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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 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, 2005                                                 
|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)                                |  | (I.R.S. 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
|                    |  |                                          
|None                |  |                                          

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


Common Stock, $1.00 par value


(Title of Class)


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o o þ


12b-2 o þ






|                              |  |                 
|----------------------------- |  | ----------------
|Class                         |  | Number of Shares
|                              |  |                 
|Common Stock, $1.00 par value |  | 6,259,084       

10-K:










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TABLE OF CONTENTS


|                                                              |  |                                                                                                                      |  |      |    |  |  | 
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|                                                              |  |                                                                                                                      |  | Page
|                                                              |  |                                                                                                                      |  |     
|PART I                                                       
|Item 1.                                                       |  | Business                                                                                                             |  |      | 3  | 
|Item 1A.                                                      |  | Risk Factors                                                                                                         |  |      | 9  | 
|Item 1B.                                                      |  | Unresolved Staff Comments                                                                                            |  |      | 13 | 
|Item 2.                                                       |  | Properties                                                                                                           |  |      | 13 | 
|Item 3.                                                       |  | Legal Proceedings                                                                                                    |  |      | 14 | 
|Item 4.                                                       |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |      | 16 | 
|                                                             
|PART II                                                      
|Item 5.                                                       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |      | 16 | 
|Item 6.                                                       |  | Selected Financial Data                                                                                              |  |      | 17 | 
|Item 7.                                                       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |      | 18 | 
|Item 7A.                                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |  |      | 36 | 
|Item 8.                                                       |  | Financial Statements and Supplementary
    Data                                                                      |  |      | 37 | 
|Item 9.                                                       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |      | 68 | 
|Item 9A.                                                      |  | Controls and Procedures                                                                                              |  |      | 68 | 
|Item 9B.                                                      |  | Other Information                                                                                                    |  |      | 68 | 
|                                                             
|PART III                                                     
|Item 10.                                                      |  | Directors and Executive Officers of the
    Registrant                                                               |  |      | 68 | 
|Item 11.                                                      |  | Executive Compensation                                                                                               |  |      | 69 | 
|Item 12.                                                      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |      | 69 | 
|Item 13.                                                      |  | Certain Relationships and Related
    Transactions                                                                   |  |      | 69 | 
|Item 14.                                                      |  | Principal Accountant Fees and Services                                                                               |  |      | 69 | 
|                                                             
|PART IV                                                      
|Item 15.                                                      |  | Exhibits and Financial Statement
    Schedules                                                                       |  |      | 69 | 
|EX-10.14 EXECUTIVE OFFICERS 2006 SALARIES                    
|EX-10.15 SUMMARY OF COMPENSATION ARRANGEMENTS WITH DIRECTORS 
|EX-21.01 SUBSIDIARIES OF THE REGISTRANT                      
|EX-23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
|EX-31.01 SECTION 302 CERT OF CEO                             
|EX-31.02 SECTION 302 CERT OF CFO                             
|EX-32.01 SECTION 906 CERT OF CEO                             
|EX-32.02 SECTION 906 CERT OF CFO                             



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PART I







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

General




www.nashua.com. 10-K, 10-Q, 8-K 1-800-SEC-0330. 10-K


Recent Development




Operating Segments










10-K.


Label Products Segment




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Specialty Paper Products Segment




point-of






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point-of -at-the








Imaging Supplies Segment








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Information About Major Customers




Intellectual Property




Manufacturing Operations






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

6



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| |   |                       
| | - | ----------------------
| |  | St. Augustine, Florida

10-K.


Research and Development




Environmental Matters






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Executive Officers




|                   |  |     |    |          |  |                                                                                            
|------------------ |  | --- | -- | -------- |  | -------------------------------------------------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|Andrew B. Albert   |  |     | 60 |          |  | Chairman, President and Chief Executive Officer                                            
|John L. Patenaude  |  |     | 56 |          |  | Vice President  Finance, Chief Financial Officer and
    Treasurer                        
|Margaret S. Adams  |  |     | 50 |          |  | Vice President, Chief Information Officer and President of the
    Converted Paper Division
|Margaret M. Callan |  |     | 39 |          |  | Corporate Controller and Chief Accounting Officer                                          
|Donna J. DiGiovine |  |     | 44 |          |  | Vice President, President of the Toner Products Division and the
    Coated Paper Division 
|Thomas R. Pagel    |  |     | 49 |          |  | Vice President, President of the Label Products Division                                   

















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Employees






|                               |  |               |     |          |  |                 |               |  |  |  |                | 
|------------------------------ |  | ------------- | --- | -------- |  | --------------- | ------------- |  |  |  | -------------- | 
|                               |  | Approximate # |     |          |  |                
|                               |  | of Employees  |     |          |  |                
|Union                          |  | Covered       |     | Location |  | Expiration Date
|                               |  |               |     |          |  |                
|United Steelworkers of America |  |               | 91  |          |  |                 | Omaha, NE     |  |  |  | March 31, 2012 | 
|United Steelworkers of America |  |               | 105 |          |  |                 | Merrimack, NH |  |  |  | April 2, 2006  | 
|United Commercial Food Workers |  |               | 53  |          |  |                 | Vernon, CA    |  |  |  | March 5, 2008  | 
|Other                          |  |               | 6   |          |  |                 | Merrimack, NH |  |  |  | April 2, 2006  | 

Forward-Looking and Cautionary Statements


10-K 10-K 10-K





Item 1A.     Risk
Factors


10-K




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





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

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| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | natural disasters such as hurricanes, floods and earthquakes,
    which could cause our customers to close a number or all of
    their stores or operations for an extended period of time
    causing our sales to be reduced during the period of closure;
|
| |  | our ability to pass on raw material price increases to customers;                                                                                                                                                                                            
|
| |  | our ability to pass on increased freight cost due to fuel price
    increases;                                                                                                                                                                               
|
| |  | our ability to pass on utility cost increases; 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 and real estate 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.





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





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






Item 1B.     Unresolved
Staff Comments









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





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Principal Properties


|                                 |                                    |              |  |                             |     |  |                                            
|-------------------------------- | ---------------------------------- | ------------ |  | --------------------------- | --- |  | -------------------------------------------
|                                 |                                    | Total Square |  |                            
|Location                         |                                    | Footage      |  | Nature of Products Produced
|                                 |                                    |              |  |                            
|Corporate                        |                                    |              |  |                             |     | 
|                                 | Nashua, New Hampshire (leased)     |              |  | 7,000                       | (1) |  | none (corporate offices)                   
|                                 | Park Ridge, Illinois (leased)      |              |  | 3,000                       | (1) |  | none (administrative offices)              
|Specialty Paper Products Segment |                                    |              |  |                             |     | 
|                                 | Nashua, New Hampshire (leased)     |              |  | 1,000                       | (1) |  | none (administrative offices)              
|                                 | Merrimack, New Hampshire           |              |  | 475,000                     | (2) |  | coated paper products                      
|                                 | Jefferson City, Tennessee          |              |  | 198,000                     |     |  | 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                             
|                                 | St. Augustine, Florida (leased)    |              |  | 10,000                      |     |  | 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 either
    leased to third parties or marketed as leasable property.               






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



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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
|     |      |         |   |         |  |         |   |         |  |     
|2005 |      |         |   |         |  |         |   |         |  |      |   |       |  |  |   |       |  |  |   |      
|     | High |         | $ | 11.95   |  |         | $ | 9.75    |  |      | $ | 9.39  |  |  | $ | 8.01  |  |  | $ | 11.95 | 
|     | Low  |         | $ | 8.47    |  |         | $ | 8.40    |  |      | $ | 5.75  |  |  | $ | 5.50  |  |  | $ | 5.50  | 
|2004 |      |         |   |         |  |         |   |         |  |      |   |       |  |  |   |       |  |  |   |      
|     | High |         | $ | 9.04    |  |         | $ | 9.75    |  |      | $ | 11.20 |  |  | $ | 11.65 |  |  | $ | 11.65 | 
|     | Low  |         | $ | 8.20    |  |         | $ | 8.25    |  |      | $ | 9.09  |  |  | $ | 10.23 |  |  | $ | 8.20  | 



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



Nashua Corporation and Subsidiaries


Five-Year Financial Review


|                                                                                             |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |       |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------- | ------- | ----- | - | ---- | ------- | ----- |  | ---- | ------- | ---- |  | - | ------- | ----- |  | - | ------- | ----- | -
|                                                                                             |                                                                                 | December 31,                                   
|                                                                                             |                                                                                 |                                                
|                                                                                             |                                                                                 | 2005                                            |         | 2004  |   | 2003 |         | 2002  |  | 2001
|                                                                                             |                                                                                 |                                                 |         |       |   |      |         |       |  |     
|                                                                                             |                                                                                 | (In thousands, except per share data, number of
|                                                                                             |                                                                                 | employees and percentages)                     
|Operations(2)                                                                                |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |      
|Net sales                                                                                    |                                                                                 | $                                               | 294,864 |       |   | $    | 289,217 |       |  | $    | 288,906 |      |  | $ | 283,190 |       |  | $ | 272,510 |      
|Gross margin percentage                                                                      |                                                                                 |                                                 | 16.1    | %     |   |      | 18.6    | %     |  |      | 18.6    | %    |  |   | 19.8    | %     |  |   | 20.5    | %    
|Selling, distribution, general and administrative expenses as a
    percentage of sales      |                                                                                 |                                                 | 14.6    | %     |   |      | 15.6    | %     |  |      | 16.5    | %    |  |   | 16.9    | %     |  |   | 18.3    | %    
|Income before interest and income taxes as a percentage of
    sales(3)                      |                                                                                 |                                                 | 0.3     | %     |   |      | 2.5     | %     |  |      | 0.5     | %    |  |   | 1.9     | %     |  |   |        |      
|Income (loss) from continuing operations before income taxes as
    a percentage of sales(3) |                                                                                 |                                                 | (0.3    | )%    |   |      | 2.1     | %     |  |      | 0.1     | %    |  |   | 1.4     | %     |  |   | (1.0    | )%   
|Income (loss) from continuing operations as a percentage of
    sales(3)                     |                                                                                 |                                                 | (0.2    | )%    |   |      | 1.3     | %     |  |      | 0.0     | %    |  |   | 0.8     | %     |  |   | (0.9    | )%   
|Effective tax provision (benefit) rate                                                       |                                                                                 |                                                 | (23.0   | )%    |   |      | 38.5    | %     |  |      | 53.4    | %    |  |   | 39.5    | %     |  |   | (12.0   | )%   
|Income (loss) from continuing operations before income taxes(3)                              |                                                                                 | $                                               | (830    | )     |   | $    | 6,158   |       |  | $    | 219     |      |  | $ | 3,828   |       |  | $ | (2,782  | )    
|Income (loss) from continuing operations after income taxes(3)                               |                                                                                 | $                                               | (639    | )     |   | $    | 3,787   |       |  | $    | 102     |      |  | $ | 2,316   |       |  | $ | (2,448  | )    
|Income from discontinued operations                                                          |                                                                                 | $                                               | 1,235   |       |   | $    |        |       |  | $    |        |      |  | $ |        |       |  | $ |        |      
|Net income (loss)(3)                                                                         |                                                                                 | $                                               | 596     |       |   | $    | 3,787   |       |  | $    | 102     |      |  | $ | 2,316   |       |  | $ | (2,448  | )    
|Basic and diluted earnings (loss) per common share:                                          |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |      
|                                                                                             | Income (loss) from continuing operations per common share                       |                                                 | $       | (0.10 | ) |      | $       | 0.63  |  |      | $       | 0.02 |  |   | $       | 0.40  |  |   | $       | (0.43 | )
|                                                                                             | Income from discontinued operations per common share                            |                                                 | $       | 0.20  |   |      | $       |      |  |      | $       |     |  |   | $       |      |  |   | $       |      |  
|                                                                                             | Net income per common share                                                     |                                                 | $       | 0.10  |   |      | $       | 0.63  |  |      | $       | 0.02 |  |   | $       | 0.40  |  |   | $       | (0.43 | )
|                                                                                             | Income (loss) from continuing operations per common share
    assuming dilution |                                                 | $       | (0.10 | ) |      | $       | 0.62  |  |      | $       | 0.02 |  |   | $       | 0.39  |  |   | $       | (0.43 | )
|                                                                                             | Income from discontinued operations per common share assuming
    dilution      |                                                 | $       | 0.20  |   |      | $       |      |  |      | $       |     |  |   | $       |      |  |   | $       |      |  
|                                                                                             | Net income per common share assuming dilution                                   |                                                 | $       | 0.10  |   |      | $       | 0.62  |  |      | $       | 0.02 |  |   | $       | 0.39  |  |   | $       | (0.43 | )
|Financial Position(2)                                                                        |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |      
|Working capital                                                                              |                                                                                 | $                                               | 32,049  |       |   | $    | 31,662  |       |  | $    | 22,296  |      |  | $ | 21,011  |       |  | $ | 16,528  |      
|Total assets                                                                                 |                                                                                 | $                                               | 144,919 |       |   | $    | 150,960 |       |  | $    | 151,676 |      |  | $ | 146,188 |       |  | $ | 145,046 |      
|Non-current portion of long-term debt                                                        |                                                                                 | $                                               | 25,250  |       |   | $    | 27,350  |       |  | $    | 24,200  |      |  | $ | 23,000  |       |  | $ | 23,280  |      
|Total long-term obligations                                                                  |                                                                                 | $                                               | 26,585  |       |   | $    | 28,673  |       |  | $    | 27,468  |      |  | $ | 27,079  |       |  | $ | 25,740  |      
|Total capital employed                                                                       |                                                                                 | $                                               | 82,484  |       |   | $    | 96,698  |       |  | $    | 88,797  |      |  | $ | 87,018  |       |  | $ | 95,677  |      
|Total debt as a percentage of capital employed                                               |                                                                                 |                                                 | 34.9    | %     |   |      | 31.8    | %     |  |      | 31.1    | %    |  |   | 28.7    | %     |  |   | 26.4    | %    
|Shareholders equity                                                                         |                                                                                 | $                                               | 53,734  |       |   | $    | 65,948  |       |  | $    | 61,197  |      |  | $ | 62,018  |       |  | $ | 70,397  |      
|Shareholders equity per common share                                                        |                                                                                 | $                                               | 8.59    |       |   | $    | 10.62   |       |  | $    | 10.37   |      |  | $ | 10.66   |       |  | $ | 12.32   |      
|Other Selected Data(2)                                                                       |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |      
|Investment in plant and equipment (excluding acquisitions)                                   |                                                                                 | $                                               | 3,845   |       |   | $    | 6,599   |       |  | $    | 4,307   |      |  | $ | 4,349   |       |  | $ | 2,375   |      
|Depreciation and amortization                                                                |                                                                                 | $                                               | 9,466   |       |   | $    | 7,900   |       |  | $    | 7,942   |      |  | $ | 7,581   |       |  | $ | 9,748   |      
|Return (loss) on average shareholders equity                                                |                                                                                 |                                                 | 1.0     | %     |   |      | 6.0     | %     |  |      | 0.2     | %    |  |   | 3.5     | %     |  |   | (3.4    | )%   
|Common stock price range:                                                                    |                                                                                 |                                                 |         |       |   |      |         |       |  |      |         |      |  |   |         |       |  |   |         |      
|                                                                                             | High                                                                            |                                                 | $       | 11.95 |   |      | $       | 11.65 |  |      | $       | 9.50 |  |   | $       | 10.20 |  |   | $       | 7.85  |  
|                                                                                             | Low                                                                             |                                                 | $       | 5.50  |   |      | $       | 8.20  |  |      | $       | 6.75 |  |   | $       | 5.40  |  |   | $       | 3.06  |  
|                                                                                             | Year-end closing price                                                          |                                                 | $       | 7.02  |   |      | $       | 11.36 |  |      | $       | 8.50 |  |   | $       | 8.78  |  |   | $       | 5.87  |  
|Number of employees from continuing operations                                               |                                                                                 |                                                 | 880     |       |   |      | 906     |       |  |      | 929     |      |  |   | 1,026   |       |  |   | 971     |      
|Average common shares outstanding, basic                                                     |                                                                                 |                                                 | 6,090   |       |   |      | 6,011   |       |  |      | 5,869   |      |  |   | 5,783   |       |  |   | 5,696   |      






|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 13 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:                                                                                                                  

|                                                                       |  |                       |     |         |  |         |    |         |  |         |      |         |  |         |   |         |  |         |     |         |  |  |    |   |  |   |     |   |  |  |    |   |  |   |     |  |  |  |     |  
|---------------------------------------------------------------------- |  | --------------------- | --- | ------- |  | ------- | -- | ------- |  | ------- | ---- | ------- |  | ------- | - | ------- |  | ------- | --- | ------- |  |  | -- | - |  | - | --- | - |  |  | -- | - |  | - | --- |  |  |  | --- | -
|                                                                       |  | 2005                  |     | 2004    |  | 2003    |    | 2002    |  | 2001   
|                                                                       |  |                       |     |         |  |         |    |         |  |        
|                                                                       |  | Dollars               |     | % Sales |  | Dollars |    | % Sales |  | Dollars |      | % Sales |  | Dollars |   | % Sales |  | Dollars |     | % Sales
|                                                                       |  |                       |     |         |  |         |    |         |  |         |      |         |  |         |   |         |  |         |     |        
|                                                                       |  | (Dollars in millions)
|Special (income) charges                                               |  | $                     | 1.5 |         |  |         | .5 | %       |  |         |     |         |  |         |  |         |  | $       | (.1 | )       |  |  | 0  | % |  | $ | (.1 | ) |  |  | .1 | % |  | $ | 3.0 |  |  |  | 1.1 | %
|Net (gain)/loss on settlement/ curtailment of postretirement
    plans |  | $                     | .4  |         |  |         | 0  | %       |  | $       | (1.0 | )       |  |         | 0 | %       |  | $       | 1.6 |         |  |  | .1 | % |  | $ | (.2 | ) |  |  | .1 | % |  |   |    |  |  |  |    |  

17



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



Overview


















| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | During the fourth quarter of 2005, the Label Products segment
    completed a study of manufacturing requirements as part of its
    program to operate more effectively and reduce costs. As a
    result of this analysis, meaningful cost reductions in wages and
    benefits were identified and negotiated with our

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | hourly employees in Nebraska. Also, plans were developed and we
    anticipate will be implemented in 2006 to reduce the number of
    Label Products segment manufacturing locations from four to
    three by closing the St. Louis, Missouri plant, and
    consolidating operations into the Tennessee, Nebraska and
    Florida facilities. The cost reductions and the plant
    consolidations, when fully implemented, are expected to result
    in annualized cost savings of over $1 million. We expect
    that the direct cost of consolidation in 2006 will approximate
    $.6 million. In addition, there will be certain indirect
    costs associated with the consolidation as we add and train new
    employees in various locations.
|
| |  | On September 13, 2005, we effected a move of the listing of
    our common stock from the New York Stock Exchange to The
    NASDAQ National Market. Our common stock is listed on The NASDAQ
    National Market under the symbol NSHA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | In June 2005, we acquired certain assets of LSI in St.
    Augustine, Florida. The asset acquisition expanded our
    manufacturing base and enabled us to enter the retail shelf,
    pharmacy and laser toner cartridge product lines. Operating
    activity relating to the assets of LSI is reported under our
    Label Products segment.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | In April 2005, we announced plans to exit our toner and
    developer business. In January 2006, we entered into a
    definitive agreement with Katun Corporation relative to the sale
    of formulations and certain assets. The manufacturing facilities
    located in Merrimack, New Hampshire, utilized by both the toner
    and developer business and the Specialty Paper Products segment,
    have been listed for sale.                                                                                                                                                                                                                                                                                                                      
|
| |  | We made progress in the Radio Frequency Identification (RFID)
    initiatives throughout 2005 and had sales in the initial year of
    production of approximately $.6 million. Our list of RFID
    customers includes nationally recognized consumer products goods
    manufacturers and other companies and organizations involved in
    RFID systems. In addition, we established a solid foundation for
    growth by signing formal working relationships with Alien
    Technologies®
    and Printronix, Inc. Operating activity relating to this product
    line is reported in our Label Products segment.                                                                                                                                   
|
| |  | In the second quarter of 2005, we moved our wide-format
    converting facility from the Morristown, Tennessee facility to a
    56,000 square foot Jefferson City, Tennessee facility,
    which we acquired in December 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | During 2005, Nashua continued resolving legacy issues, and in
    June 2005, we reached a favorable settlement with the Internal
    Revenue Service for the tax disputes dating from the years
    1995-2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 moved our wide-format manufacturing from Morristown,
    Tennessee to Jefferson City, Tennessee during 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 are 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 were
    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 buyers ability to obtain
    financing. We have a non-refundable deposit of $.2 million
    from Southern New Hampshire Services.                                                                                                                                                                                                                                                                                                                                                        
|
| |  | 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 assumed the liability for, and the                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

19



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| |  |                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. On March 14, 2005, the court ruled on the motions and
    upheld the arbitrators award. On April 11, 2005, we
    filed an appeal with the U.S. Court of Appeals. On
    May 19, 2005, the U.S. Court of Appeals dismissed the
    case at our request.
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | 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. The agreement has since
    lapsed and is no longer in force.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

20



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##### Table of Contents



Consolidated Results of Operations




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

|                                                                                     |                           |               |      |       |   |      |      |                |   |          |      |       |   |  |       |       |   |  |         |       |  
|------------------------------------------------------------------------------------ | ------------------------- | ------------- | ---- | ----- | - | ---- | ---- | -------------- | - | -------- | ---- | ----- | - |  | ----- | ----- | - |  | ------- | ----- | -
|                                                                                     |                           |               |      |       |   |      |      | Percent Change
|                                                                                     |                           |               |      |       |   |      |      |               
|                                                                                     |                           |               |      |       |   |      |      | 2005 vs.       |   | 2004 vs.
|                                                                                     |                           | 2005          |      | 2004  |   | 2003 |      | 2004           |   | 2003    
|                                                                                     |                           |               |      |       |   |      |      |                |   |         
|                                                                                     |                           | (In millions)
|Net sales                                                                            |                           |               |      |       |   |      |      |                |   |          |      |       |   |  |       |       |   |  |         |      
|                                                                                     | Label Products            |               | $    | 109.0 |   |      | $    | 104.3          |   |          | $    | 101.8 |   |  |       | 4.5   |   |  |         | 2.5   |  
|                                                                                     | Specialty Paper Products  |               |      | 166.7 |   |      |      | 168.0          |   |          |      | 169.0 |   |  |       | (0.8  | ) |  |         | (0.6  | )
|                                                                                     | Imaging Supplies          |               |      | 23.9  |   |      |      | 22.1           |   |          |      | 23.5  |   |  |       | 8.1   |   |  |         | (6.0  | )
|                                                                                     | Eliminating               |               |      | (4.7  | ) |      |      | (5.2           | ) |          |      | (5.4  | ) |  |       | (9.6  | ) |  |         |      |  
|                                                                                     |                           |               |      |       |   |      |      |                |   |          |      |       |   |  |       |       |   |  |         |      
|                                                                                     | Consolidated Net Sales    |               |      | 294.9 |   |      |      | 289.2          |   |          |      | 288.9 |   |  |       | 2.0   |   |  |         | 0.1   |  
|Gross margin                                                                         |                           |               |      |       |   |      |      |                |   |          |      |       |   |  |       |       |   |  |         |      
|                                                                                     | Label Products            |               |      | 16.1  |   |      |      | 18.8           |   |          |      | 17.3  |   |  |       | (14.4 | ) |  |         | 8.7   |  
|                                                                                     | Specialty Paper Products  |               |      | 28.4  |   |      |      | 31.2           |   |          |      | 31.9  |   |  |       | (9.0  | ) |  |         | (2.2  | )
|                                                                                     | Imaging Supplies          |               |      | 3.0   |   |      |      | 3.9            |   |          |      | 4.6   |   |  |       | (23.1 | ) |  |         | (15.2 | )
|                                                                                     | Eliminating               |               |      | .1    |   |      |      |               |   |          |      |      |   |  |       |      |   |  |         |      |  
|                                                                                     |                           |               |      |       |   |      |      |                |   |          |      |       |   |  |       |       |   |  |         |      
|                                                                                     | Consolidated Gross margin |               |      | 47.6  |   |      |      | 53.9           |   |          |      | 53.8  |   |  |       | (11.7 | ) |  |         | 0.2   |  
|Gross margin %                                                                       |                           |               | 16.1 | %     |   |      | 18.6 | %              |   |          | 18.6 | %     |   |  |      |       |   |  |        |      
|Selling and distribution expenses                                                    |                           |               | 25.2 |       |   |      | 25.1 |                |   |          | 27.2 |       |   |  | 0.4   |       |   |  | (7.7    | )    
|General and administrative expenses                                                  |                           |               | 17.9 |       |   |      | 20.1 |                |   |          | 20.6 |       |   |  | (10.9 | )     |   |  | (2.4    | )    
|Research and development expenses                                                    |                           |               | 1.6  |       |   |      | 2.1  |                |   |          | 2.5  |       |   |  | (23.8 | )     |   |  | (16.0   | )    
|Net loss (gain) on settlement/curtailment of pension and
    postretirement benefits |                           |               | .4   |       |   |      | (1.0 | )              |   |          | 1.6  |       |   |  |      |       |   |  |        |      
|Special charges                                                                      |                           |               | 1.5  |       |   |      |     |                |   |          |     |       |   |  |      |       |   |  |        |      
|Loss from equity investments                                                         |                           |               |     |       |   |      | .4   |                |   |          | .5   |       |   |  |      |       |   |  | (20.0   | )    
|Restructuring and other unusual (income) charges                                     |                           |               |     |       |   |      |     |                |   |          | (.1  | )     |   |  |      |       |   |  |        |      
|Interest expense, net                                                                |                           |               | 1.8  |       |   |      | 1.0  |                |   |          | 1.3  |       |   |  | 80.0  |       |   |  | (23.1   | )    
|Income (loss) before income taxes from continuing operations                         |                           |               | (.8  | )     |   |      | 6.2  |                |   |          | .2   |       |   |  |      |       |   |  | 3,000.0 |      
|Income from discontinued operations, net of taxes                                    |                           |               | 1.2  |       |   |      |     |                |   |          |     |       |   |  |      |       |   |  |        |      
|Net income                                                                           |                           | $             | .6   |       |   | $    | 3.8  |                |   | $        | .1   |       |   |  | (84.2 | )     |   |  | 3,700.0 |      





| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The increase from 2004 to 2005 was primarily due to increased
    sales in our Label Products and Imaging Supplies segments, which
    was partially offset by decreases in our Specialty Paper
    Products segment.     
|
| |  | The increase from 2003 to 2004 was primarily due to increased
    sales in our Label Products segment, which was partially offset
    by decreases in both our Specialty Paper Products and Imaging
    Supplies segments.
|
| |  | Net sales for each of our business segments is discussed in
    detail below under Results of Operations by Reportable
    Operating Segment.                                                                           



21



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The margin percent in 2005 compared to 2004 deteriorated in each
    of our operating segments. These decreases were primarily
    attributable to increased raw material costs, which we have only
    partially passed on to customers, unfavorable product mix within
    some of our segments, and the accelerated depreciation, related
    to our decision to exit the toner and developer business by
    March 31, 2006.
|
| |  | 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.                                                                                                                                                                                                                                                    
|
| |  | Gross margin for each of our business segments is discussed in
    detail below under Results of Operations by Reportable
    Operating Segment.                                                                                                                                                                                                                                                                              





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $.1 million increase from 2004 to 2005 was due to
    increases of $.4 million from our Label Products segment
    and $.1 million from our Specialty Paper Products segment,
    which were partially offset by decreases of $.4 million
    from our Imaging Supplies segment. The increase in 2005 compared
    to 2004 was primarily due to higher distribution costs related
    to increased sales volume in our Label Products segment and
    higher freight costs, as well as increased commission expenses
    related to the acquired assets of the LSI business, included in
    the operating results of our Label Products and Specialty Paper
    Products segments.
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Selling and distribution expenses for each of our business
    segments are discussed in detail below under Results of
    Operations by Reportable Operating Segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The decrease in 2005 compared to 2004 was driven by decreases of
    $.8 million in corporate expenses, $.7 million in our
    Specialty Paper Products segment, $.5 million in our Label
    Products segment, and $.1 million in our Imaging Supplies
    segment. The decrease in our corporate expenses resulted
    primarily from lower employee incentive expenses, lower employee
    salary and benefit costs due to headcount reductions, lower
    rent, insurance costs and directors fees, which were all
    partially offset by severance cost and increased professional
    fees.                                                                                                                                                                                                                                
|
| |  | 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
    were 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 compared to 2003 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 was partially offset by 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.
|
| |  | General and administrative expenses for each of our business
    segments are discussed below under Results of Operations
    by Reportable Operating Segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



22



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##### Table of Contents





| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $.5 million decrease in 2005 compared to 2004 was
    primarily due to lower expenses related to headcount reductions
    in our Specialty Paper Products and Imaging Supplies segments
    and a reduction in product trials.
|
| |  | 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.                                      
|
| |  | Research and development expenses for each of our business
    segments are discussed below under Results of Operations
    by Reportable Operating Segment.                                                                    





| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The increase in net interest expense in 2005 from 2004 was
    primarily due to higher interest rates on bank debt and lower
    interest income recognized in 2004 related to the settlement of
    a 1993 interest matter with the Internal Revenue Service.
|
| |  | 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.                                                                                       





|                                                         |  |                |   |              |  |              |       |               |  |   |      |   |  |   |       | 
|-------------------------------------------------------- |  | -------------- | - | ------------ |  | ------------ | ----- | ------------- |  | - | ---- | - |  | - | ----- | 
|                                                         |  | Reserve        |   |              |  |              |       | Reserve      
|                                                         |  | Balance        |   | Current Year |  | Current Year |       | Balance      
|                                                         |  | Dec. 31, 2004  |   | Provision    |  | Utilization  |       | Dec. 31, 2005
|                                                         |  |                |   |              |  |              |       |              
|                                                         |  | (In thousands)
|Provisions for severance related to workforce reductions |  | $              |  |              |  | $            | 1,535 |               |  | $ | (179 | ) |  | $ | 1,356 | 
|                                                         |  |                |   |              |  |              |       |               |  |   |      |   |  |   |       | 









| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $7.0 million decrease in our pre-tax income from 2004
    to a pre-tax loss in 2005 was mainly due to lower gross margins
    across each of our segments as well as $3.6 million of
    charges associated with exiting the toner business. These were
    partially offset by the lower general and administrative and
    research and development expenses.                       
|
| |  | The $6.0 million increase in our pre-tax 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 pre-tax loss in our Imaging Supplies segment.



23



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##### Table of Contents





Results of Operations by Reportable Operating Segment


Label Products Segment


|                                                                |  |               |       |      |  |      |       |                |  |          |       |   |  |  |       |   |  |  |       |  
|--------------------------------------------------------------- |  | ------------- | ----- | ---- |  | ---- | ----- | -------------- |  | -------- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                |  |               |       |      |  |      |       | Percent Change
|                                                                |  |               |       |      |  |      |       |               
|                                                                |  |               |       |      |  |      |       | 2005 vs.       |  | 2004 vs.
|                                                                |  | 2005          |       | 2004 |  | 2003 |       | 2004           |  | 2003    
|                                                                |  |               |       |      |  |      |       |                |  |         
|                                                                |  | (In millions)
|Net sales                                                       |  | $             | 109.0 |      |  | $    | 104.3 |                |  | $        | 101.8 |   |  |  | 4.5   |   |  |  | 2.5   |  
|Gross margin                                                    |  |               | 16.1  |      |  |      | 18.8  |                |  |          | 17.3  |   |  |  | (14.4 | ) |  |  | 8.7   |  
|Gross margin %                                                  |  |               | 14.8  | %    |  |      | 18.0  | %              |  |          | 17.0  | % |  |  |      |   |  |  |      |  
|Selling and distribution expenses                               |  |               | 6.7   |      |  |      | 6.3   |                |  |          | 7.4   |   |  |  | 6.3   |   |  |  | (14.9 | )
|General and administrative expenses                             |  |               | 4.0   |      |  |      | 4.5   |                |  |          | 3.8   |   |  |  | (11.1 | ) |  |  | 18.4  |  
|Other                                                           |  |               |      |      |  |      | .4    |                |  |          | .3    |   |  |  |      |   |  |  | 33.3  |  
|Income from operations before interest, taxes and unusual items |  | $             | 5.4   |      |  | $    | 7.6   |                |  | $        | 5.8   |   |  |  | (28.9 | ) |  |  | 31.0  |  





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $4.7 million, or 4.5 percent increase, in 2005
    compared to 2004 resulted mainly from a $10.2 million
    increase in our automatic identification product line,
    $1.2 million increase in the pharmacy product line,
    $.6 million increase in our RFID product line and a
    $.1 million increase in other product lines which was
    partially offset by declines of $4.4 million in our
    supermarket scale product line, $1.6 million in the retail
    shelf product line and $1.4 million in our EDP product
    line. The increase in automatic identification label sales
    resulted primarily from incremental volume gained from new
    customers, the acquisition of certain assets of LSI and
    incremental business from existing customers. The increase in
    the pharmacy product line results from the acquistion of certain
    assets of LSI. The 2005 RFID sales increase is a result of our
    initial progress in entering into the new product line. The
    decreased sales in our supermarket scale and retail shelf
    product lines are primarily a result of lost business, a portion
    of which is now produced by the customer itself. The decreased
    sales in our EDP product line are due to market erosion as a
    result of printer technology changes and lost business.
|
| |  | 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 gross margin decrease of $2.7 million in 2005 compared
    to 2004 was primarily related to increased raw material costs,
    which have only partially been passed on to customers due to

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| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | competitive market condition, as well as unabsorbed fixed plant
    costs at our Florida facility, which was part of our June 2005
    acquisition of certain assets of LSI, and increased employee
    pension and workers compensation costs.                                                   
|
| |  | 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.







Specialty Paper Products Segment


|                                                                |  |               |       |      |  |      |       |                |  |          |       |   |  |  |       |   |  |  |       |  
|--------------------------------------------------------------- |  | ------------- | ----- | ---- |  | ---- | ----- | -------------- |  | -------- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                |  |               |       |      |  |      |       | Percent Change
|                                                                |  |               |       |      |  |      |       |               
|                                                                |  |               |       |      |  |      |       | 2005 vs.       |  | 2004 vs.
|                                                                |  | 2005          |       | 2004 |  | 2003 |       | 2004           |  | 2003    
|                                                                |  |               |       |      |  |      |       |                |  |         
|                                                                |  | (In millions)
|Net sales                                                       |  | $             | 166.7 |      |  | $    | 168.0 |                |  | $        | 169.0 |   |  |  | (0.8  | ) |  |  | (0.6  | )
|Gross margin                                                    |  |               | 28.4  |      |  |      | 31.2  |                |  |          | 31.9  |   |  |  | (9.0  | ) |  |  | (2.2  | )
|Gross margin %                                                  |  |               | 17.0  | %    |  |      | 18.6  | %              |  |          | 18.9  | % |  |  |      |   |  |  |      |  
|Selling and distribution expenses                               |  |               | 17.6  |      |  |      | 17.5  |                |  |          | 18.3  |   |  |  | 0.6   |   |  |  | (4.4  | )
|General and administrative expenses                             |  |               | 6.1   |      |  |      | 6.8   |                |  |          | 8.0   |   |  |  | (10.3 | ) |  |  | (15.0 | )
|Research and development expenses                               |  |               | .6    |      |  |      | .7    |                |  |          | .9    |   |  |  | (14.3 | ) |  |  | (11.1 | )
|Other                                                           |  |               |      |      |  |      |      |                |  |          | .3    |   |  |  |      |   |  |  |      |  
|Income from operations before interest, taxes and unusual items |  | $             | 4.1   |      |  | $    | 6.2   |                |  | $        | 4.4   |   |  |  | (33.9 | ) |  |  | 38.6  |  





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $1.3 million, or .8 percent, decline in net sales
    was primarily due to sales decreases of $7.0 million in our
    non-retail thermal
    point-of-sale
    (POS) product line, $2.6 million in our thermal ticket
    and tag product line, $2.5 million in our carbonless
    product line, $1.6 million in our bond product line,
    $1.2 million in our dry gum product line, and
    $.6 million in our thermal face sheet product line. The
    decreases were partially offset by sales increases of
    $6.0 million in our wide-format product line,
    $3.7 million in our retail product line, $2.7 million
    in our ribbon and laser cartridge product line,
    $1.3 million in our fraud prevention product line, and
    $.5 million of other miscellaneous product lines. The net
    sales decrease in our thermal product line was due to the

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | combination of lower unit volume and reduced pricing. The net
    sales decrease in the thermal ticket and tag products results
    primarily from the loss of airline ticket business as well as
    lower volume to other key customers. The continued shift in
    technology resulted in lower sales of dry gum and carbonless
    products. The net sales decrease in our thermal face sheet
    products was primarily due to lower volume. The net sales
    increase in our wide-format products resulted from new customer
    business. The net sales increase in the ribbon and laser
    cartridge product line resulted from the acquisition of certain
    assets of LSI. The net sales increase in our retail product line
    was due to increased sales to a key customer who had reduced its
    purchases the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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
    $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 gross margin percentage decline in 2005 was primarily due to
    higher raw material costs which have only partially been passed
    on to customers, an unfavorable product mix resulting from sales
    declines in the mature and higher margin dry gum and carbonless
    product lines and lower absorption of production costs in our
    paper coating operations due to the decrease in production
    volume. The decrease in gross margin percentage also resulted
    from competitive pricing conditions for thermal products used in
    POS applications and thermal face sheet sold to laminators.
|
| |  | 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.                                                                  





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Imaging Supplies Segment


|                                                                           |  |               |      |      |  |      |      |                |  |          |      |   |  |  |          |   |  |  |       |  
|-------------------------------------------------------------------------- |  | ------------- | ---- | ---- |  | ---- | ---- | -------------- |  | -------- | ---- | - |  |  | -------- | - |  |  | ----- | -
|                                                                           |  |               |      |      |  |      |      | Percent Change
|                                                                           |  |               |      |      |  |      |      |               
|                                                                           |  |               |      |      |  |      |      | 2005 vs.       |  | 2004 vs.
|                                                                           |  | 2005          |      | 2004 |  | 2003 |      | 2004           |  | 2003    
|                                                                           |  |               |      |      |  |      |      |                |  |         
|                                                                           |  | (In millions)
|Net sales                                                                  |  | $             | 23.9 |      |  | $    | 22.1 |                |  | $        | 23.5 |   |  |  | 8.1      |   |  |  | (6.0  | )
|Gross margin                                                               |  |               | 3.0  |      |  |      | 3.9  |                |  |          | 4.6  |   |  |  | (23.1    | ) |  |  | (15.2 | )
|Gross margin %                                                             |  |               | 12.6 | %    |  |      | 17.6 | %              |  |          | 19.6 | % |  |  |         |   |  |  |      |  
|Selling and distribution expenses                                          |  |               | 1.0  |      |  |      | 1.4  |                |  |          | 1.5  |   |  |  | (28.6    | ) |  |  | (6.7  | )
|General and administrative expenses                                        |  |               | 1.3  |      |  |      | 1.4  |                |  |          | 1.1  |   |  |  | (7.1     | ) |  |  | 27.3  |  
|Research and development expenses                                          |  |               | 1.0  |      |  |      | 1.3  |                |  |          | 1.5  |   |  |  | (23.1    | ) |  |  | (13.3 | )
|Special charges                                                            |  |               | 1.5  |      |  |      |     |                |  |          |     |   |  |  |         |   |  |  |      |  
|Other                                                                      |  |               | .4   |      |  |      |     |                |  |          | .1   |   |  |  |         |   |  |  |      |  
|Income (loss) from operations before interest, taxes and unusual
    items |  | $             | (2.2 | )    |  | $    | (.2  | )              |  | $        | .4   |   |  |  | (1,000.0 | ) |  |  |      |  





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $1.8 million, or 8.1 percent, increase in sales in
    2005 resulted from higher sales of Océ, IBM, and Ricoh
    compatible toners, which was partially offset by lower sales of
    Xerox compatible toners. The lower sales of Xerox compatible
    toner were due to the partial loss of a major customer and the
    sales decline of the more mature Xerox compatible products. The
    increase in Océ compatible toner sales was due to a new
    product introduction in 2004. As a result of the Océ
    litigation settlement, we ceased to manufacture and sell
    Océ compatible products during the fourth quarter of 2005.
    The higher sales of Ricoh compatible toner was driven mainly by
    higher sales of new products, which were partially offset by
    mature products. The Ricoh compatible toner sales were also
    impacted by higher purchases from our major customer in their
    preparation of transitioning to a new vendor in 2006 after our
    planned exit of the toner and developer business by
    March 31, 2006.
|
| |  | The $1.4 million, or 6.0 percent, decline in sales in
    2004 resulted from 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.                                                                                                                                                                                                                                                                                                                                                



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Liquidity, Capital Resources and Financial Condition




|                                                 |  |                     |      |      |  |      |      |   |  |   |       |  
|------------------------------------------------ |  | ------------------- | ---- | ---- |  | ---- | ---- | - |  | - | ----- | -
|                                                 |  | For the Years Ended
|                                                 |  | December 31        
|                                                 |  |                    
|Cash Provided by (Used in):                      |  | 2005                |      | 2004 |  | 2003
|                                                 |  |                     |      |      |  |     
|                                                 |  | (In millions)      
|Operating activities                             |  | $                   | 6.6  |      |  | $    | 1.3  |   |  | $ | 8.6   |  
|Investing activities                             |  |                     | (4.3 | )    |  |      | (5.5 | ) |  |   | (10.6 | )
|Financing activities                             |  |                     | (2.5 | )    |  |      | 4.0  |   |  |   | 2.6   |  
|Activities of discontinued operations            |  |                     |     |      |  |      | (0.1 | ) |  |   | (0.5  | )
|                                                 |  |                     |      |      |  |      |      |   |  |   |       |  
|Increase (decrease) in cash and cash equivalents |  | $                   | (0.2 | )    |  | $    | (0.3 | ) |  | $ | 0.1   |  
|                                                 |  |                     |      |      |  |      |      |   |  |   |       |  

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;                                                                                                                                                                                                                                                       
|
| |  | adjusted the letter of credit commitment amount to include the
    IRB Letter of Credit;                                                                                                                                                                                                                                                                            
|
| |  | adjusted the covenants on the limitations on debt and liens to
    exclude the debt to the IDB and related liens;                                                                                                                                                                                                                                                   
|
| |  | adjusted the description of any non-payment of other debt to
    include debt arising under the Reimbursement Agreement relating
    to the IRB Letter of Credit; and                                                                                                                                                                                               
|
| |  | increased the revolving commitment amount under the Credit
    Agreement from $30 million to $35 million.                                                                                                                                                                                                                                                           





|                                                |  |                          |  |                   |             | 
|----------------------------------------------- |  | ------------------------ |  | ----------------- | ----------- | 
|                                                |  |                          |  | December 31, 2005
|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    |  |                   | 2.22 to 1.0 | 



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Future obligations




|                            |  |                |        |           |  |           |       |           |  |           |        |  |  |   |     |  |  |   |       | 
|--------------------------- |  | -------------- | ------ | --------- |  | --------- | ----- | --------- |  | --------- | ------ |  |  | - | --- |  |  | - | ----- | 
|                            |  |                |        | Less Than |  |           |       |           |  | More Than
|                            |  | Total          |        | 1 Year    |  | 1-3 Years |       | 3-5 Years |  | 5 Years  
|                            |  |                |        |           |  |           |       |           |  |          
|                            |  | (In thousands)
|Long-term debt obligations  |  | $              | 29,451 |           |  | $         | 3,833 |           |  | $         | 22,616 |  |  | $ | 166 |  |  | $ | 2,836 | 
|Capital lease obligations   |  |                | 62     |           |  |           | 54    |           |  |           | 8      |  |  |   |    |  |  |   |      | 
|Operating lease obligations |  |                | 1,982  |           |  |           | 820   |           |  |           | 825    |  |  |   | 320 |  |  |   | 17    | 
|                            |  |                |        |           |  |           |       |           |  |           |        |  |  |   |     |  |  |   |       | 
|                            |  | $              | 31,495 |           |  | $         | 4,707 |           |  | $         | 23,449 |  |  | $ | 486 |  |  | $ | 2,853 | 
|                            |  |                |        |           |  |           |       |           |  |           |        |  |  |   |     |  |  |   |       | 



Litigation and Other Matters




31



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32



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##### Table of Contents









Application of Critical Accounting Policies






Accounts Receivable  Allowance for Doubtful
Accounts




33



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Inventories  Slow Moving and Obsolescence




Goodwill




Pension and Other Postretirement Benefits






34



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Deferred Tax Assets




Environmental Reserves






New Accounting Pronouncement




35



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



36



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

NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |       | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------------------------- | ------- | ----- | - | ---- | ------- | ----- |  | - | ------- | ----- | 
|                                                                                  |                                                                                 | Year Ended December 31,              
|                                                                                  |                                                                                 |                                      
|                                                                                  |                                                                                 | 2005                                  |         | 2004  |   | 2003
|                                                                                  |                                                                                 |                                       |         |       |   |     
|                                                                                  |                                                                                 | (In thousands, except per share data)
|Net sales                                                                         |                                                                                 | $                                     | 294,864 |       |   | $    | 289,217 |       |  | $ | 288,906 |      
|Cost of products sold                                                             |                                                                                 |                                       | 247,281 |       |   |      | 235,345 |       |  |   | 235,101 |      
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Gross margin                                                                      |                                                                                 |                                       | 47,583  |       |   |      | 53,872  |       |  |   | 53,805  |      
|Selling and distribution expenses                                                 |                                                                                 |                                       | 25,259  |       |   |      | 25,148  |       |  |   | 27,208  |      
|General and administrative expenses                                               |                                                                                 |                                       | 17,914  |       |   |      | 19,985  |       |  |   | 20,560  |      
|Research and development expense                                                  |                                                                                 |                                       | 1,547   |       |   |      | 2,126   |       |  |   | 2,469   |      
|Net loss (gain) on settlement/curtailment of pension and
    postretirement plans |                                                                                 |                                       | 385     |       |   |      | (971    | )     |  |   | 1,599   |      
|Special charges (income)                                                          |                                                                                 |                                       | 1,516   |       |   |      |        |       |  |   | (68     | )    
|Loss from equity investment                                                       |                                                                                 |                                       | 34      |       |   |      | 416     |       |  |   | 523     |      
|Interest expense                                                                  |                                                                                 |                                       | 1,758   |       |   |      | 1,323   |       |  |   | 1,295   |      
|Interest income                                                                   |                                                                                 |                                       |        |       |   |      | (313    | )     |  |   |        |      
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Income (loss) from continuing operations before income taxes
    (benefit)        |                                                                                 |                                       | (830    | )     |   |      | 6,158   |       |  |   | 219     |      
|Provision for income taxes (benefit)                                              |                                                                                 |                                       | (191    | )     |   |      | 2,371   |       |  |   | 117     |      
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Income (loss) from continuing operations after income taxes                       |                                                                                 |                                       | (639    | )     |   |      | 3,787   |       |  |   | 102     |      
|Income from discontinued operations, net of taxes                                 |                                                                                 |                                       | 1,235   |       |   |      |        |       |  |   |        |      
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Net income                                                                        |                                                                                 | $                                     | 596     |       |   | $    | 3,787   |       |  | $ | 102     |      
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Per share amounts:                                                                |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|                                                                                  | Income (loss) from continuing operations per common share                       |                                       | $       | (0.10 | ) |      | $       | 0.63  |  |   | $       | 0.02  | 
|                                                                                  | Income from discontinued operations per common share                            |                                       |         | 0.20  |   |      |         |      |  |   |         |      | 
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|                                                                                  | Net income per common share                                                     |                                       | $       | 0.10  |   |      | $       | 0.63  |  |   | $       | 0.02  | 
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|                                                                                  | Income (loss) from continuing operations per common share
    assuming dilution |                                       | $       | (0.10 | ) |      | $       | 0.62  |  |   | $       | 0.02  | 
|                                                                                  | Income from discontinued operations per common share assuming
    dilution      |                                       |         | 0.20  |   |      |         |      |  |   |         |      | 
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|                                                                                  | Net income per common share assuming dilution                                   |                                       | $       | 0.10  |   |      | $       | 0.62  |  |   | $       | 0.02  | 
|                                                                                  |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|Average shares outstanding:                                                       |                                                                                 |                                       |         |       |   |      |         |       |  |   |         |      
|                                                                                  | Common shares                                                                   |                                       |         | 6,090 |   |      |         | 6,011 |  |   |         | 5,869 | 
|                                                                                  | Common shares, assuming dilution                                                |                                       |         | 6,090 |   |      |         | 6,130 |  |   |         | 5,999 | 



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NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |         |         |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                            |                                                                                                                                                   | December 31,                                    
|                                            |                                                                                                                                                   |                                                 
|                                            |                                                                                                                                                   | 2005                                             |                                            | 2004   
|                                            |                                                                                                                                                   |                                                  |                                            |        
|                                            |                                                                                                                                                   | (In thousands, except                           
|                                            |                                                                                                                                                   | share data)                                     
|ASSETS                                     
|Current assets                              |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Cash and cash equivalents                                                                                                                         |                                                  | $                                          | 653     |         |         | $      | 884     |        
|                                            | Restricted cash                                                                                                                                   |                                                  |                                            |        |         |         |        | 1,202   |        
|                                            | Accounts receivable                                                                                                                               |                                                  |                                            | 33,922  |         |         |        | 33,501  |        
|                                            | Inventories:                                                                                                                                      |                                                  |                                            |         |         |         |        |         |        
|                                            |                                                                                                                                                   | Raw materials                                    |                                            |         | 11,789  |         |        |         | 14,124  |        
|                                            |                                                                                                                                                   | Work in process                                  |                                            |         | 3,145   |         |        |         | 3,260   |        
|                                            |                                                                                                                                                   | Finished goods                                   |                                            |         | 7,350   |         |        |         | 7,841   |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 22,284                                     |         |         |         | 25,225 |        
|                                            | Other current assets                                                                                                                              |                                                  |                                            | 2,980   |         |         |        | 4,493   |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 59,839                                     |         |         |         | 65,305 |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|Plant and equipment:                        |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Land                                                                                                                                              |                                                  |                                            | 1,322   |         |         |        | 1,322   |        
|                                            | Buildings and improvements                                                                                                                        |                                                  |                                            | 32,553  |         |         |        | 31,201  |        
|                                            | Machinery and equipment                                                                                                                           |                                                  |                                            | 70,851  |         |         |        | 66,013  |        
|                                            | Construction in progress                                                                                                                          |                                                  |                                            | 142     |         |         |        | 1,002   |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 104,868                                    |         |         |         | 99,538 |        
|                                            | Accumulated depreciation                                                                                                                          |                                                  |                                            | (68,406 | )       |         |        | (59,693 | )      
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 36,462                                     |         |         |         | 39,845 |        
|Goodwill                                    |                                                                                                                                                   |                                                  | 31,516                                     |         |         |         | 31,516 |        
|Intangibles, net of amortization            |                                                                                                                                                   |                                                  | 1,773                                      |         |         |         | 1,451  |        
|Loans to related parties                    |                                                                                                                                                   |                                                  | 1,015                                      |         |         |         | 957    |        
|Other assets                                |                                                                                                                                                   |                                                  | 14,314                                     |         |         |         | 12,286 |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | Total assets                               |         | $       | 144,919 |        |         | $       | 151,360 | 
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                           
|LIABILITIES AND SHAREHOLDERS EQUITY       
|Current liabilities                         |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Accounts payable                                                                                                                                  |                                                  | $                                          | 14,992  |         |         | $      | 16,751  |        
|                                            | Accrued expenses                                                                                                                                  |                                                  |                                            | 8,965   |         |         |        | 13,182  |        
|                                            | Current maturities of long-term debt                                                                                                              |                                                  |                                            | 3,500   |         |         |        | 3,400   |        
|                                            | Current maturities of notes payable to related parties                                                                                            |                                                  |                                            | 333     |         |         |        | 710     |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 27,790                                     |         |         |         | 34,043 |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|Long-term debt, less current portion        |                                                                                                                                                   |                                                  | 25,250                                     |         |         |         | 27,350 |        
|Notes payable to related parties            |                                                                                                                                                   |                                                  | 368                                        |         |         |         | 250    |        
|Other long-term liabilities                 |                                                                                                                                                   |                                                  | 37,777                                     |         |         |         | 23,769 |        
|Commitments and contingencies (see Note 10) |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|Shareholders equity:                       |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            | Common stock, par value $1.00; authorized
    20,000,000 shares; issued and outstanding
    6,259,084 shares in 2005 and 6,208,834 shares in 2004 |                                                  |                                            | 6,259   |         |         |        | 6,209   |        
|                                            | Additional paid-in capital                                                                                                                        |                                                  |                                            | 15,764  |         |         |        | 15,484  |        
|                                            | Retained earnings                                                                                                                                 |                                                  |                                            | 57,860  |         |         |        | 57,264  |        
|                                            | Accumulated other comprehensive loss:                                                                                                             |                                                  |                                            |         |         |         |        |         |        
|                                            |                                                                                                                                                   | Minimum pension liability adjustment, net of tax |                                            |         | (26,149 | )       |        |         | (13,009 | )      
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | 53,734                                     |         |         |         | 65,948 |        
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        
|                                            |                                                                                                                                                   |                                                  | Total liabilities and shareholders equity |         | $       | 144,919 |        |         | $       | 151,360 | 
|                                            |                                                                                                                                                   |                                                  |                                            |         |         |         |        |        



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NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                                                |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |         |  
|----------------------------------------------- | ------------------------------------------------ | --------------------------------- | --------- | --------- |  | ------------- | ----- | -------- |  | -------- | ------ | ----- |  | - | ------- | ------- | - | - | ------ | ----- |  | - | ------- | ------- | -
|                                                |                                                  |                                   |           |           |  | Accumulated   |       |          |  |         
|                                                |                                                  | Common Stock                      |           | Addl     |  | Other         |       |          |  |         
|                                                |                                                  |                                   |           | Paid-In   |  | Comprehensive |       | Retained |  |         
|                                                |                                                  | Shares                            |           | Par Value |  | Capital       |       | Loss     |  | Earnings |        | Total
|                                                |                                                  |                                   |           |           |  |               |       |          |  |          |        |      
|                                                |                                                  | (In thousands, except share data)
|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 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:                           |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |        
|                                                | 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  |        
|Stock options exercised and related tax benefit |                                                  |                                   | 50,250    |           |  |               | 50    |          |  |          | 280    |       |  |   |        |         |   |   |       |       |  |   | 330     |        
|Comprehensive loss:                             |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |        
|                                                | Net income                                       |                                   |           |          |  |               |       |         |  |          |        |      |  |   |         |        |   |   |        | 596   |  |   |         | 596     |  
|                                                | Minimum pension liability adjustment, net of tax |                                   |           |          |  |               |       |         |  |          |        |      |  |   |         | (13,140 | ) |   |        |      |  |   |         | (13,140 | )
|                                                |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |        
|Comprehensive loss                              |                                                  |                                   |          |           |  |               |      |          |  |          |       |       |  |   |        |         |   |   |       |       |  |   | (12,544 | )      
|                                                |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |        
|Balance, December 31, 2005                      |                                                  |                                   | 6,259,084 |           |  | $             | 6,259 |          |  | $        | 15,764 |       |  | $ | (26,149 | )       |   | $ | 57,860 |       |  | $ | 53,734  |        
|                                                |                                                  |                                   |           |           |  |               |       |          |  |          |        |       |  |   |         |         |   |   |        |       |  |   |         |        



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NASHUA CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |       |        |         |  
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ----------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | ------ | ------- | -
|                                                                                             |                                                                                                | Year Ended December 31,                                        
|                                                                                             |                                                                                                |                                                                
|                                                                                             |                                                                                                | 2005                                                            |                                                 | 2004   |        | 2003  
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |       
|                                                                                             |                                                                                                | (In thousands)                                                 
|Cash Flows from Operating Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Net income                                                                                   |                                                                                                | $                                                               | 596                                             |        |        | $      | 3,787  |        |        | $      | 102    |      
|Adjustments to reconcile net income to cash provided by
    continuing operating activities: |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|                                                                                             | Depreciation and amortization                                                                  |                                                                 |                                                 | 9,466  |        |        |        | 7,900  |        |        |        | 7,942 |       
|                                                                                             | Deferred income taxes                                                                          |                                                                 |                                                 | (834   | )      |        |        | 2,371  |        |        |        | 281   |       
|                                                                                             | Stock based compensation                                                                       |                                                                 |                                                 |       |        |        |        |       |        |        |        | 92    |       
|                                                                                             | Tax benefit from exercised stock options                                                       |                                                                 |                                                 | 59     |        |        |        | 187    |        |        |        |      |       
|                                                                                             | Net loss (gain) on curtailment of pension and
    postretirement plans                         |                                                                 |                                                 | 385    |        |        |        | (971   | )      |        |        | 1,599 |       
|                                                                                             | Loss on sale/disposal of fixed assets                                                          |                                                                 |                                                 | 109    |        |        |        | 8      |        |        |        | 45    |       
|                                                                                             | Equity in loss from unconsolidated joint ventures                                              |                                                                 |                                                 | 34     |        |        |        | 416    |        |        |        | 523   |       
|                                                                                             | Death benefit premiums purchase (see Note 11)                                                  |                                                                 |                                                 |       |        |        |        | (2,416 | )      |        |        |      |       
|                                                                                             | Gain from discontinued operations                                                              |                                                                 |                                                 | (1,235 | )      |        |        |       |        |        |        |      |       
|                                                                                             | Change in operating assets and liabilities, net of effects from
    acquisition of businesses: |                                                                 |                                                 |        |        |        |        |        |        |        |        |       |       
|                                                                                             |                                                                                                | Restricted cash                                                 |                                                 |        | 1,202  |        |        |        | (1,202 | )      |        |       |       |        
|                                                                                             |                                                                                                | Accounts receivable                                             |                                                 |        | 381    |        |        |        | (1,836 | )      |        |       | (733   | )      
|                                                                                             |                                                                                                | Inventories                                                     |                                                 |        | 3,369  |        |        |        | (2,459 | )      |        |       | (1,588 | )      
|                                                                                             |                                                                                                | Other assets, other current assets and loans to related parties |                                                 |        | (109   | )      |        |        | 823    |        |        |       | (658   | )      
|                                                                                             |                                                                                                | Accounts payable                                                |                                                 |        | (5,432 | )      |        |        | (3,723 | )      |        |       | 2,423  |        
|                                                                                             |                                                                                                | Accrued expenses                                                |                                                 |        | (2,568 | )      |        |        | (1,400 | )      |        |       | (454   | )      
|                                                                                             |                                                                                                | Other long-term liabilities                                     |                                                 |        | 1,203  |        |        |        | (177   | )      |        |       | (969   | )      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|                                                                                             |                                                                                                |                                                                 | Cash provided by operating activities           |        |        | 6,626  |        |        |        | 1,308  |        |       |        | 8,605   |  
|Cash Flows from Investing Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Investment in plant and equipment                                                            |                                                                                                |                                                                 | (3,845                                          | )      |        |        | (6,599 | )      |        |        | (4,307 | )    
|Investment in unconsolidated joint venture                                                   |                                                                                                |                                                                 | (50                                             | )      |        |        |       |        |        |        | (325   | )    
|Proceeds from sale of plant and equipment                                                    |                                                                                                |                                                                 | 20                                              |        |        |        | 67     |        |        |        | 21     |      
|Business acquisitions, net of cash acquired                                                  |                                                                                                |                                                                 | (466                                            | )      |        |        | (126   | )      |        |        | (6,020 | )    
|Proceeds from surrender of retired executive life insurance
    policies                     |                                                                                                |                                                                 |                                                |        |        |        | 1,117  |        |        |        |       |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|                                                                                             |                                                                                                |                                                                 | Cash used in investing activities               |        |        | (4,341 | )      |        |        | (5,541 | )      |       |        | (10,631 | )
|Cash Flows from Financing Activities of Continuing
    Operations                            |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Net proceeds from revolving portion of long-term debt                                        |                                                                                                |                                                                 | 1,400                                           |        |        |        | 3,750  |        |        |        | 300    |      
|Principal repayments on term portion of long-term debt                                       |                                                                                                |                                                                 | (3,400                                          | )      |        |        | (3,400 | )      |        |        | (2,700 | )    
|Principal repayment on note payable to related parties                                       |                                                                                                |                                                                 | (759                                            | )      |        |        | (250   | )      |        |        | (250   | )    
|Proceeds from Industrial Revenue Bond                                                        |                                                                                                |                                                                 |                                                |        |        |        | 2,800  |        |        |        |       |      
|Proceeds from refinancing                                                                    |                                                                                                |                                                                 |                                                |        |        |        |       |        |        |        | 5,000  |      
|Proceeds from shares exercised under stock option plans                                      |                                                                                                |                                                                 | 271                                             |        |        |        | 1,089  |        |        |        | 272    |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|                                                                                             |                                                                                                |                                                                 | Cash (used in) provided by financing activities |        |        | (2,488 | )      |        |        | 3,989  |        |       |        | 2,622   |  
|Cash used in activities of discontinued operations (from
    operating activities)           |                                                                                                |                                                                 | (28                                             | )      |        |        | (55    | )      |        |        | (498   | )    
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Increase (decrease) in cash and cash equivalents                                             |                                                                                                |                                                                 | (231                                            | )      |        |        | (299   | )      |        |        | 98     |      
|Cash and cash equivalents at beginning of year                                               |                                                                                                |                                                                 | 884                                             |        |        |        | 1,183  |        |        |        | 1,085  |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Cash and cash equivalents at end of year                                                     |                                                                                                | $                                                               | 653                                             |        |        | $      | 884    |        |        | $      | 1,183  |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Supplemental Disclosures of Cash Flow Information                                            |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Interest paid (net of amount capitalized)                                                    |                                                                                                | $                                                               | 1,624                                           |        |        | $      | 1,068  |        |        | $      | 1,198  |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Income taxes paid for continuing operations, net                                             |                                                                                                | $                                                               | 410                                             |        |        | $      | 282    |        |        | $      | 94     |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Supplemental Schedule of Non-Cash Investing and Financing
    Activities                     |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Fair value of assets acquired in acquisitions                                                |                                                                                                | $                                                               | 4,653                                           |        |        | $      | 208    |        |        | $      | 6,314  |      
|Note payable with Label Systems International Inc.                                           |                                                                                                |                                                                 | (500                                            | )      |        |        |       |        |        |        |       |      
|Liabilities assumed in acquisitions                                                          |                                                                                                |                                                                 | (3,687                                          | )      |        |        | (82    | )      |        |        | (294   | )    
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      
|Cash paid for asset acquisitions                                                             |                                                                                                | $                                                               | 466                                             |        |        | $      | 126    |        |        | $      | 6,020  |      
|                                                                                             |                                                                                                |                                                                 |                                                 |        |        |        |        |        |        |        |        |      



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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




Use of Estimates




Reclassifications




Cash Equivalents




Restricted Cash




Accounts Receivable




Inventories


first-in,


41



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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


last-in,


Plant and Equipment






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



Goodwill and Intangible Assets




Stock-Based Compensation




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------- | ---- | ---- |  | ---- | ----- | ---- |  | - | ---- | ---- | 
|                                                                                                                                                  |                       | Year Ended December 31,  
|                                                                                                                                                  |                       |                          
|                                                                                                                                                  |                       | 2005                      |      | 2004 |  | 2003
|                                                                                                                                                  |                       |                           |      |      |  |     
|                                                                                                                                                  |                       | (In thousands, except per
|                                                                                                                                                  |                       | share data)              
|Net income as reported                                                                                                                            |                       | $                         | 596  |      |  | $    | 3,787 |      |  | $ | 102  |     
|Add: Stock-based employee compensation expense included in the
    determination of net income as reported, net of related tax
    effects        |                       |                           |     |      |  |      |      |      |  |   | 43   |     
|Deduct: Stock-based employee compensation expense determined
    under the fair value based method for all awards, net of related
    tax effects |                       |                           | (122 | )    |  |      | (78   | )    |  |   | (107 | )   
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     
|Pro forma net income                                                                                                                              |                       | $                         | 474  |      |  | $    | 3,709 |      |  | $ | 38   |     
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     
|Earnings per share:                                                                                                                               |                       |                           |      |      |  |      |       |      |  |   |      |     
|                                                                                                                                                  | Basic  as reported   |                           | $    | 0.10 |  |      | $     | 0.63 |  |   | $    | 0.02 | 
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     
|                                                                                                                                                  | Basic  pro forma     |                           | $    | 0.08 |  |      | $     | 0.62 |  |   | $    | 0.01 | 
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     
|                                                                                                                                                  | Diluted  as reported |                           | $    | 0.10 |  |      | $     | 0.62 |  |   | $    | 0.02 | 
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     
|                                                                                                                                                  | Diluted  pro forma   |                           | $    | 0.08 |  |      | $     | 0.61 |  |   | $    | 0.01 | 
|                                                                                                                                                  |                       |                           |      |      |  |      |       |      |  |   |      |     

Revenue Recognition




Environmental Expenditures






Shipping Costs




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Research and Development




Income Taxes




Concentrations of Credit Risk






Concentrations of Labor




Concentrations of Supply




Fair Value of Financial Instruments




Earnings per Common and Common Equivalent Share




New Accounting Pronouncement




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|        |                                     
|------- | ------------------------------------
|Note 2: | Business Changes and Special Charges



Special Charges








|                                                                            |  |                |       | 
|--------------------------------------------------------------------------- |  | -------------- | ----- | 
|                                                                            |  | (In thousands)
|Severance and other employee benefits as of December 31,
    2005           |  | $              | 1,535 | 
|Curtailment loss on pension benefits as of December 31, 2005                |  |                | 385   | 
|Accelerated depreciation of plant and equipment as of
    December 31, 2005 |  |                | 1,740 | 



|                                                                               |  |                |      |  
|------------------------------------------------------------------------------ |  | -------------- | ---- | -
|                                                                               |  | (In thousands)
|Curtailment gain on other postretirement benefits by
    March 31, 2006        |  | $              | (322 | )
|Accelerated depreciation of plant and equipment over the next
    three months |  |                | 580  |  

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                         |  |                |   |           |  |             |       |               |  |   |      |   |  |   |       | 
|---------------------------------------------------------------------------------------- |  | -------------- | - | --------- |  | ----------- | ----- | ------------- |  | - | ---- | - |  | - | ----- | 
|                                                                                         |  | Reserve        |   | Current   |  | Current     |       | Reserve      
|                                                                                         |  | Balance        |   | Year      |  | Year        |       | Balance      
|                                                                                         |  | Dec. 31, 2004  |   | Provision |  | Utilization |       | Dec. 31, 2005
|                                                                                         |  |                |   |           |  |             |       |              
|                                                                                         |  | (In thousands)
|Provisions for severance related to workforce reductions
    included in special charges |  | $              |  |           |  | $           | 1,535 |               |  | $ | (179 | ) |  | $ | 1,356 | 
|                                                                                         |  |                |   |           |  |             |       |               |  |   |      |   |  |   |       | 



Discontinued Operations




|                                                    |  |                |       |      |  |   |        |  
|--------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | -
|                                                    |  | At December 31
|                                                    |  |               
|                                                    |  | 2005           |       | 2004
|                                                    |  |                |       |     
|                                                    |  | (In thousands)
|Assets                                              |  | $              | 1,550 |      |  | $ | 1,550  |  
|Liabilities                                         |  |                |      |      |  |   | (3,502 | )
|                                                    |  |                |       |      |  |   |        |  
|Net assets (liabilities) of discontinued operations |  | $              | 1,550 |      |  | $ | (1,952 | )
|                                                    |  |                |       |      |  |   |        |  







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



|                                 |  |                      |       |              |  |              |       |  |  |  |          | 
|-------------------------------- |  | -------------------- | ----- | ------------ |  | ------------ | ----- |  |  |  | -------- | 
|                                 |  | At December 31, 2005
|                                 |  |                     
|                                 |  |                      |       | Weighted    
|                                 |  | Gross                |       |              |  | Average     
|                                 |  | Carrying             |       | Accumulated  |  | Amortization
|                                 |  | Amount               |       | Amortization |  | Period      
|                                 |  |                      |       |              |  |             
|                                 |  | (In thousands)      
|Trademarks and trade names       |  | $                    | 560   |              |  | $            | 302   |  |  |  | 9 years  | 
|Licensing agreement              |  |                      | 230   |              |  |              | 173   |  |  |  | 5 years  | 
|Customer relationships and lists |  |                      | 1,887 |              |  |              | 667   |  |  |  | 12 years | 
|Customer contracts               |  |                      | 620   |              |  |              | 430   |  |  |  | 4 years  | 
|Non-competition agreements       |  |                      | 100   |              |  |              | 75    |  |  |  | 5 years  | 
|Patented technology              |  |                      | 90    |              |  |              | 67    |  |  |  | 5 years  | 
|                                 |  |                      |       |              |  |              |       |  |  |  |          | 
|                                 |  | $                    | 3,487 |              |  | $            | 1,714 |  |  |  |          | 
|                                 |  |                      |       |              |  |              |       |  |  |  |          | 

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                     |                                  |   |     |     | 
|------------------------------------ | -------------------------------- | - | --- | --- | 
|Amortization Expense:                |                                  |   |     |    
|For the year ended December 31, 2004 |                                  | $ | 441 |    
|For the year ended December 31, 2005 |                                  | $ | 495 |    
|Estimated for the year ending:       |                                  |   |     |    
|                                     | December 31, 2006                |   | $   | 638 | 
|                                     | December 31, 2007                |   | $   | 379 | 
|                                     | December 31, 2008                |   | $   | 185 | 
|                                     | December 31, 2009                |   | $   | 118 | 
|                                     | December 31, 2010                |   | $   | 95  | 
|                                     | December 31, 2011 and thereafter |   | $   | 358 | 



|        |             
|------- | ------------
|Note 4: | Indebtedness









| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                                                                                                                                       
|
| |  | adjusted the letter of credit commitment amount to include the
    IRB Letter of Credit;                                                                                                                                                                                                                                                                            
|
| |  | adjusted the covenants on the limitations on debt and liens to
    exclude the debt to the IDB and related liens;                                                                                                                                                                                                                                                   
|
| |  | adjusted the description of any non-payment of other debt to
    include debt arising under the Reimbursement Agreement relating
    to the IRB Letter of Credit; and                                                                                                                                                                                               
|
| |  | increased the revolving commitment amount under the Credit
    Agreement from $30 million to $35 million.                                                                                                                                                                                                                                                           







|                                    |  |                |       |      |  |      |        |       |  |   |       |  |  |   |        | 
|----------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ | ----- |  | - | ----- |  |  | - | ------ | 
|                                    |  | 2006           |       | 2007 |  | 2024 |        | Total
|                                    |  |                |       |      |  |      |        |      
|                                    |  | (In thousands)
|Term portion of long-term debt      |  | $              | 3,500 |      |  | $    |       |       |  | $ |      |  |  | $ | 3,500  | 
|Revolving portion of long-term debt |  |                |      |      |  |      | 22,450 |       |  |   |      |  |  |   | 22,450 | 
|Industrial revenue bond             |  |                |      |      |  |      |       |       |  |   | 2,800 |  |  |   | 2,800  | 
|                                    |  |                |       |      |  |      |        |       |  |   |       |  |  |   |        | 
|                                    |  | $              | 3,500 |      |  | $    | 22,450 |       |  | $ | 2,800 |  |  | $ | 28,750 | 
|                                    |  |                |       |      |  |      |        |       |  |   |       |  |  |   |        | 



|        |                                 
|------- | --------------------------------
|Note 5: | Notes Payable to Related Parties





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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                 |  |                |     |      |  |      |    |      |  |      |    |      |  |       |    |  |  |   |    |  |  |   |    |  |  |   |     | 
|-------------------------------- |  | -------------- | --- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | ----- | -- |  |  | - | -- |  |  | - | -- |  |  | - | --- | 
|                                 |  | 2006           |     | 2007 |  | 2008 |    | 2009 |  | 2010 |    | 2011 |  | Total
|                                 |  |                |     |      |  |      |    |      |  |      |    |      |  |      
|                                 |  | (In thousands)
|Notes payable to related parties |  | $              | 333 |      |  | $    | 83 |      |  | $    | 83 |      |  | $     | 83 |  |  | $ | 83 |  |  | $ | 36 |  |  | $ | 701 | 
|                                 |  |                |     |      |  |      |    |      |  |      |    |      |  |       |    |  |  |   |    |  |  |   |    |  |  |   |     | 



|        |             
|------- | ------------
|Note 6: | Income Taxes



|          |               |                                      |   |      |      |      |   |       |       |  |   |      |      |  
|--------- | ------------- | ------------------------------------ | - | ---- | ---- | ---- | - | ----- | ----- |  | - | ---- | ---- | -
|          |               | 2005                                 |   | 2004 |      | 2003
|          |               |                                      |   |      |      |     
|          |               | (In thousands)                      
|Current:  |               |                                      |   |      |      |      |   |       |       |  |   |     
|          | United States |                                      | $ | 510  |      |      | $ |      |       |  | $ | (147 | )   
|          | State         |                                      |   | 133  |      |      |   |      |       |  |   | (17  | )   
|          |               |                                      |   |      |      |      |   |       |       |  |   |     
|          |               | Total current                        |   |      | 643  |      |   |       |      |  |   |      | (164 | )
|Deferred: |               |                                      |   |      |      |      |   |       |       |  |   |     
|          | United States |                                      |   | (729 | )    |      |   | 2,080 |       |  |   | 257  |     
|          | State         |                                      |   | (105 | )    |      |   | 291   |       |  |   | 24   |     
|          |               |                                      |   |      |      |      |   |       |       |  |   |     
|          |               | Total deferred                       |   |      | (834 | )    |   |       | 2,371 |  |   |      | 281  |  
|          |               |                                      |   |      |      |      |   |       |       |  |   |     
|          |               | Provision (benefit) for income taxes |   | $    | (191 | )    |   | $     | 2,371 |  |   | $    | 117  |  
|          |               |                                      |   |      |      |      |   |       |       |  |   |     



|                                                               |                         |                |        |        |  |   |        |        | 
|-------------------------------------------------------------- | ----------------------- | -------------- | ------ | ------ |  | - | ------ | ------ | 
|                                                               |                         | 2005           |        | 2004  
|                                                               |                         |                |        |       
|                                                               |                         | (In thousands)
|Depreciation                                                   |                         | $              | (944   | )      |  | $ | (1,423 | )     
|Other                                                          |                         |                | (612   | )      |  |   | (358   | )     
|                                                               |                         |                |        |        |  |   |        |       
|Gross deferred tax liabilities                                 |                         |                | (1,556 | )      |  |   | (1,781 | )     
|Pension and postretirement benefits                            |                         |                | 13,927 |        |  |   | 8,402  |       
|State net operating loss carryforwards and other state credits |                         |                | 2,257  |        |  |   | 2,359  |       
|Alternative minimum tax and general business credits           |                         |                | 1,528  |        |  |   | 1,428  |       
|Accrued expenses                                               |                         |                | 1,025  |        |  |   | 633    |       
|Inventory reserves                                             |                         |                | 587    |        |  |   | 558    |       
|Bad debt reserves                                              |                         |                | 393    |        |  |   | 341    |       
|Other                                                          |                         |                | 633    |        |  |   | 961    |       
|                                                               |                         |                |        |        |  |   |        |       
|Gross deferred tax assets                                      |                         |                | 20,350 |        |  |   | 14,682 |       
|Deferred tax assets valuation allowance                        |                         |                | (5,659 | )      |  |   | (600   | )     
|                                                               |                         |                |        |        |  |   |        |       
|                                                               | Net deferred tax assets |                | $      | 13,135 |  |   | $      | 12,301 | 
|                                                               |                         |                |        |        |  |   |        |       

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                        |                    |      |       |       |    |      |      |      |   |  |      |      |  
|--------------------------------------- | ------------------ | ---- | ----- | ----- | -- | ---- | ---- | ---- | - |  | ---- | ---- | -
|                                        |                    | 2005 |       | 2004  |    | 2003
|                                        |                    |      |       |       |    |     
|United States federal statutory rate    |                    |      | (35.0 | )%    |    |      | 35.0 | %    |   |  | 35.0 | %   
|State taxes, net of federal tax benefit |                    |      | (3.0  | )     |    |      | 2.9  |      |   |  | 2.0  |     
|Non-deductible meals and entertainment  |                    |      | 4.0   |       |    |      | .5   |      |   |  | 12.3 |     
|Adjustment for deferred tax asset       |                    |      | 12.4  |       |    |      |     |      |   |  |     |     
|Other, net                              |                    |      | (1.4  | )     |    |      | .1   |      |   |  | 4.1  |     
|                                        |                    |      |       |       |    |      |      |      |   |  |      |     
|                                        | Effective tax rate |      |       | (23.0 | )% |      |      | 38.5 | % |  |      | 53.4 | %
|                                        |                    |      |       |       |    |      |      |      |   |  |      |     













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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |                     
|------- | --------------------
|Note 7: | Shareholders Equity





|        |                                   
|------- | ----------------------------------
|Note 8: | Stock Option and Stock Award Plans

(40-day 40-day 40-day 40-day








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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                               |  |        |         |          |  |        |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 
|-------------------------------------------------------------- |  | ------ | ------- | -------- |  | ------ | ----- | -------- |  | ------ | -------- | -------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                                               |  | 2005   |         | 2004     |  | 2003  
|                                                               |  |        |         |          |  |       
|                                                               |  |        |         | Weighted |  |        |       | Weighted |  |        |          | Weighted
|                                                               |  |        |         | Average  |  |        |       | Average  |  |        |          | Average 
|                                                               |  |        |         | Exercise |  |        |       | Exercise |  |        |          | Exercise
|                                                               |  | Shares |         | Price    |  | Shares |       | Price    |  | Shares |          | Price   
|                                                               |  |        |         |          |  |        |       |          |  |        |          |         
|Outstanding beginning of year                                  |  |        | 582,225 |          |  | $      | 7.04  |          |  |        | 806,175  |          |  | $ | 7.58  |  |  |  | 905,500 |   |  | $ | 7.75  | 
|Granted                                                        |  |        |        |          |  |        |      |          |  |        | 10,000   |          |  |   | 9.61  |  |  |  |        |   |  |   |      | 
|Exercised                                                      |  |        | (50,250 | )        |  |        | 5.41  |          |  |        | (170,100 | )        |  |   | 6.40  |  |  |  | (52,125 | ) |  |   | 5.23  | 
|Forfeited  non-vested                                         |  |        |        |          |  |        |      |          |  |        |         |          |  |   |      |  |  |  | (17,175 | ) |  |   | 6.27  | 
|Forfeited  exercisable                                        |  |        | (27,000 | )        |  |        | 10.59 |          |  |        | (58,350  | )        |  |   | 14.98 |  |  |  | (24,200 | ) |  |   | 15.47 | 
|Expired                                                        |  |        | (10,450 | )        |  |        | 17.40 |          |  |        | (5,500   | )        |  |   | 26.02 |  |  |  | (5,825  | ) |  |   | 26.27 | 
|                                                               |  |        |         |          |  |        |       |          |  |        |          |          |  |   |       |  |  |  |         |   |  |   |       | 
|Outstanding end of year                                        |  |        | 494,525 |          |  | $      | 6.79  |          |  |        | 582,225  |          |  | $ | 7.04  |  |  |  | 806,175 |   |  | $ | 7.58  | 
|Options exercisable at end of year                             |  |        | 494,525 |          |  | $      | 6.79  |          |  |        | 572,225  |          |  | $ | 7.00  |  |  |  | 791,175 |   |  | $ | 7.59  | 
|Weighted average fair value of options granted during the year |  |        |        |          |  |        |      |          |  |        |         |          |  | $ | 3.64  |  |  |  |        |   |  |   |      | 



|                         |  |                     |         |                     |  |          |           |             |  |          |       |  |  |  |         |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | ------------------- |  | -------- | --------- | ----------- |  | -------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |         | Options Exercisable
|                         |  |                     |         |                    
|                         |  |                     |         | Weighted            |  | Number   |           | Weighted   
|                         |  | Number              |         | Weighted Average    |  | Average  |           | Exercisable |  | Average 
|                         |  | Outstanding         |         | Remaining           |  | Exercise |           | at          |  | Exercise
|Range of Exercise Prices |  | at 12/31/05         |         | Contractual Life    |  | Price    |           | 12/31/05    |  | Price   
|                         |  |                     |         |                     |  |          |           |             |  |         
|$ 4.01 - $ 4.38          |  |                     | 152,000 |                     |  |          | 5.1 years |             |  | $        | 4.13  |  |  |  | 152,000 |  |  | $ | 4.13  | 
|$ 5.70 - $ 6.63          |  |                     | 160,175 |                     |  |          | 5.3 years |             |  | $        | 6.06  |  |  |  | 160,175 |  |  | $ | 6.06  | 
|$ 6.65 - $ 6.70          |  |                     | 43,500  |                     |  |          | 6.2 years |             |  | $        | 6.67  |  |  |  | 43,500  |  |  | $ | 6.67  | 
|$ 8.06 - $ 8.63          |  |                     | 54,500  |                     |  |          | 4.4 years |             |  | $        | 8.15  |  |  |  | 54,500  |  |  | $ | 8.15  | 
|$ 9.61 - $11.63          |  |                     | 41,600  |                     |  |          | 4.6 years |             |  | $        | 10.08 |  |  |  | 41,600  |  |  | $ | 10.08 | 
|$12.37 - $16.00          |  |                     | 42,750  |                     |  |          | 2.0 years |             |  | $        | 14.22 |  |  |  | 42,750  |  |  | $ | 14.22 | 
|                         |  |                     |         |                     |  |          |           |             |  |          |       |  |  |  |         |  |  |   |       | 
|$ 4.01 - $16.00          |  |                     | 494,525 |                     |  |          | 4.9 years |             |  | $        | 6.79  |  |  |  | 494,525 |  |  | $ | 6.79  | 



|                                                               |  |      |         |      |  |      |         |  |  |   |         |  
|-------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                                               |  | 2005 |         | 2004 |  | 2003
|                                                               |  |      |         |      |  |     
|Restricted stock outstanding at beginning of year              |  |      | 136,000 |      |  |      |        |  |  |   | 53,334  |  
|Granted                                                        |  |      |        |      |  |      | 136,000 |  |  |   |        |  
|Forfeited                                                      |  |      |        |      |  |      |        |  |  |   | (53,334 | )
|                                                               |  |      |         |      |  |      |         |  |  |   |         |  
|Restricted stock outstanding at end of year                    |  |      | 136,000 |      |  |      | 136,000 |  |  |   |        |  
|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
|                           |                  |           
|                           |                  | 2005       |                                    | 2004 |  | 2003
|                           |                  |            |                                    |      |  |     
|Volatility of Share Price: |                  |            |                                    |      |  |      |           |       |  |  |     |    
|                           | Options          |            |                                    | N/A  |  |      |           | 34.0% |  |  |     | N/A | 
|                           | Restricted stock |            |                                    |     |  |      |           | 33.8% |  |  |     |    | 
|Dividend yield:            |                  |            |                                    |      |  |      |           |       |  |  |     |    
|                           | Options          |            |                                    |     |  |      |           |      |  |  |     |    | 
|                           | Restricted stock |            |                                    |     |  |      |           |      |  |  |     |    | 
|Interest rate:             |                  |            |                                    |      |  |      |           |       |  |  |     |    
|                           | Options          |            |                                    | N/A  |  |      |           | 3.6%  |  |  |     | N/A | 
|                           | Restricted stock |            |                                    |     |  |      |           | 3.3%  |  |  |     |    | 
|Expected life of options   |                  |            | N/A                                |      |  |      | 5.5 years |       |  |  | N/A |    
|Valuation methodology:     |                  |            |                                    |      |  |      |           |       |  |  |     |    
|                           | Options          |            | Black-Scholes Option Pricing Model
|                           | Restricted stock |            | Binomial Pricing Model            





|        |                   
|------- | ------------------
|Note 9: | Earnings Per Share



|                                            |                                                                |                                       |     |               |  |           |   |       |  |   |   |      | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | --- | ------------- |  | --------- | - | ----- |  | - | - | ---- | 
|                                            |                                                                | Year Ended December 31, 2005         
|                                            |                                                                |                                      
|                                            |                                                                | Income                                |     | Shares        |  | Per Share
|                                            |                                                                | (Numerator)                           |     | (Denominator) |  | Amount   
|                                            |                                                                |                                       |     |               |  |          
|                                            |                                                                | (In thousands, except per share data)
|Net income                                  |                                                                | $                                     | 596 |               |  |           |  |       |  | $ |  |     
|                                            |                                                                |                                       |     |               |  |           |   |       |  |   |   |     
|Basic EPS:                                  |                                                                |                                       |     |               |  |           |   |       |  |   |   |     
|                                            | Net income available to common shareholders                    |                                       | $   | 596           |  |           |   | 6,090 |  |   | $ | 0.10 | 
|Effect of dilutive securities stock options |                                                                |                                       |    |               |  |           |  |       |  |   |  |     
|                                            |                                                                |                                       |     |               |  |           |   |       |  |   |   |     
|Diluted EPS:                                |                                                                |                                       |     |               |  |           |   |       |  |   |   |     
|                                            | Net income available to common shareholders, assuming dilution |                                       | $   | 596           |  |           |   | 6,090 |  |   | $ | 0.10 | 

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                            |                                                                |                                       |       |               |  |           |     |       |  |   |      |      | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ----- | ------------- |  | --------- | --- | ----- |  | - | ---- | ---- | 
|                                            |                                                                | 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 |       |  |   | (.01 | )   
|                                            |                                                                |                                       |       |               |  |           |     |       |  |   |      |     
|Diluted EPS:                                |                                                                |                                       |       |               |  |           |     |       |  |   |      |     
|                                            | Net income available to common shareholders, assuming dilution |                                       | $     | 3,787         |  |           |     | 6,130 |  |   | $    | 0.62 | 

|                                            |                                                                |                                       |     |               |  |           |     |       |  |   |   |     | 
|------------------------------------------- | -------------------------------------------------------------- | ------------------------------------- | --- | ------------- |  | --------- | --- | ----- |  | - | - | --- | 
|                                            |                                                                | 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 | 
|                                            |                                                                |                                       |     |               |  |           |     |       |  |   |   |    





|         |                              
|-------- | -----------------------------
|Note 10: | Commitments and Contingencies



|                                |  |                |     |      |  |      |     |      |  |      |     |        |  |       |     |  |  |   |     |  |  |   |    |  |  |   |       | 
|------------------------------- |  | -------------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ------ |  | ----- | --- |  |  | - | --- |  |  | - | -- |  |  | - | ----- | 
|                                |  |                |     |      |  |      |     |      |  |      |     | Beyond |  |      
|                                |  | 2006           |     | 2007 |  | 2008 |     | 2009 |  | 2010 |     | 2010   |  | Total
|                                |  |                |     |      |  |      |     |      |  |      |     |        |  |      
|                                |  | (In thousands)
|Capital leases                  |  | $              | 54  |      |  | $    | 8   |      |  | $    |    |        |  | $     |    |  |  | $ |    |  |  | $ |   |  |  | $ | 62    | 
|Non-cancelable operating leases |  |                | 820 |      |  |      | 480 |      |  |      | 345 |        |  |       | 171 |  |  |   | 149 |  |  |   | 17 |  |  |   | 1,982 | 
|                                |  |                |     |      |  |      |     |      |  |      |     |        |  |       |     |  |  |   |     |  |  |   |    |  |  |   |       | 
|                                |  | $              | 874 |      |  | $    | 488 |      |  | $    | 345 |        |  | $     | 171 |  |  | $ | 149 |  |  | $ | 17 |  |  | $ | 2,044 | 
|                                |  |                |     |      |  |      |     |      |  |      |     |        |  |       |     |  |  |   |     |  |  |   |    |  |  |   |       | 





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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|         |                        
|-------- | -----------------------
|Note 11: | Postretirement Benefits

Defined Contribution Plan






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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Pension Plans




Retiree Health Care and Other Benefits




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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------- | -------------- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                       |  |                  |         | Postretirement
|                                                                                       |  | Pension Benefits |         | Benefits      
|                                                                                       |  |                  |         |               
|                                                                                       |  | 2005             |         | 2004           |  | 2005 |         | 2004
|                                                                                       |  |                  |         |                |  |      |         |     
|                                                                                       |  | (In thousands)  
|Change in benefit obligation                                                           |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Projected benefit obligation at beginning of year                                      |  | $                | 86,693  |                |  | $    | 81,721  |      |  | $ | 2,285  |   |  | $ | 4,791  |  
|Service cost                                                                           |  |                  | 784     |                |  |      | 834     |      |  |   | 59     |   |  |   | 58     |  
|Interest cost                                                                          |  |                  | 5,191   |                |  |      | 4,877   |      |  |   | 117    |   |  |   | 215    |  
|Curtailment/ Settlement                                                                |  |                  |        |                |  |      | (274    | )    |  |   |       |   |  |   | (1,820 | )
|Actuarial loss (gain)                                                                  |  |                  | 11,444  |                |  |      | 2,082   |      |  |   | 145    |   |  |   | (508   | )
|Benefits paid                                                                          |  |                  | (2,906  | )              |  |      | (2,547  | )    |  |   | (237   | ) |  |   | (451   | )
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Projected benefit obligation at end of year                                            |  | $                | 101,206 |                |  | $    | 86,693  |      |  | $ | 2,369  |   |  | $ | 2,285  |  
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Change in plan assets                                                                  |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at beginning of year                                         |  | $                | 68,818  |                |  | $    | 64,659  |      |  |   |       |   |  |   |       |  
|Actual return on plan assets                                                           |  |                  | 2,823   |                |  |      | 6,420   |      |  |   |       |   |  |   |       |  
|Employer contribution                                                                  |  |                  | 306     |                |  |      | 458     |      |  |   | 237    |   |  |   | 2,695  |  
|Settlement                                                                             |  |                  |        |                |  |      | (172    | )    |  |   |       |   |  |   |       |  
|Benefits paid                                                                          |  |                  | (2,906  | )              |  |      | (2,547  | )    |  |   | (237   | ) |  |   | (2,695 | )
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at end of year                                               |  | $                | 69,041  |                |  | $    | 68,818  |      |  | $ |       |   |  | $ |       |  
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Reconciliation of funded status                                                        |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Funded status                                                                          |  | $                | (32,165 | )              |  | $    | (17,875 | )    |  | $ | (2,369 | ) |  | $ | (2,285 | )
|Unrecognized net actuarial (gain)/loss                                                 |  |                  | 34,652  |                |  |      | 21,512  |      |  |   | (748   | ) |  |   | (1,038 | )
|Unrecognized prior service cost                                                        |  |                  | 966     |                |  |      | 1,615   |      |  |   | (317   | ) |  |   | (382   | )
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Net amount recognized                                                                  |  | $                | 3,453   |                |  | $    | 5,252   |      |  | $ | (3,434 | ) |  | $ | (3,705 | )
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|The amount recognized in our consolidated balance sheet
    consists of the following: |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Pension/postretirement liability                                                       |  | $                | (32,165 | )              |  | $    | (17,875 | )    |  | $ | (3,434 | ) |  | $ | (3,705 | )
|Accumulated other comprehensive loss                                                   |  |                  | 34,652  |                |  |      | 21,512  |      |  |   |       |   |  |   |       |  
|Intangible asset                                                                       |  |                  | 966     |                |  |      | 1,615   |      |  |   |       |   |  |   |       |  
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  
|Net amount recognized                                                                  |  | $                | 3,453   |                |  | $    | 5,252   |      |  | $ | (3,434 | ) |  | $ | (3,705 | )
|                                                                                       |  |                  |         |                |  |      |         |      |  |   |        |   |  |   |        |  

Assumptions:


|                                                                      |  |                  |     |                         |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|--------------------------------------------------------------------- |  | ---------------- | --- | ----------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                                                                      |  | Pension Benefits |     | Postretirement Benefits
|                                                                      |  |                  |     |                        
|                                                                      |  | 2005             |     | 2004                    |  | 2003 |     | 2005 |  | 2004 |     | 2003
|                                                                      |  |                  |     |                         |  |      |     |      |  |      |     |     
|Weighted-average assumptions used to determine net benefit
    costs: |  |                  |     |                         |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|Discount rate                                                         |  |                  | 6.0 | %                       |  |      | 6.0 | %    |  |      | 6.5 | %    |  |  | 6.0 | % |  |  | 6.0 | % |  |  | 6.5 | %
|Expected return on plan assets                                        |  |                  | 8.5 | %                       |  |      | 8.5 | %    |  |      | 8.5 | %    |  |  |    |   |  |  |    |   |  |  |    |  
|Average rate of compensation increase                                 |  |                  |    |                         |  |      |    |      |  |      | 3.0 | %    |  |  |    |   |  |  |    |   |  |  |    |  

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                    |  |                  |     |                         |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|----------------------------------------------------------------------------------- |  | ---------------- | --- | ----------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                                                                                    |  | Pension Benefits |     | Postretirement Benefits
|                                                                                    |  |                  |     |                        
|                                                                                    |  | 2005             |     | 2004                    |  | 2003 |     | 2005 |  | 2004 |     | 2003
|                                                                                    |  |                  |     |                         |  |      |     |      |  |      |     |     
|Weighted-average assumptions used to determine benefit
    obligations at year end: |  |                  |     |                         |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|Discount rate                                                                       |  |                  | 5.5 | %                       |  |      | 6.0 | %    |  |      | 6.0 | %    |  |  | 5.5 | % |  |  | 6.0 | % |  |  | 6.0 | %
|Average rate of compensation increase                                               |  |                  |    |                         |  |      |    |      |  |      |    |      |  |  |    |   |  |  |    |   |  |  |    |  





|           |  |  |     |  
|---------- |  |  | --- | -
|One year   |  |  | 5.6 | %
|Five years |  |  | 6.4 | %
|Ten years  |  |  | 8.9 | %



|                  |  |      |    |             |  |  |    |  
|----------------- |  | ---- | -- | ----------- |  |  | -- | -
|                  |  | 2005 |    | 2006 Target
|                  |  |      |    |            
|Asset Category    |  |      |    |             |  |  |    |  
|Equity Securities |  |      | 56 | %           |  |  | 55 | %
|Fixed Income      |  |      | 44 | %           |  |  | 45 | %



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                              |  |               |      | 
|----------------------------- |  | ------------- | ---- | 
|                              |  | (In millions)
|Investments                   |  |               |      | 
|Large cap equities            |  | $             | 23.0 | 
|Small cap equities            |  |               | 8.5  | 
|International equities        |  |               | 7.4  | 
|High yield bonds              |  |               | 5.5  | 
|Fixed income/bond investments |  |               | 24.2 | 
|Cash                          |  |               | .4   | 
|                              |  |               |      | 
|Total                         |  | $             | 69.0 | 
|                              |  |               |      | 



|          |  |                 |      |                 |  |                 |      |                |  |   |     |  |  |   |    | 
|--------- |  | --------------- | ---- | --------------- |  | --------------- | ---- | -------------- |  | - | --- |  |  | - | -- | 
|          |  | Retirement Plan |      | Hourly          |  | Supplemental    |      |               
|          |  | for Salaried    |      | Employees       |  | Executive       |      |               
|          |  | Employees       |      | Retirement Plan |  | Retirement Plan |      | Postretirement
|          |  |                 |      |                 |  |                 |      |               
|          |  | (In millions)  
|2006      |  | $               | 1.8  |                 |  | $               | 1.2  |                |  | $ | .3  |  |  | $ | .3 | 
|2007      |  |                 | 2.0  |                 |  |                 | 1.4  |                |  |   | .3  |  |  |   | .2 | 
|2008      |  |                 | 2.2  |                 |  |                 | 1.5  |                |  |   | .3  |  |  |   | .2 | 
|2009      |  |                 | 2.3  |                 |  |                 | 1.7  |                |  |   | .3  |  |  |   | .2 | 
|2010      |  |                 | 2.6  |                 |  |                 | 1.9  |                |  |   | .3  |  |  |   | .2 | 
|2011-2015 |  |                 | 17.0 |                 |  |                 | 12.9 |                |  |   | 1.1 |  |  |   | .6 | 



|                                         |  |                  |        |                         |  |      |        |      |  |      |        |      |  |   |      |   |  |   |      |   |  |   |      |  
|---------------------------------------- |  | ---------------- | ------ | ----------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                                         |  | Pension Benefits |        | Postretirement Benefits
|                                         |  |                  |        |                        
|                                         |  | 2005             |        | 2004                    |  | 2003 |        | 2005 |  | 2004 |        | 2003
|                                         |  |                  |        |                         |  |      |        |      |  |      |        |     
|                                         |  | (In thousands)  
|Components of net periodic (income) cost |  |                  |        |                         |  |      |        |      |  |      |        |      |  |   |      |   |  |   |      |   |  |   |      |  
|Service cost                             |  | $                | 784    |                         |  | $    | 834    |      |  | $    | 771    |      |  | $ | 59   |   |  | $ | 58   |   |  | $ | 60   |  
|Interest cost                            |  |                  | 5,191  |                         |  |      | 4,877  |      |  |      | 4,624  |      |  |   | 117  |   |  |   | 215  |   |  |   | 289  |  
|Expected return on plan assets           |  |                  | (5,865 | )                       |  |      | (5,832 | )    |  |      | (5,760 | )    |  |   |     |   |  |   |     |   |  |   |     |  
|Amortization of prior service cost       |  |                  | 268    |                         |  |      | 268    |      |  |      | 268    |      |  |   | (65  | ) |  |   | (65  | ) |  |   | (65  | )
|Recognized net actuarial (gain)          |  |                  | 1,347  |                         |  |      | 858    |      |  |      | 159    |      |  |   | (145 | ) |  |   | (246 | ) |  |   | (246 | )
|Amortization of transition obligation    |  |                  |       |                         |  |      |       |      |  |      | (107   | )    |  |   |     |   |  |   |     |   |  |   |     |  
|                                         |  |                  |        |                         |  |      |        |      |  |      |        |      |  |   |      |   |  |   |      |   |  |   |      |  
|Net periodic (income) cost               |  | $                | 1,725  |                         |  | $    | 1,005  |      |  | $    | (45    | )    |  | $ | (34  | ) |  | $ | (38  | ) |  | $ | 38   |  
|                                         |  |                  |        |                         |  |      |        |      |  |      |        |      |  |   |      |   |  |   |      |   |  |   |      |  

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                             |  |               |      |      |  |             |      |     |  |     |      |             |  |   |      |  |  |   |      |  |  |   |      | 
|------------------------------------------------------------ |  | ------------- | ---- | ---- |  | ----------- | ---- | --- |  | --- | ---- | ----------- |  | - | ---- |  |  | - | ---- |  |  | - | ---- | 
|                                                             |  | 2005          |      | 2004
|                                                             |  |               |      |     
|                                                             |  | PBO           |      | ABO  |  | Plan Assets |      | PBO |  | ABO |      | Plan Assets
|                                                             |  |               |      |      |  |             |      |     |  |     |      |            
|                                                             |  | (In millions)
|Supplemental Executive Retirement Plan                       |  | $             | 3.3  |      |  | $           | 3.3  |     |  |     |     |             |  | $ | 3.1  |  |  | $ | 3.1  |  |  |   |     | 
|Hourly Employees Retirement Plan of Nashua Corporation       |  | $             | 43.7 |      |  | $           | 43.7 |     |  | $   | 31.4 |             |  | $ | 36.3 |  |  | $ | 36.3 |  |  | $ | 31.0 | 
|Retirement Plan for Salaried Employees of Nashua Corporation |  | $             | 54.2 |      |  | $           | 54.2 |     |  | $   | 37.6 |             |  | $ | 47.3 |  |  | $ | 47.3 |  |  | $ | 37.8 | 



|                                                        |  |                |     |                |  |   |      |  
|------------------------------------------------------- |  | -------------- | --- | -------------- |  | - | ---- | -
|                                                        |  | 1-Percentage   |     | 1-Percentage  
|                                                        |  | Point Increase |     | Point Decrease
|                                                        |  |                |     |               
|                                                        |  | (In thousands)
|Effect on total of service and interest cost components |  | $              | 7   |                |  | $ | (7   | )
|Effect on accumulated postretirement benefit obligation |  | $              | 123 |                |  | $ | (113 | )













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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                             
|-------- | ----------------------------
|Note 12: | 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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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                         |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |      |     |      |     |   |     |      |    |   |      |      |       |   |      |      |       |   |      |      |       | 
|------------------------ | -------------------------------------------------------------- | ------------- | ----- | ---------------------------- | ----- | ------------------- | ----- | ------------------ | ----- | ---- | ----- | ---- | ----- | ---- | ---- | ---- | --- | ---- | --- | ---- | --- | - | --- | ---- | -- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | 
|                         |                                                                |               |       |                              |       |                     |       | Income (Loss) from |       |      |       |      |       |     
|                         |                                                                |               |       | Continuing Operations Before |       |                    
|                         |                                                                | Net Sales     |       | Income Taxes                 |       | Identifiable Assets
|                         |                                                                |               |       |                              |       |                    
|                         |                                                                | 2005          |       | 2004                         |       | 2003                |       | 2005               |       | 2004 |       | 2003 |       | 2005 |      | 2004 |     | 2003
|                         |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |     
|                         |                                                                | (In millions)
|By Reportable Segment:   |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |      |     |      |     |   |     |      |    |   |      |      |       |   |      |      |       |   |      |     
|Label Products           |                                                                | $             | 109.0 |                              |       | $                   | 104.3 |                    |       | $    | 101.8 |      |       | $    | 5.4  |      |     | $    | 7.6 |      |     | $ | 5.8 |      |    | $ | 50.7 |      |       | $ | 48.5 |      |       | $ | 48.2 |     
|Specialty Paper Products |                                                                |               | 166.7 |                              |       |                     | 168.0 |                    |       |      | 169.0 |      |       |      | 4.1  |      |     |      | 6.2 |      |     |   | 4.4 |      |    |   | 62.9 |      |       |   | 67.5 |      |       |   | 63.9 |     
|Imaging Supplies         |                                                                |               | 23.9  |                              |       |                     | 22.1  |                    |       |      | 23.5  |      |       |      | (2.2 | )    |     |      | (.2 | )    |     |   | .4  |      |    |   | 8.8  |      |       |   | 11.0 |      |       |   | 12.5 |     
|Reconciling Items:       |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |      |     |      |     |   |     |      |    |   |      |      |       |   |      |      |       |   |      |     
|                         | Eliminations                                                   |               |       | (4.7                         | )     |                     |       | (5.2               | )     |      |       | (5.4 | )     |      |      |     |     |      |     |     |     |   |     |     |    |   |      |     |       |   |      |     |       |   |      |     |      
|                         | Other(1)                                                       |               |       |                             |       |                     |       |                   |       |      |       |     |       |      |      | .1   |     |      |     |     |     |   |     |     |    |   |      |     |       |   |      |     |       |   |      |     |      
|                         | Unallocated corporate expenses and assets                      |               |       |                             |       |                     |       |                   |       |      |       |     |       |      |      | (6.4 | )   |      |     | (7.4 | )   |   |     | (7.6 | )  |   |      | 22.5 |       |   |      | 24.4 |       |   |      | 27.1 |      
|                         | Interest expense, net                                          |               |       |                             |       |                     |       |                   |       |      |       |     |       |      |      | (1.8 | )   |      |     | (1.0 | )   |   |     | (1.3 | )  |   |      |     |       |   |      |     |       |   |      |     |      
|                         | Net gain on curtailment/freeze of pension/postretirement plans |               |       |                             |       |                     |       |                   |       |      |       |     |       |      |      |     |     |      |     | 1.0  |     |   |     | (1.6 | )  |   |      |     |       |   |      |     |       |   |      |     |      
|                         | Restructuring and other unusual items                          |               |       |                             |       |                     |       |                   |       |      |       |     |       |      |      |     |     |      |     |     |     |   |     | .1   |    |   |      |     |       |   |      |     |       |   |      |     |      
|                         |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |      |     |      |     |   |     |      |    |   |      |      |       |   |      |      |       |   |      |     
|                         |                                                                | Consolidated  |       | $                            | 294.9 |                     |       | $                  | 289.2 |      |       | $    | 288.9 |      |      | $    | (.8 | )    |     | $    | 6.2 |   |     | $    | .2 |   |      | $    | 144.9 |   |      | $    | 151.4 |   |      | $    | 151.7 | 
|                         |                                                                |               |       |                              |       |                     |       |                    |       |      |       |      |       |      |      |      |     |      |     |      |     |   |     |      |    |   |      |      |       |   |      |      |       |   |      |     






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



|                         |           |                      |     |                |     |      |     |      |     |      |     |      |     |   |     |    |     |   |     |    |     |   |     |    |     | 
|------------------------ | --------- | -------------------- | --- | -------------- | --- | ---- | --- | ---- | --- | ---- | --- | ---- | --- | - | --- | -- | --- | - | --- | -- | --- | - | --- | -- | --- | 
|                         |           |                      |     | Depreciation &
|                         |           | Capital Expenditures |     | Amortization  
|                         |           |                      |     |               
|                         |           | 2005                 |     | 2004           |     | 2003 |     | 2005 |     | 2004 |     | 2003
|                         |           |                      |     |                |     |      |     |      |     |      |     |     
|                         |           | (In millions)       
|Label Products           |           | $                    | 1.0 |                |     | $    | 2.1 |      |     | $    | 2.2 |      |     | $ | 2.8 |    |     | $ | 2.5 |    |     | $ | 2.4 |   
|Specialty Paper Products |           |                      | 2.7 |                |     |      | 3.9 |      |     |      | 1.0 |      |     |   | 3.3 |    |     |   | 3.7 |    |     |   | 3.8 |   
|Imaging Supplies         |           |                      |    |                |     |      | .4  |      |     |      | .4  |      |     |   | 2.9 |    |     |   | 1.3 |    |     |   | 1.4 |   
|Reconciling Items:       |           |                      |     |                |     |      |     |      |     |      |     |      |     |   |     |    |     |   |     |    |     |   |     |   
|                         | Corporate |                      |     | .1             |     |      |     | .2   |     |      |     | .7   |     |   |     | .5 |     |   |     | .4 |     |   |     | .3 |    
|                         |           |                      |     |                |     |      |     |      |     |      |     |      |     |   |     |    |     |   |     |    |     |   |     |   
|                         |           | Consolidated         |     | $              | 3.8 |      |     | $    | 6.6 |      |     | $    | 4.3 |   |     | $  | 9.5 |   |     | $  | 7.9 |   |     | $  | 7.9 | 
|                         |           |                      |     |                |     |      |     |      |     |      |     |      |     |   |     |    |     |   |     |    |     |   |     |   

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                   |                         |                       |       |                   |       |      |       |      |       |      |       |      |       |   |      |      |      |   |      |     |      |   |      |      |      | 
|------------------ | ----------------------- | --------------------- | ----- | ----------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | - | ---- | ---- | ---- | - | ---- | --- | ---- | - | ---- | ---- | ---- | 
|                   |                         | Net Sales from        |       |                  
|                   |                         | Continuing Operations |       | Long-Lived Assets
|                   |                         |                       |       |                  
|                   |                         | 2005                  |       | 2004              |       | 2003 |       | 2005 |       | 2004 |       | 2003
|                   |                         |                       |       |                   |       |      |       |      |       |      |       |     
|                   |                         | (In millions)        
|By Geographic Area |                         |                       |       |                   |       |      |       |      |       |      |       |      |       |   |      |      |      |   |      |     |      |   |      |     
|United States      |                         | $                     | 294.9 |                   |       | $    | 289.2 |      |       | $    | 288.9 |      |       | $ | 72.7 |      |      | $ | 75.3 |     |      | $ | 79.0 |     
|Reconciling Items: |                         |                       |       |                   |       |      |       |      |       |      |       |      |       |   |      |      |      |   |      |     |      |   |      |     
|                   | Discontinued Operations |                       |       |                  |       |      |       |     |       |      |       |     |       |   |      | 1.5  |      |   |      | 1.5 |      |   |      | 1.5  |     
|                   | Deferred tax assets     |                       |       |                  |       |      |       |     |       |      |       |     |       |   |      | 10.9 |      |   |      | 8.9 |      |   |      | 10.8 |     
|                   |                         |                       |       |                   |       |      |       |      |       |      |       |      |       |   |      |      |      |   |      |     |      |   |      |     
|                   |                         | Consolidated          |       | $                 | 294.9 |      |       | $    | 289.2 |      |       | $    | 288.9 |   |      | $    | 85.1 |   |      | $   | 85.7 |   |      | $    | 91.3 | 
|                   |                         |                       |       |                   |       |      |       |      |       |      |       |      |       |   |      |      |      |   |      |     |      |   |      |     





|         |                                        
|-------- | ---------------------------------------
|Note 13: | Quarterly Operating Results (Unaudited)

13-week


|        |                                                |                                                |   |         |      |         |   |         |     |      |   |        |     |  |   |        |      |   |   |         |      |  
|------- | ---------------------------------------------- | ---------------------------------------------- | - | ------- | ---- | ------- | - | ------- | --- | ---- | - | ------ | --- |  | - | ------ | ---- | - | - | ------- | ---- | -
|        |                                                | 1st                                            |   | 2nd     |      | 3rd     |   | 4th     |     |     
|        |                                                | Quarter                                        |   | Quarter |      | Quarter |   | Quarter |     | Year
|        |                                                |                                                |   |         |      |         |   |         |     |     
|        |                                                | (In millions, except per share data)          
|2005(1) |                                                |                                                |   |         |      |         |   |         |     |      |   |        |     |  |   |        |      |   |   |        
|        | Net sales                                      |                                                | $ | 73,177  |      |         | $ | 73,234  |     |      | $ | 74,249 |     |  | $ | 74,204 |      |   | $ | 294,864 |     
|        | Gross margin(2)                                |                                                |   | 11,505  |      |         |   | 12,098  |     |      |   | 12,598 |     |  |   | 11,382 |      |   |   | 47,583  |     
|        | Income (loss) from continuing operations(2)(3) |                                                |   | (1,620  | )    |         |   | 168     |     |      |   | 843    |     |  |   | (30    | )    |   |   | (639    | )   
|        | Income from discontinued operations(4)         |                                                |   |        |      |         |   | 1,235   |     |      |   |       |     |  |   |       |      |   |   | 1,235   |     
|        | Net income (loss)(2)(3)(4)                     |                                                |   | (1,620  | )    |         |   | 1,403   |     |      |   | 843    |     |  |   | (30    | )    |   |   | 596     |     
|        | Earnings (loss) per common share:              |                                                |   |         |      |         |   |         |     |      |   |        |     |  |   |        |      |   |   |         |     
|        |                                                | Continuing operations(2)(3)                    |   |         | (.26 | )       |   |         | .03 |      |   |        | .14 |  |   |        | (.01 | ) |   |         | (.10 | )
|        |                                                | Discontinued operations(4)                     |   |         |     |         |   |         | .20 |      |   |        |    |  |   |        |     |   |   |         | .20  |  
|        |                                                | Net income (loss)(2)(3)(4)                     |   |         | (.26 | )       |   |         | .23 |      |   |        | .14 |  |   |        | (.01 | ) |   |         | .10  |  
|        |                                                | Continuing operations, assuming dilution(2)(3) |   |         | (.26 | )       |   |         | .03 |      |   |        | .14 |  |   |        | (.01 | ) |   |         | (.10 | )
|        |                                                | Discontinued operations, assuming dilution(4)  |   |         |     |         |   |         | .20 |      |   |        |    |  |   |        |     |   |   |         | .20  |  
|        |                                                | Net income (loss), assuming dilution(2)(3)(4)  |   |         | (.26 | )       |   |         | .23 |      |   |        | .14 |  |   |        | (.01 | ) |   |         | .10  |  
|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 (loss)                              |                                                |   | 931     |      |         |   | 941     |     |      |   | 1,669  |     |  |   | 246    |      |   |   | 3,787   |     
|        | Earnings per common share:                     |                                                |   |         |      |         |   |         |     |      |   |        |     |  |   |        |      |   |   |         |     
|        |                                                | Net income                                     |   |         | .16  |         |   |         | .16 |      |   |        | .28 |  |   |        | .04  |   |   |         | .63  |  
|        |                                                | Net income, assuming dilution                  |   |         | .15  |         |   |         | .16 |      |   |        | .27 |  |   |        | .04  |   |   |         | .62  |  






|    |                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | We acquired certain assets of LSI in June 2005, as described in
    Note 2. The operations of LSI have been included in our
    quarterly operating results since the date of acquisition.                                                    
|   
|(2) | Our gross margin in the second, third and fourth quarters
    include accelerated depreciation of $.5 million per quarter
    related to our decision to exit the toner and developer business
    by March 31, 2006.                         
|   
|(3) | Our first quarter includes special charges of $1.6 million
    resulting from a severance charge and a net loss on curtailment
    of pension plans of $.4 million, both related to our
    decision to exit the toner and developer business.
|   
|(4) | Income from discontinued operations represents a
    $1.2 million tax benefit related to the settlement of
    outstanding Internal Revenue Service audits from the years
    1995-2000.                                                      

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NASHUA CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                
|-------- | ---------------
|Note 14: | Related Parties

Leases with Related Parties






Notes Payable to Related Parties




Loans to Related Parties




|                                                                             |  |                |       | 
|---------------------------------------------------------------------------- |  | -------------- | ----- | 
|                                                                             |  | Total Related 
|                                                                             |  | Party         
|                                                                             |  |               
|                                                                             |  | (In thousands)
|Acquired upon acquisition of Rittenhouse Paper Company on
    April 17, 2000 |  | $              | 195   | 
|Net premiums paid in 2001                                                    |  |                | 214   | 
|Net premiums paid in 2002                                                    |  |                | 250   | 
|Net premiums paid in 2003                                                    |  |                | 235   | 
|Net premiums paid in 2004                                                    |  |                | 63    | 
|Net premiums paid in 2005                                                    |  |                | 58    | 
|                                                                             |  |                |       | 
|Balance at December 31, 2005                                                 |  | $              | 1,015 | 
|                                                                             |  |                |       | 
|Collaterized cash surrender value of life insurance policy                   |  | $              | 870   | 
|                                                                             |  |                |       | 





|         |                 
|-------- | ----------------
|Note 15: | Subsequent Event



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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, 2005: |                                 |                |   |           |  |            |   |             |     |  |   |      |      |  |   |    
|                   | Allowance for doubtful accounts |                | $ | 654       |  |            | $ | 528         | (a) |  | $ | (331 | )(b) |  | $ | 851 | 
|DECEMBER 31, 2004: |                                 |                |   |           |  |            |   |             |     |  |   |      |      |  |   |    
|                   | Allowance for doubtful accounts |                | $ | 861       |  |            | $ | 105         | (a) |  | $ | (312 | )(b) |  | $ | 654 | 
|DECEMBER 31, 2003: |                                 |                |   |           |  |            |   |             |     |  |   |      |      |  |   |    
|                   | Allowance for doubtful accounts |                | $ | 677       |  |            | $ | 432         | (a) |  | $ | (248 | )(b) |  | $ | 861 | 






|    |  |                                                               
|--- |  | --------------------------------------------------------------
|(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

13a-15(e) 15d-15(e)









|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







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

Directors




Executive Officers of the Registrant


10-K.


Code of Ethics


S-K,


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

S-K







|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|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

10-K:




| |                          
| | -------------------------
| | (1) Financial statements:



| |   |                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------
| |  | Consolidated Statements of Operations for each of the three
    years ended December 31, 2005, 2004 and 2003          
|
| |  | Consolidated Balance Sheets at December 31, 2005 and
    December 31, 2004                                            
|
| |  | Consolidated Statements of Shareholders Equity for each of
    the three years ended December 31, 2005, 2004 and 2003
|
| |  | Consolidated Statements of Cash Flows for each of the three
    years ended December 31, 2005, 2004 and 2003          
|
| |  | Notes to Consolidated Financial Statements                                                                            
|
| |  | Report of Independent Registered Public Accounting Firm                                                               



| |                                  
| | ---------------------------------
| | (2) Financial statement schedule:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Schedule II  Valuation and qualifying accounts
    for each of the three years ended December 31, 2005, 2004
    and 2003

10-K.


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| |              
| | -------------
| | (3) 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 Agreement, dated March 1, 2002 by and among Nashua
    Corporation, LaSalle Bank, NA and Fleet National Bank, a Bank of
    America Company. 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, a
    Bank of America Company, 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, a Bank of America Company, 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, a Bank of America Company, 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, a Bank of America Company, 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, a
    Bank of America Company, 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 9,
    2004 by and among Nashua Corporation, Fleet National Bank, a
    Bank of America Company, 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.   
|
| | 4   | .08 |  | Seventh Amendment to Credit Agreement dated as of April 14,
    2005, among Nashua Corporation, Fleet National Bank, a Bank of
    America Company, and LaSalle Bank National Association.
    Incorporated by reference to our current report on Form 8-K
    dated April 14, 2005 and filed April 20, 2005.              
|
| | +10 | .01 |  | 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 | .02 |  | 1999 Shareholder Value Plan. Incorporated by reference to
    our Quarterly Report on Form 10-Q for the quarter ended
    April 2, 1999.                                                                                                                                                                                   
|
| | +10 | .03 |  | 2004 Value Creation Incentive Plan. Incorporated by reference to
    our Proxy Statement dated March 23, 2004.                                                                                                                                                                                                             
|
| | +10 | .04 |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Andrew B.
    Albert. Incorporated by reference to our Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                        
|
| | +10 | .05 |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and John L.
    Patenaude. Incorporated by reference to our Annual Report on
    Form 10-K for the year ended December 31, 2004.                                                                                       

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##### Table of Contents



| |     |      |  |                                                                                                                                                                                                                                                                           
| | --- | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | +10 | .06  |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Thomas R.
    Pagel. Incorporated by reference to our Annual Report on
    Form 10-K for the year ended December 31, 2004.                                        
|
| | +10 | .07  |  | Change of Control and Severance Agreement, dated as of
    June 15, 2004 between Nashua Corporation and Margaret S.
    Adams. Incorporated by reference to our Annual Report on
    Form 10-K for the year ended December 31, 2004.                                      
|
| | +10 | .08  |  | Change of Control and Severance Agreement, dated as of
    January 5, 2005, between Nashua Corporation and Donna J.
    DiGiovine. Incorporated by reference to our Quarterly Report on
    Form 10-Q for the quarter ended April 1, 2005.                                
|
| | +10 | .09  |  | Separation and General Release Agreement, dated as of
    March 9, 2005, between Nashua Corporation and Robert S.
    Amrein. Incorporated by reference to our Quarterly Report on
    Form 10-Q for the quarter ended April 1, 2005.                                     
|
| | +10 | .10  |  | Management Incentive Plan. Incorporated by reference to our
    Quarterly Report on Form 10-Q for the quarter ended
    April 1, 2005.                                                                                                                                    
|
| | +10 | .11  |  | 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 | .12  |  | 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  | .13  |  | 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  | .14* |  | Executive officer 2006 salaries.                                                                                                                                                                                                                                          
|
| | 10  | .15* |  | Summary of compensation arrangements with Directors.                                                                                                                                                                                                                      
|
| | 10  | .16  |  | Indemnification Agreement, dated as of February 11, 2004,
    between Nashua Corporation and Katun Corporation. Incorporated
    by reference to our Current Report on Form 8-K dated and
    filed August 9, 2005.                                                       
|
| | 21  | .01* |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                           
|
| | 23  | .01* |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                 
|
| | 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.                                                                                                        
|
| | 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.                                                                                                        
|
| | 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.                                                                                                              
|
| | 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.                                                                                                              








|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|+  | 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.

71



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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 24, 2006
|                                                    
|/s/ John L. PatenaudeJohn L. Patenaude               |  | Vice President-Finance and
    Chief Financial Officer
    (principal financial officer) |  | March 24, 2006
|                                                    
|/s/ Margaret M. CallanMargaret M. Callan             |  | Corporate Controller and
    Chief Accounting Officer
    (principal accounting officer) |  | March 24, 2006
|                                                    
|/s/ Avrum GrayAvrum Gray                             |  | Director                                                                                 |  | March 24, 2006
|                                                    
|/s/ Mark E. SchwarzMark E. Schwarz                   |  | Director                                                                                 |  | March 24, 2006
|                                                    
|/s/ L. Scott BarnardL. Scott Barnard                 |  | Director                                                                                 |  | March 24, 2006
|                                                    
|/s/ George R. Mrkonic,
    Jr.George R. Mrkonic, Jr. |  | Director                                                                                 |  | March 24, 2006
|                                                    
|/s/ James F. Orr IIIJames F. Orr III                 |  | Director                                                                                 |  | March 24, 2006

72