









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules



Financial statements:




| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Statements of Operations for each of the three
    years ended December 31, 2004, 2003 and 2002          
|
| |  | Consolidated Balance Sheets at December 31, 2004 and
    December 31, 2003                                            
|
| |  | Consolidated Statements of Shareholders Equity for each of
    the three years ended December 31, 2004, 2003 and 2002
|
| |  | Consolidated Statements of Cash Flows for each of the three
    years ended December 31, 2004, 2003 and 2002          
|
| |  | Notes to Consolidated Financial Statements                                                                            
|
| |  | Report of Independent Auditors                                                                                        

Financial statement schedule:




| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Schedule II  Valuation and qualifying accounts
    for each of the three years ended December 31, 2004, 2003
    and 2002



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Exhibits:


| |     |      |  |                                                                                                                                                                                                                                                                                             
| | --- | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2   | .01  |  | Agreement and Plan of Merger, dated as of March 25, 2002,
    between Nashua Corporation and Nashua MA Corporation.
    Incorporated by reference to our Definitive Proxy Statement
    filed on March 27, 2002.                                                                            
|
| | 3   | .01  |  | Articles of Organization, as amended. Incorporated by reference
    to our Quarterly Report on Form 10-Q for the quarter ended
    June 28, 2002.                                                                                                                                           
|
| | 3   | .02  |  | By-laws, as amended. Incorporated by reference to our Quarterly
    Report on Form 10-Q for the quarter ended June 28, 2002.                                                                                                                                                                
|
| | 4   | .01  |  | Credit Agreements, dated March 1, 2002 by and among Nashua
    Corporation, LaSalle Bank, NA and Fleet National Bank.
    Incorporated by reference to our Current Report on Form 8-K
    dated March 14, 2002.                                                                             
|
| | 4   | .02  |  | First Amendment to Credit Agreement, dated as of July 15,
    2003, by and among Nashua Corporation, Fleet National Bank and
    LaSalle Bank National Association. Incorporated by reference to
    our Quarterly Report on Form 10-Q for the quarter ended
    June 27, 2003.             
|
| | 4   | .03  |  | Waiver and Second Amendment to Credit Agreement, dated as of
    July 24, 2003, by and among Nashua Corporation, Fleet
    National Bank and LaSalle Bank National Association.
    Incorporated by reference to our Quarterly Report on Form 10-Q
    for the quarter ended June 27, 2003. 
|
| | 4   | .04  |  | Third Amendment to Credit Agreement, dated as of
    September 25, 2003, by and among Nashua Corporation, Fleet
    National Bank and LaSalle Bank National Association.
    Incorporated by reference to our Quarterly Report on Form 10-Q
    for the quarter ended September 26, 2003.   
|
| | 4   | .05  |  | Fourth Amendment to Credit Agreement, dated as of
    December 30, 2003, by and among Nashua Corporation, Fleet
    National Bank and LaSalle Bank National Association.
    Incorporated by reference to our Annual Report on Form 10-K for
    the year ended December 31, 2003.          
|
| | 4   | .06  |  | Fifth Amendment to Credit Agreement dated as of March 31,
    2004 by and among Nashua Corporation, Fleet National Bank and
    LaSalle Bank National Association. Incorporated by reference to
    our current report on Form 8-K dated March 31, 2004 and
    filed April 2, 2004.        
|
| | 4   | .07  |  | Sixth Amendment to Credit Agreement dated as of December 1,
    2004 by and among Nashua Corporation, Fleet National Bank and
    LaSalle Bank National Association. Incorporated by reference to
    our current report on Form 8-K dated December 9, 2004 and
    filed December 15, 2004.
|
| | +10 | .01  |  | Amended and Restated 1987 Stock Option Plan. Incorporated by
    reference to our Annual Report on Form 10-K for the year ended
    December 31, 1997.                                                                                                                                      
|
| | +10 | .02  |  | Amended and Restated 1996 Stock Incentive Plan. Incorporated by
    reference to our Quarterly Report on Form 10-Q for the quarter
    ended April 2, 1999.                                                                                                                                 
|
| | +10 | .03  |  | 1999 Shareholder Value Plan. Incorporated by reference to
    our Quarterly Report on Form 10-Q for the quarter ended
    April 2, 1999.                                                                                                                                                    
|
| | +10 | .04  |  | 2004 Value Creation Incentive Plan. Incorporated by reference to
    our Proxy Statement dated March 23, 2004.                                                                                                                                                                              
|
| | +10 | .05* |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Andrew B.
    Albert.                                                                                                                                                               
|
| | +10 | .06* |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and John L.
    Patenaude.                                                                                                                                                              
|
| | +10 | .07* |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Thomas R.
    Pagel.                                                                                                                                                                
|
| | +10 | .08* |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Margaret S.
    Adams.                                                                                                                                                              
|
| | +10 | .09  |  | Change of Control and Severance Agreement, dated as of
    December 15, 2000 between Nashua Corporation and Robert S.
    Amrein. Incorporated by reference to our Annual Report on Form
    10-K for the year ended December 31, 2000.                                                     

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| |     |      |  |                                                                                                                                                                                                                                                                           
| | --- | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | +10 | .10  |  | Change of Control and Severance Agreement, dated as of
    February 25, 2000 between Nashua Corporation and Donna J.
    DiGiovine. Incorporated by reference to our Annual Report on
    Form 10-K for the year ended December 31, 1999.                                 
|
| | +10 | .11  |  | Management Incentive Plan. Incorporated by reference to our
    Annual Report on Form 10-K for the year ended December 31,
    2003.                                                                                                                                      
|
| | +10 | .12  |  | Form of Indemnification Agreement between Nashua Corporation and
    its directors and executive officers. Incorporated by reference
    to our Quarterly Report on Form 10-Q for the quarter ended
    September 27, 2002.                                               
|
| | +10 | .13  |  | Deferred Compensation Agreement dated as of December 23,
    1996 between Rittenhouse Paper Company and Thomas R. Pagel.
    Incorporated by reference to our Annual Report on Form 10-K for
    the year ended December 31, 2000.                                        
|
| | 10  | .14  |  | Master Agreement dated as of July 2, 2001, between Nashua
    Corporation and the Fasson Roll North America division of Avery
    Dennison Corporation. Incorporated by reference to our Current
    Report on Form 8-K dated July 9, 2001 and filed on
    July 12, 2001.
|
| | 10  | .15* |  | Named executive 2005 salaries.                                                                                                                                                                                                                                            
|
| | 10  | .16* |  | Non-employee director compensation.                                                                                                                                                                                                                                       
|
| | 14  | .01  |  | Code of Ethics. Incorporated by reference to our Annual Report
    on Form 10-K for the year ended December 31, 2003.                                                                                                                                                     
|
| | 21  | .01* |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                           
|
| | 23  | .01* |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                             
|
| | 31  | .01* |  | Certificate of Chief Executive Officer pursuant to
    Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002, dated
    March 15, 2005.                                                                              
|
| | 31  | .02* |  | Certificate of Chief Financial Officer pursuant to
    Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002, dated
    March 15, 2005.                                                                              
|
| | 32  | .01* |  | Certificate of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, dated
    March 15, 2005.                                                                                    
|
| | 32  | .02* |  | Certificate of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002, dated
    March 15, 2005.                                                                                    






|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Filed herewith.                                                                                                                                                                 
|   
|+  | Identifies exhibits constituting management contracts or
    compensatory plans or other arrangements required to be filed as
    an exhibit to this Annual Report on Form 10-K.

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##### Table of Contents






SIGNATURES






| |                   
| | ------------------
| | Nashua Corporation



| |     |                      
| | --- | ---------------------
| | By: | /s/ John L. Patenaude

| |                           
| | --------------------------
| |                           
| | John L. Patenaude         
| | Vice President-Finance and
| | Chief Financial Officer   





|                                                     |  |                                                                                          |  |                |  | 
|---------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                            |  | Title                                                                                    |  | Date          
|                                                     |  |                                                                                          |  |               
|                                                    
|/s/ Andrew B. AlbertAndrew
    B. Albert             |  | Chairman, President and
    Chief Executive Officer
    (principal executive officer)    |  | March 18, 2005
|                                                    
|/s/ John L. PatenaudeJohn
    L. Patenaude           |  | Vice President-Finance and
    Chief Financial Officer
    (principal financial officer) |  | March 18, 2005
|                                                    
|/s/ Margaret M. CallanMargaret
    M. Callan         |  | Corporate Controller and
    Chief Accounting Officer
    (principal accounting officer) |  | March 18, 2005
|                                                    
|/s/ AVRUM GRAYAvrum
    Gray                         |  | Director                                                                                 |  | March 18, 2005
|                                                    
|/s/ MARK E. SCHWARZMark
    E. Schwarz               |  | Director                                                                                 |  | March 18, 2005
|                                                    
|/s/ L. SCOTT BARNARDL.
    Scott Barnard             |  | Director                                                                                 |  | March 18, 2005
|                                                    
|/s/ GEORGE R. MRKONIC, JR.George
    R. Mrkonic, Jr. |  | Director                                                                                 |  | March 18, 2005
|                                                    
|/s/ JAMES F. ORR IIIJames
    F. Orr III             |  | Director                                                                                 |  | March 18, 2005

72