<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-K

(Mark One)

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

                            For the fiscal year ended
                                DECEMBER 31, 2000
                                       or

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

For the transition period from                           to
                               -------------------------    --------------------

                         COMMISSION FILE NUMBER 1-5492-1
                               NASHUA CORPORATION
             (Exact name of Registrant as Specified in its Charter)

<TABLE>
<S>                                        <C>
            DELAWARE                                  02-0170100
   (State or Other Jurisdiction of         (IRS Employer Identification No.)
   Incorporation or Organization)

   11 TRAFALGAR SQUARE, SECOND FLOOR
         NASHUA, NEW HAMPSHIRE                           03063
(Address of Principal Executive Offices)               (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (603) 880-2323

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

<TABLE>
<S>                                          <C>
                                             Name of Each Exchange
Title of Each Class                          on Which Registered
-----------------------------                -----------------------
Common Stock, par value $1.00                New York Stock Exchange
</TABLE>

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

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

<TABLE>
<S>          <C>
Yes    X     No
     -----       -----
</TABLE>

                                    Continued
<PAGE>   2
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.(X)

     The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 26, 2001 was approximately $25,229,618. The number of
shares outstanding of the registrant's Common Stock as of March 26, 2001 was
5,833,783 (excluding 1,023,818 shares held in treasury).



                       DOCUMENTS INCORPORATED BY REFERENCE


Portions of the registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders of the registrant to be held on May 8, 2001, are incorporated by
reference into Part III of this Form 10-K.



                                      -2-
<PAGE>   3
                                     PART I

ITEM 1. BUSINESS

GENERAL

Nashua Corporation ("Nashua") manufactures and markets a wide variety of
specialty imaging products and services to industrial and commercial customers
to meet various print application needs.

         Nashua was incorporated in Massachusetts in 1904 and changed its state
of incorporation to Delaware in 1957. The Company has its principal executive
offices at 11 Trafalgar Square, Nashua, New Hampshire 03063 (Telephone: (603)
880-2323) and its Internet address is www.nashua.com. References to the
"Company" or to "Nashua" refer to Nashua Corporation and its consolidated
subsidiaries, unless the context otherwise requires.

         On April 17, 2000, the Company completed the acquisition of all
outstanding shares of stock of Rittenhouse Paper Company, an Illinois
corporation ("Rittenhouse"), pursuant to a Stock Purchase Agreement, dated March
21, 2000, by and among the Company, Rittenhouse and the stockholders of
Rittenhouse. Rittenhouse manufactures and markets a wide range of paper media,
pressure-sensitive labels and imaging supplies. In paper media, Rittenhouse is
primarily a converter of large rolls of paper into products such as cut/roll,
bond paper, thermal, point-of-sale, ATM and wide format papers. In labels, it
manufactures a wide assortment of pressure-sensitive labels and entertainment
tickets for both commercial and consumer use. In imaging supplies, it
manufactures and markets ribbons for use in imaging devices.

         Due to the continued decline in sales and profitability of the
Company's remanufactured laser cartridge operation, the Company discontinued
this product line in the first quarter of 2000. The Company recorded unusual
charges totaling $1.0 million for the year primarily comprised of severance and
other exit costs related to the discontinuance of this product line. The
operations of the remanufactured laser cartridge product line are included in
the Imaging Supplies segment.

OPERATING SEGMENTS

Beginning with the second quarter of 2000, the Company realigned operating
segments for financial reporting purposes due to the acquisition of Rittenhouse.
The Company now has three segments: (1) Imaging Supplies, (2) Specialty Paper
Products and (3) Label Products. The Imaging Supplies segment includes
remanufactured laser cartridge and toner and developer products and, effective
in the first quarter of 2000, the Company transferred responsibility for the
cut-sheet paper product line to the Specialty Paper Products segment. The Label
Products segment, formerly included in the Specialty Coated and Label Products
segment, includes pressure-sensitive laminated paper, entertainment tickets,
stickers, retail shelf tags and pressure-sensitive thermosensitive label product
lines. The Specialty Paper Products segment, which was also included in the
Specialty Coated and Label Products segment, is now reported as a separate
segment. The Specialty Paper Products segment's product scope includes thermal
papers, bond papers, carbonless paper, specialty printed papers, such as ATM
receipts and point-of-sale receipts, wide format papers, dry-gum papers, heat
seal papers and ribbons. Historical segment data has been restated to reflect
these changes. Consolidated net sales for 2000 from continuing operations were
$253.1 million.

         Set forth below is a brief summary of each of our three operating
segments, together with a description of their more significant products,
competitors and operations. Additional financial information regarding our
business segments is contained in the Note entitled "Information About
Operations" in the Company's Consolidated Financial Statements included in Item
8 of Part II of this Form 10-K.

Imaging Supplies Segment

Nashua's Imaging Supplies segment manufactures and sells a variety of consumable
products used in the process of producing hard copy images. Nashua's imaging
supplies product line is comprised primarily of high quality, competitively
priced toners and developers.


                                      -3-
<PAGE>   4
         Nashua markets its products worldwide under both the Nashua brand and
major private labels. Products are sold through a variety of distribution
channels. Sales of toner and developer to government agencies, machine service
providers, and print-for-pay type customers are made through both direct and
agent sales forces. Nashua also aligns itself with strategic partners who market
toner and developer in complementary market segments.

         Nashua's major competitors for toners and developers include Xerox
Corporation and Ricoh Corporation, each of which sells supplies for use in
machines manufactured by it. The Company also competes with other smaller
independent manufacturers of toner and developer products. This market segment
is competitive, with more sophisticated toner formulas and shorter copier
machine life cycles requiring timely product development and marketing. Strong
OEM patent protection on formulations and dispense mechanisms requires Nashua to
closely monitor new product development efforts in order to avoid patent
infringement.

         The Imaging Supplies segment depends on outside suppliers for most of
the raw materials used to produce its products. The segment purchases materials
from several suppliers and believes that adequate quantities of supplies are
available. There are no assurances that the Company's operating results would
not be adversely affected, however, by future increases in raw materials prices.

Specialty Paper Products Segment

Nashua's Specialty Paper Products segment manufactures and sells: (1) thermal
papers to printers and converters; (2) non-thermal papers; bond papers;
specialty printed papers, such as ATM receipts and point-of-sale receipts; wide
format papers; heat seal papers; Davac(R) dry-gum papers; carbonless papers; and
ribbons primarily to merchants, resellers, converters and end-users, and (3)
thermosensitive label products to fine paper merchants, converters and
end-users.

         Thermal papers develop an image upon contact with either a heated
stylus or a thermal print head. Thermal papers are used in point of sale
printers, airline and package identification systems, gaming and ticketing
systems, medical and industrial recording charts and for conversion to labels.
Another application for these papers is for use in thermal facsimile machines.
Competitors include major integrated companies such as Appleton Papers, Inc.,
Kanzaki Paper Mfg. Co., Ltd., Jujo Paper Co., Ltd. and Ricoh Corporation, as
well as several other manufacturers in the United States, Japan and Europe.

         Davac(R) dry-gummed paper is a paper which is coated with a
moisture-activated adhesive. Davac(R) dry-gummed paper is sold primarily to fine
paper merchants and business forms manufacturers. It is ultimately converted
into various types of labels and stamps. Major competitors in the dry-gummed
label industry include Brown-Bridge Company, Ivex Corporation and Spinnaker.

         The segment's thermosensitive label papers are coated with an adhesive
that is activated when heat is applied. These products are usually sold through
fine paper merchants who, in turn, resell them to printers who convert the
papers into labels for use primarily in the pharmaceutical industry.
Thermosensitive label papers are also used in bakery and meat packaging
applications.

         Wide format ink jet paper is a premium quality heavy weight paper
untreated or treated with either resin or non resin coatings which is sold to
merchants and resellers for use in graphic applications, signs, engineering
drawings, posters and presentations. Major competitors in the wide format ink
jet industry include Rexam PLC and Azon Corporation.

         Carbonless paper is a coated paper used in the production of multi-part
business forms which produce multiple copies without carbon paper. The product
is sold in sheet form through fine paper merchants and in roll form directly to
the printing industry, where it is converted into multi-part business forms.
Within the carbonless paper market, Nashua generally competes with large
integrated manufacturers including Appleton Papers, Inc., The Mead Corporation
and Imation Corporation.


                                      -4-
<PAGE>   5
         The Specialty Paper Products segment depends on outside suppliers for
most of the raw materials used to produce carbonless and thermal papers,
including paper to be converted and chemicals to be used in producing the
various coatings which Nashua applies. The Company purchases materials from
several suppliers and believes that adequate quantities of supplies are
available. There are no assurances that the Company's operating results would
not be adversely affected by future increases in the cost of raw materials or
sourced products.

Label Products Segment

Nashua's Label Products segment manufactures and sells: (1) pressure-sensitive
labels to merchants and end-users, (2) pressure-sensitive laminated papers to
label converters and (3) entertainment tickets, stickers and retail shelf tags
to merchants and end-users.

         Significant uses for pressure-sensitive labels include grocery scale
marking, inventory control, automatic identification, and address labels. The
Label Products segment is a major supplier of labels to the supermarket industry
and of labels used in the distribution and manufacture of a wide variety of
other products. The label industry is price-sensitive and competitive and
includes competitors such as Moore Corporation Ltd., Hobart Corporation, NCR and
UARCO, Inc. as well as numerous small regional converters.

         Pressure-sensitive laminated paper is sold to label converters and to
end-user in-house converting departments primarily for the supermarket industry.
Laminated paper is a combination of two papers and an adhesive. One paper is a
carrier strip called a liner upon which is laminated a face sheet. A variety of
adhesives bind the face sheet and the liner. Printing is done directly on the
face sheet using impact printing devices, thermal activism or a variety of ink
deposition techniques. Major competitors in the pressure-sensitive laminated
paper industry include: Avery Dennison Corporation, Spinnaker Industries Inc.,
Green Bay Packaging, Inc., Ricoh Corporation and Kanzaki Paper Mfg. Co.

         The Label Products segment depends on outside suppliers for most of the
raw material used to produce labels and label papers, including paper to be
converted and chemicals to be used in producing the various coatings which
Nashua applies. The Company purchases materials from several suppliers and
believes that adequate quantities of supplies are available. There are no
assurances that the Company's operating results would not be adversely affected
by future increases in the cost of raw materials or sourced products.

DEVELOPMENT OF NEW PRODUCTS

The Company's success depends in part on its ability to continue developing and
marketing new products. There can be no assurance that the Company will be able
to develop and introduce new products in a timely manner or that such products,
if developed, will achieve market acceptance. In addition, the Company's growth
is dependent on its ability to penetrate new markets and sell through
alternative channels of distribution. There can be no assurance that the markets
being served by the Company will continue to grow; that existing and new
products will meet the requirements of such markets; that the Company's products
will achieve customer acceptance in such markets; that competitors will not
force prices to an unacceptably low level or take market share from the Company;
or that the Company can achieve or maintain profits in its markets.

INTELLECTUAL PROPERTY

The Company's ability to compete may be affected by its ability to protect its
proprietary information, as well as its ability to design products outside the
scope of its competitors' intellectual property rights. The Company holds a
limited number of U.S. and foreign patents and there can be no assurance that
its patents will provide meaningful protection, nor can there be any assurance
that third parties will not assert infringement claims against the Company or
its customers in the future. If a third party does assert an infringement claim,
the Company may be required to expend significant resources to develop
non-infringing alternatives or to obtain licenses in respect of the matters that
are subject to the litigation. There can be no assurance that the Company would
be successful in such development or that any such licenses would be available
on commercially acceptable terms, if at all. In addition, such litigation could
be lengthy or costly and could have an adverse material effect on the Company's
financial condition or results of operations regardless of the outcome of such
litigation.


                                      -5-
<PAGE>   6
MANUFACTURING OPERATIONS

The Company operates manufacturing facilities in Nashua, New Hampshire;
Merrimack, New Hampshire; Omaha, Nebraska; Jefferson City, Tennessee;
Morristown, Tennessee; Vernon, California; and Hewitt, Texas. All of these sites
are unionized, except for the Tennessee and Texas locations. More information
regarding the operating segments and principal products produced at each
location can be found below in Item 2 of Part I of this Form 10-K. While we
believe that labor wage rates and worker productivity at each of these
manufacturing locations is competitive, there can be no assurance that future
operating results will not be adversely affected by changes in labor wage rates
or productivity.

RESEARCH AND DEVELOPMENT

Nashua's research and development efforts have been instrumental in the
development of many of the products it markets. The research efforts of each of
the Company's operating units are directed primarily toward developing new
products and processes and improving product performance, often in collaboration
with customers. The Company's research and development efforts support each
operating unit's patent and product development work focusing primarily on new
thermal coating applications in respect to the Specialty Paper Products segment
and new toner and developer formulations and toner cartridge design in respect
to the Imaging Supplies segment. Nashua's research and development expenditures
were $4.2 million in 2000, $5.1 million in 1999 and $5.9 million in 1998.

ENVIRONMENTAL MATTERS

The Company is subject to various environmental laws and regulations. These
include the Comprehensive Environmental Response, Compensation and Liability
Act, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"),
the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act and
other state and local counterparts of these statutes. The Company believes that
its operations have been and continue to be operating in compliance in all
material respects with applicable environmental laws and regulations.
Nevertheless, in the past and potentially in the future, the Company has and
could receive notices of alleged environmental violations. Violation of these
laws and regulations could result in substantial fines and penalties. The
Company has endeavored to promptly remedy any such violations upon notification.

         For the past five years, the Company has spent approximately $1.0
million per year for compliance with pertinent environmental laws and
regulations. In addition, for those sites which the Company has received
notification of the need to remediate, the Company has assessed its liability
and has established a reserve for estimated costs associated therewith. At
December 31, 2000 the reserves for potential environmental liabilities were $1.6
million for continuing operations and $.3 million for discontinued operations.
Liability of "potentially responsible parties" (PRP) under CERCLA and RCRA,
however, is joint and several, and actual remediation expenses at sites where
the Company is a PRP may exceed current estimates. The Company believes that,
based on the facts currently known to the Company and the environmental reserve
recorded, its remediation expense with respect to those sites and on-going costs
of compliance are not likely to have a material adverse effect on its
consolidated financial position or results of operations.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding the executive
officers of Nashua as of March 15, 2001:

<TABLE>
<CAPTION>
NAME                          AGE            POSITION
----                          ---            --------
<S>                           <C>            <C>
Andrew B. Albert              55             Chairman, President and Chief Executive Officer
John M. Kucharski             65             Vice Chairman
John L. Patenaude             51             Vice President-Finance, Chief Financial Officer and Treasurer
John J. Ireland               49             Vice President/President, Specialty Paper Products Division
Joseph R. Matson              53             Vice President, Corporate Controller
Robert S. Amrein              46             Vice President, General Counsel and Secretary
Donna J. DiGiovine            39             Vice President/President, Toner and Developer Products Division
Thomas R. Pagel               44             Vice President/President, Label Products Division
</TABLE>


                                      -6-
<PAGE>   7
         Mr. Albert has been Chairman of the Board, President and Chief
Executive Officer of Nashua since December 2000. He became President and Chief
Operating Officer in April 2000 when Nashua closed its acquisition of
Rittenhouse Paper Company. Prior to joining Nashua, he was Chairman and Chief
Executive Officer of Rittenhouse Paper Company since 1983.

         Mr. Kucharski has served as Vice Chairman since December 2000. He has
been a member of the Company's Board of Directors since 1988 and is the former
Chairman and Chief Executive Officer of EG&G, Inc. (currently Perkin Elmer,
Inc.).

         Mr. Patenaude has been the Vice President-Finance, Chief Financial
Officer and Treasurer of Nashua since May 1998. From July 1996 to May 1998, he
was Assistant Treasurer of the Company.

         Mr. Ireland has been a Vice President of Nashua since November 1995,
President of the Specialty Paper Products Division since April 1998 and its
General Manager since April 1994.

         Mr. Matson has been a Vice President of Nashua since May 1998 and its
Corporate Controller since July 1988.

         Mr. Amrein has been Vice President, General Counsel and Secretary of
Nashua since December 2000. Prior to joining Nashua he served as Chief Legal
Counsel for M/A-Com, Inc. from 1997 to 2000 and as General Counsel and Corporate
Secretary of Schneider Automation from 1988 to 1997.

         Ms. DiGiovine has been a Vice President of Nashua and President of the
Toner and Developer Products Division since December 1999 and its General
Manager since April 1999. She was Director of Marketing for the Imaging Supplies
segment from September 1998 to April 1999 and its Manager of Consumer Product
Marketing from July 1996 to September 1998.

         Mr. Pagel has been Vice President of Nashua and President of the Label
Products Division since February 2001. He became President of Nashua's Tennessee
Label operation in April 2000 when Nashua closed its acquisition of Rittenhouse
Paper Company. Prior to joining Nashua, he was President and Chief Operating
Officer of Rittenhouse Paper Company's Label Media Group.

         Executive officers are generally elected to their offices each year by
the Board of Directors shortly after the Annual Meeting of Shareholders.

EMPLOYEES

Nashua and its subsidiaries had approximately 1,140 full-time employees at
January 31, 2001. Approximately 476 employees of the Company are members of one
of several unions, principally the Paper, Allied-Industrial, Chemical and Energy
International Union. We believe our employee relations are good. There are three
agreements with the Paper, Allied-Industrial, Chemical and Energy International
Union covering approximately one-half of the Company's hourly employees. These
agreements have initial durations of two to four years, which expire on March
31, 2002 and March 30, 2003, respectively.

FOREIGN OPERATIONS

The Company sold its Photofinishing segment on April 9, 1998, and as a result
disposed of significant foreign operations as described more fully in the Note
to the Company's Consolidated Financial Statements entitled "Business Changes"
which is included in Item 8 of Part II of this Form 10-K. Accordingly,
information regarding long-lived assets by geographic region relating to the
Photofinishing segment is reported as discontinued operations in the Note to the
Company's Financial Statements entitled "Information About Operations" which is
included in Item 8 of Part II of this Form 10-K.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

Information provided by the Company in this Form 10-K may contain
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. The Company may also make forward-looking
statements in


                                      -7-
<PAGE>   8
other reports filed with the Securities and Exchange Commission, in materials
delivered to stockholders and in press releases. In addition, the Company's
representatives may from time to time make oral forward-looking statements.
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that is not directly related to
historical or current fact. Words such as "anticipates," "believes," "expects,"
"estimates," "intends," "plans," "projects," "can," "may" and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those anticipated. Such risks and
uncertainties include, but are not limited to, the Company's future capital
needs, stock market conditions, price of the Company's stock, fluctuations in
customer demand, intensity of competition from other vendors, timing and
acceptance of new product introductions, general economic and industry
conditions, delays or difficulties in programs designed to increase sales and
improve profitability, the settlement of various tax issues, the possibility of
a final award of material damages in the Cerion securities litigation and other
risks detailed in this Form 10-K and the Company's other filings with the
Securities and Exchange Commission. The Company assumes no obligation to update
the information contained in this Form 10-K or revise any forward-looking
statement.

ITEM 2.  PROPERTIES

Nashua's manufacturing facilities are located in the United States. Nashua
considers its properties to be in good operating condition and suitable for the
production of its products. Nashua relocated its corporate offices to a leased
facility located in Nashua, NH during the second quarter of 2000. The lease for
our corporate offices expires on May 30, 2005. Nashua relocated the
administrative offices and certain manufacturing departments of the Imaging
Supplies segment to a facility currently owned by the Company in Merrimack, NH.
A portion of the manufacturing of the Imaging Supplies segment is still located
at Front Street in Nashua, NH.

         The Company acquired several facilities as part of its acquisition of
Rittenhouse in April 2000.

         The principal manufacturing facilities of the Company are listed by
industry segment, location and principal products produced. Except as otherwise
noted, each of these facilities is owned by the Company.

PRINCIPAL PROPERTIES

<TABLE>
<CAPTION>
                                              TOTAL
                                              SQUARE         NATURE OF
LOCATION                                     FOOTAGE         PRODUCTS PRODUCED
--------                                     -------         -----------------
<S>                                         <C>              <C>
CORPORATE
Nashua, New Hampshire (leased)               18,000          none (corporate offices)

SPECIALTY PAPER PRODUCTS SEGMENT
Merrimack, New Hampshire                    475,000(1)       coated paper products
Jefferson City, Tennessee                   145,000(2)       converted paper products
Morristown, Tennessee (leased)               35,000(2)       converted paper products and warehousing
Vernon, California (leased)                  61,000(2)       converted paper products
Hewitt, Texas (leased)                       20,000(2)       converted paper products
Park Ridge, Illinois (leased)                17,000(2)       none (administrative offices)

LABEL PRODUCTS SEGMENT
Omaha, Nebraska                             170,000          label products
Jefferson City, Tennessee                    60,000(2)       label products

IMAGING SUPPLIES SEGMENT
Nashua, New Hampshire                       209,000          dry toner and developer products
Merrimack, New Hampshire                    112,000          dry toner and developer products
</TABLE>

(1)      The Specialty Coated Products Division utilizes approximately 315,000
         square feet and the remaining space is leased to third parties.

(2)      Former Rittenhouse facilities.




                                      -8-
<PAGE>   9
ITEM 3.  LEGAL PROCEEDINGS

In August and September 1996, two individual plaintiffs initiated lawsuits in
the Circuit Court of Cook County, Illinois against the Company, Cerion, certain
directors and officers of Cerion, and the Company's underwriter, on behalf of
classes consisting of all persons who purchased the common stock of Cerion
between May 24, 1996 and July 9, 1996. These two complaints were consolidated.
In March 1997, the same individual plaintiffs joined by a third plaintiff filed
a Consolidated Amended Class Action Complaint (the "Consolidated Complaint").
The Consolidated Complaint alleged that, in connection with Cerion's initial
public offering, the defendants issued materially false and misleading
statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In October 1997, the
Circuit Court on motion by the defendants, dismissed the Consolidated Complaint.
The plaintiffs filed a Second Amended Consolidated Complaint alleging
substantially similar claims as the Consolidated Complaint seeking damages and
injunctive relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended Consolidated Complaint.
The plaintiffs filed with the Appellate Court an appeal of the Circuit Court's
ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court's
ruling dismissing the Second Amended Consolidated Complaint. The Appellate Court
ruled that the Second Amended Consolidated Complaint stated a claim and remanded
the case to the Circuit Court for further proceedings. On December 27, 1999, the
Company filed a Petition for Leave to Appeal from the Appellate Court with the
Supreme Court of Illinois. In that Petition, the Company asked the Supreme Court
of Illinois to hear the Company's further appeal and determine whether the
Circuit Court or the Appellate Court is correct. That Petition was denied and
the case was remanded to the Circuit Court for trial. Discovery is in process.
The Company believes that the lawsuit is without merit and will continue to
defend itself in this matter.

         The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
estimate. At December 31, 2000, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.4 million to $1.6
million for certain of the Company's continuing operations, and a range of $.1
million to $.4 million for certain of the Company's discontinued operations.
These ranges are based, in part, on an allocation of certain sites' costs which,
due to the joint and several nature of the liability, could increase if the
other PRPs are unable to bear their allocated share. At December 31, 2000, the
Company's accrual balances were $1.6 million for continuing operations and $.3
million for discontinued operations, which represent, in management's view, the
most likely amounts within the ranges stated above. Based on information
currently available to the Company, management believes that it is probable that
the major responsible parties will fully pay the costs apportioned to them.
Management believes that, based on its financial position and the estimated
environmental accrual recorded, its remediation expense with respect to those
sites is not likely to have a material adverse effect on its consolidated
financial position or results of operations.

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

None.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK- HOLDER MATTERS

The Notes to the Company's Consolidated Financial Statements entitled
"Shareholder's Equity", "Quarterly Operating Results" and "Common Stock
Information," which are included in Item 8. of Part II of this Form 10-K include
information on the market for the registrant's common stock and related
stockholder matters.


                                      -9-
<PAGE>   10
ITEM 6.  SELECTED FINANCIAL DATA

                       NASHUA CORPORATION AND SUBSIDIARIES
                           FIVE YEAR FINANCIAL REVIEW

<TABLE>
<CAPTION>
(In thousands, except per share data,
 number of employees and percentages)                              2000          1999         1998          1997          1996
 ------------------------------------                              ----          ----         ----          ----          ----
<S>                                                             <C>          <C>           <C>           <C>           <C>
Operations(1)
Net sales                                                       $ 253,122    $ 170,844     $ 167,831     $ 173,202     $ 199,039
Gross margin percentage                                              20.1%        24.0%         24.3%         23.1%         20.6%
Selling, distribution and administrative expenses as a
  percentage of sales                                                19.5%        20.3%         20.3%         22.3%         21.7%
Income (loss) before interest and income taxes as a
  percentage of sales(2)                                              5.9%         2.1%         (6.9)%        (5.9)%        (4.5)%
Income (loss) before income taxes as a percentage of sales(2)         5.1%         1.7%         (7.1)%        (5.9)%        (5.8)%
Income (loss) as a percentage of sales(2)                             2.1%        (0.3)%        (4.3)%        (3.6)%        (3.7)%
Effective tax rate                                                   58.3%       114.6%        (39.5)%       (39.9)%       (36.4)%
Income (loss) before income taxes(2)                            $  12,914    $   2,883     $ (11,950)    $ (10,300)    $ (11,464)
Income (loss) after income taxes(2)                             $   5,386    $    (420)    $  (7,229)    $  (6,190)    $  (7,290)
Income (loss) from discontinued operations, net of tax               --      $  (4,001)    $  (6,687)    $  (2,632)    $     460
Gain on public stock offering, disposition of stock, and
  disposal of discontinued operation, net of taxes                   --           --       $   1,052          --       $  32,281
Extraordinary loss, net of taxes                                     --           --            --            --       $  (1,257)
Net income (loss)                                               $   5,386    $  (4,421)    $ (12,864)    $  (8,822)    $  24,194
Basic and diluted earnings (loss) per common share:
  Continuing operations(2)                                      $     .95    $   (0.07)    $   (1.15)    $    (.97)    $   (1.14)
  Discontinued operations                                            --      $   (0.70)    $   (1.06)    $    (.41)    $     .07
  Gain on public stock offering, disposition of stock, and
    disposal of discontinued operation, net of taxes                 --           --       $     .17          --       $    5.06
  Extraordinary loss, net of taxes                                   --           --            --            --       $    (.20)
  Net income (loss)                                             $     .95    $   (0.77)    $   (2.04)    $   (1.38)    $    3.79

Financial Position(1)
Working capital                                                 $  22,531    $  35,562     $  45,874     $  18,892     $  21,173
Total assets                                                    $ 170,471    $ 130,445     $ 134,095     $ 146,762     $ 176,689
Long-term debt                                                  $  35,905    $     511     $   1,064     $   3,489     $   2,044
Total debt                                                      $  45,711    $   1,022     $   1,575     $   4,000     $   2,855
Total capital employed                                          $ 118,048    $  67,848     $  76,802     $  99,022     $ 104,772
Total debt as a percentage of capital employed                       38.7%         1.5%          2.1%          4.0%          2.7%
Shareholders' equity                                            $  72,337    $  66,826     $  75,227     $  95,022     $ 101,917
Shareholders' equity per common share                           $   12.79    $   11.86     $   12.59     $   14.76     $   15.90

Other Selected Data(1)
Investment in plant and equipment                               $   9,625    $   7,855     $   6,702     $   4,418     $   5,877
Depreciation and amortization                                   $   9,304    $   6,381     $   6,846     $   7,554     $   9,045
Dividends per common share                                      $     .01         --            --            --            --
Return on average shareholders' equity                                7.7%        (6.2)%       (15.1)%        (9.0)%        27.4%
Common stock price range:
  High                                                          $   10.31    $   15.44     $   17.50     $   14.75     $   19.63
  Low                                                           $    3.56    $    6.56     $   11.56     $    9.50     $    9.13
  Year-end closing price                                        $    4.44    $    7.50     $   13.31     $   11.63     $   12.00
Number of employees from continuing operations                      1,140          729           725           768           874
Number of employees from discontinued operations                     --           --            --           1,273         1,524
Average common shares outstanding                                   5,649        5,718         6,320         6,385         6,376
</TABLE>

(1)      See "Business Changes" Note to Consolidated Financial Statements for a
         description of certain matters relevant to this data, including the
         acquisition of Rittenhouse Paper Company in April 2000.

(2)      Income (loss) is from continuing operations and includes restructuring
         and other unusual charges/(income) of $1.0 million and pension
         settlement income of $(18.6) million for 2000 (a combined 7.0% of
         sales), $(1.3) million for 1999 (.8% of sales), $13.8 million for 1998
         (8.2% of sales), $4.3 million for 1997 (2.5% of sales), and $(1.7)
         million for 1996 (0.9% of sales).


                                      -10-
<PAGE>   11
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

                                CORPORATE MATTERS

On April 17, 2000, the Company completed the acquisition of all outstanding
shares of stock of Rittenhouse Paper Company, an Illinois corporation
("Rittenhouse"), pursuant to a Stock Purchase Agreement, dated March 21, 2000,
by and among the Company, Rittenhouse and the stockholders of Rittenhouse.
Rittenhouse manufactures and markets a wide range of paper media,
pressure-sensitive labels and imaging supplies. In paper, Rittenhouse is
primarily a converter of large rolls of paper into products such as cut/roll,
bond paper, thermal, point-of-sale, ATM and wide format papers. In labels, it
manufactures a wide assortment of pressure-sensitive and entertainment tickets
for both commercial and consumer use. In imaging, it manufactures and markets
ribbons for use in imaging devices.

         Due to the continued decline in sales and profitability of the
Company's remanufactured laser cartridge operation, the Company discontinued
this product line in the first quarter of 2000. The Company recorded unusual
charges totaling $1.0 million for the year primarily comprised of severance and
other exit costs related to the discontinuance of this product line. The
operations of the remanufactured laser cartridge business are included in the
Imaging Supplies segment.

         In the first quarter of 2000, the Company recorded a pretax gain of
$18.6 million associated with the purchase of non-participating annuity
contracts from Principal Life Insurance Company to settle the Company's pension
benefit obligation with respect to the retired salaried and hourly employees
covered under its pension plans and receiving pension benefits as of December 1,
1999.

         On April 9, 1998, the Company completed the sale of its Photofinishing
segment. The Company received net proceeds of $49.9 million for the net assets
of the Photofinishing segment and, after recording taxes of $7.9 million,
recorded a gain of $1.1 million. The Company owns a 37.1 percent interest in the
Cerion Technologies Liquidating Trust, a trust established pursuant to the
liquidation of Cerion Technologies Inc. ("Cerion"), formerly a publicly held
company. On September 15, 1998, Cerion announced its decision to cease
operations and liquidate its assets. Accordingly, the Company no longer accounts
for its investment in Cerion under the equity method of accounting and has
accounted for its interest in Cerion based on its expected net realizable value
on an after tax basis, since the third quarter of 1998. At December 31, 2000,
1999 and 1998, the Company valued its investment in Cerion at $.8 million. For
the year ended December 31, 1998, the Company recognized a $4.5 million charge,
net of $2.2 million in taxes, of which a portion related to Nashua's share of
Cerion losses and the remainder related to the reduction in the Company's
investment in Cerion to its net realizable value, net of taxes. Results of
operations for Cerion and the Photofinishing segment are reported as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.


            RESULTS OF CONTINUING OPERATIONS - 2000 COMPARED TO 1999

Net sales improved to $253.1 million, a 48.2 percent increase over 1999 due to
the Rittenhouse acquisition. Excluding Rittenhouse, sales declined 9.6 percent
to $154.4 million, primarily due to the discontinuance of the remanufactured
laser cartridge product line and a decrease in toner sales within the Imaging
Supplies segment. Gross margin decreased to 20.1 percent in 2000 from 24.0
percent in 1999. Excluding Rittenhouse, gross margin declined to 20.6 percent
for 2000. The decline was primarily attributable to margin declines in the Label
Products and Imaging Supplies segments.

         The Company recorded net income from continuing operations of $5.4
million in 2000, compared to a net loss from continuing operations of $.4
million in 1999. The 2000 results included pension settlement pretax income of
$18.6 million and net restructuring and unusual charges of $1.0 million. The
1999 results included net restructuring and unusual pretax income of $1.3
million. The Company's pretax income, before restructuring and other unusual
charges and pension settlement income, declined $6.3 million from income of $1.6
million in 1999 to a loss of $4.7 million in 2000. The $6.3 million decrease in
2000 resulted from an increase in profitability of $2.0 million in the operating


                                      -11-
<PAGE>   12
segments offset by an increase of $8.3 million in Corporate expenses. The $2.0
million improvement in the operating segments resulted from increased
profitability in the Specialty Paper Products segment of $4.9 million and in the
Company's Projection System's business of $1.2 million, partially offset by
profitability declines of $2.6 million in the Imaging Supplies segment and $1.5
million in the Label segment. The increase in the profitability of the
Projection System's business was related to the sale of technology. The Company
expects to realize $.5 million of pretax income from the sale of technology in
2001. The increase in Corporate expenses was driven primarily by the business
acquisition, including increased net interest of $2.7 million, amortization of
goodwill and deferred financing costs of $1.3 million, additional corporate
overhead expenses of $1.7 million and integration costs of approximately $1.0
million. Corporate Administrative expenses were also impacted by an increase in
proxy related costs. Corporate overhead expenses, integration costs and proxy
solicitation fees are expected to decline in 2001.

         Restructuring and other unusual charges for 2000 of $1.0 million
consisted primarily of $1.0 million of exit costs associated with the
discontinuance of the laser cartridge product line, $.5 million from a 15
percent workforce reduction in the Imaging Supplies segment and $.5 million of
workforce reductions resulting from acquisition synergies, partially offset by
unusual income of $1.0 million resulting from the reversal of a loss accrual
relating to the settlement of the Ricoh Company, Ltd., Ricoh Electronics, Inc.,
and Ricoh Corporation (collectively "Ricoh") patent infringement lawsuit against
the Company.

         Details of the restructuring reserves related to continuing operations
and activity recorded during 2000 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                            Reserve
                                                                      Balance         Current             Current        Balance
                                                                     Dec. 31,           Year                Year        Dec. 31,
(In thousands)                                                         1999           Provision         Utilization       2000
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>               <C>             <C>
2000 Activity:
Provisions for severance related to workforce reductions                $123            $1,445            $  (854)         $714
Provisions for assets to be sold or discarded                              -               216               (216)            -
Other                                                                     86               184               (270)            -
                                                                       ---------------------------------------------------------
Total                                                                   $209            $1,845            $(1,340)         $714
                                                                        ========================================================
</TABLE>


         The 2000 provision for workforce reductions included amounts payable to
122 employees. The restructuring activities provided for in the balance at
December 31, 1999 were completed during 2000 and the amounts charged against the
reserve did not change materially from the reserve balance of $.2 million.

         Selling and distribution expenses increased 27.5 percent from the prior
year due to the acquisition of Rittenhouse. Excluding Rittenhouse, these
expenses declined 16.1 percent resulting from sales declines in the Imaging
Supplies segment. Administrative expenses increased 65.2 percent from the prior
year primarily due to the acquisition of Rittenhouse. Research and development
expenses decreased by 16.4 percent from the prior year primarily due to a
reduction in spending in the Imaging Supplies segment and a reduction in
Projection Systems development expenses. Interest expense increased $2.1 million
from 1999 due to the impact of borrowings incurred to finance the Rittenhouse
acquisition as described in the "Liquidity, Capital Resources and Financial
Condition" section of this report. Interest income decreased by $.6 million due
to the decreased cash balance resulting from the Rittenhouse acquisition.
Management expects interest expense to increase in 2001 due to a full year of
borrowings associated with the Rittenhouse acquisition and increased borrowings
in December of 2000 related to the settlement of the Ricoh patent infringement
lawsuit against the Company. Interest income is also expected to decline due to
the decreased cash balance at December 31, 2000.

         The effective tax rate for continuing operations was a provision of
58.3 percent compared to a provision of 114.6 percent in 1999. The 2000
effective tax rate is higher than the U.S. federal statutory rate primarily due
to non-deductible goodwill and the write-off of a tax asset associated with
expired tax losses.


                                      -12-
<PAGE>   13
Specialty Paper Products Segment

Effective during the first quarter of 2000, responsibility for the cut-sheet
paper product line was transferred from the Imaging Supplies segment to the
Specialty Paper Products segment. Segment information for the prior period has
been restated accordingly.

         The Specialty Paper Products segment reported a 109.4 percent increase
in sales for 2000 as a result of the Rittenhouse acquisition. Excluding
Rittenhouse and sales for the fax paper product line which was discontinued in
the third quarter of 1999, sales increased 3.1 percent due to increased volume
in the segment's thermal and carbonless product lines, which more than offset
volume declines in its cut-sheet paper product line. Improved customer retention
and new product introductions were the primary reasons for the sales
improvement. Pretax profit increased $4.9 million to $7.5 million for 2000, as a
result of the Rittenhouse acquisition. Excluding Rittenhouse pretax profit of
$3.3 million, segment pretax profit improved 61.5 percent due to improvements in
gross margin, resulting from lower manufacturing costs and higher volume in the
segment's thermal product line.


Label Products Segment

The Label Products segment reported a 33.7 percent increase in sales over 1999
due to the Rittenhouse acquisition. Excluding Rittenhouse, sales for the Label
Products segment were unchanged from the prior year. Increased volume in the
roll stock and supermarket label product lines, offset decreased volume in the
segment's EDP product lines. The segment's pretax income decreased 21.7 percent
to $5.4 million compared to $6.9 million in 1999. Excluding Rittenhouse pretax
profit of $2.1 million, segment pretax profit declined 52.2 percent from the
prior year. This decline was primarily due to a decline in the segment's gross
margin and a charge related to an environmental clean-up at the Company's Omaha,
Nebraska facility. An unfavorable mix of products sold, increased raw material
costs in its roll stock product line and decreased volume in its EDP product
lines were the primary reasons for the segment's decline in gross margin.


Imaging Supplies Segment

The Imaging Supplies segment reported a 32.1 percent decrease in sales from 1999
primarily the result of exiting the remanufactured laser cartridge product line
in the first quarter of 2000 and decreased sales of Xerox-compatible toners.
Sales for the remanufactured laser cartridge product line were $2.5 million in
2000, a decrease of $7.4 million from the prior year. Sales for the toner and
developer product line decreased $5.5 million or 18.0 percent on lower volume of
Xerox-compatible toners, resulting primarily from the loss of a major customer.
The segment's pretax loss for 2000 increased by $2.6 million to $4.2 million.
The increased pretax loss was primarily due to a decline in the segment's gross
margin resulting from lower sales volume and increased manufacturing costs
associated with underutilized capacity in the toner and developer product line.
The Company announced restructuring charges in the fourth quarter of 2000 and
the first quarter of 2001 of $.5 million and $.2 million, respectively, relating
primarily to workforce reductions. As a result of these workforce reductions
and other cost cutting initiatives, management expects to reduce annual
operating costs by approximately $2.5 million.

            RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED TO 1998

Net sales from continuing operations for 1999 were $170.8 million, a 1.8 percent
increase compared to 1998. This improvement in sales was primarily due to
increased volume in the Specialty Paper Products and Label Products segments
which more than offset volume shortfalls in the remanufactured laser cartridge
product line of the Imaging Supplies segment. Gross margin decreased to 24.0
percent in 1999 from 24.3 percent in 1998 due primarily to lower average selling
prices which more than offset the favorable effect of manufacturing cost
reduction programs, improved manufacturing efficiency and improved product mix.

         The Company recorded a net loss from continuing operations of $.4
million in 1999, compared to a net loss from continuing operations of $7.2
million in 1998. The 1999 results included net restructuring and unusual income
of $1.3 million. The 1998 results included net restructuring and unusual charges
of $13.8 million. The Company's pretax



                                      -13-
<PAGE>   14
operating results, before restructuring and other unusual charges, declined from
income of $1.9 million in 1998 to income of $1.6 million in 1999 due to lower
profitability in the Label Products segment of $.1 million and an increase in
Corporate expenses of $1.2 million which more than offset improved profitability
in the Imaging Supplies segment of $.7 million and a reduction in Projection
Systems development expenses of $.4 million.

         The restructuring and other unusual income for 1999 of $1.3 million
consisted primarily of $1.3 million in income from an insurance settlement
related to environmental matters, a gain of $.4 million from the sale of a
portion of the Company's Microsharp imaging technology and $.2 million of other
miscellaneous gains offset by a provision of $.6 million resulting from the
Company's decision to cease its manufacturing of fax papers.

         Details of the restructuring reserves related to continuing operations
and activity recorded during 1999 were as follows:

<TABLE>
<CAPTION>
                                                                       Reserve                                          Reserve
                                                                       Balance          Current           Current       Balance
                                                                       Dec. 31,           Year              Year        Dec. 31,
(In thousands)                                                           1998          Provision         Utilization      1999
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>             <C>               <C>             <C>
1999 Activity:
Provisions for severance related to workforce reductions                $472              $142            $  (491)        $123
Provisions for assets to be sold or discarded                              -               441               (441)           -
Other                                                                    149                32                (95)          86
                                                                        --------------------------------------------------------
Total                                                                   $621              $615            $(1,027)        $209
                                                                        ========================================================
</TABLE>

         The 1999 provision for workforce reductions included amounts payable to
nine employees related to the discontinuance of the fax manufacturing line in
the Specialty Paper Products segment. The restructuring activities provided for
in the balance at December 31, 1998 were substantially completed in 1999 and the
amounts charged against the reserve did not change materially from the reserve
balance of $.6 million.

         Selling and distribution expenses decreased 3.6 percent from the prior
year primarily due to the restructuring of the dealer-agent selling channel in
the Imaging Supplies segment. Administrative expenses increased 11.6 percent
from the prior year primarily due to increased costs related to corporate
administration. Research and development expenses decreased by 14.9 percent from
the prior year primarily due to a reduction in spending in the Imaging Supplies
segment and a reduction in Projection Systems development expenses. Interest
expense increased 97.1 percent from 1998 due to the accrual of interest expense
related to the Ricoh litigation as described in the "Litigation and Other
Matters" section of this report. Interest income decreased by 9.3 percent
primarily due to the decreased cash balance resulting from the share repurchase
program, which is described in the "Liquidity, Capital Resources and Financial
Condition" section of this report.

         The effective tax rate for continuing operations was a provision of
114.6 percent compared to a benefit of 39.5 percent in 1998. The tax rate was
greater than the U.S. federal statutory rate primarily due to charges of $2.1
million related to an increase of $.8 million to the tax valuation allowance for
state net operating loss carryforwards and the provision of $1.3 million to
provide a reserve for potential liabilities, based on recent developments
arising in the fourth quarter of 1999 with respect to open federal and state tax
audits.

Specialty Paper Products Segment

Effective during the first quarter of 2000, responsibility for the cut sheet
paper product line was transferred from the Imaging Supplies segment to the
Specialty Paper Products segment. Segment information for prior periods has been
restated accordingly.

         The Specialty Paper Products segment reported a 5.4 percent increase in
sales in 1999 compared to 1998 as a result of higher volume in its thermal paper
and cut-sheet paper product lines. Improved customer retention and new customer
initiatives were the primary reasons for the volume improvements. The segment



                                      -14-
<PAGE>   15
had declining sales in the fax paper, heat seal and dry gum product lines in
1999. During the year, two of Nashua's significant fax customers were acquired
by third parties. Nashua was unable to retain the related fax business after the
acquisitions. In turn, during the third quarter of 1999, Nashua made the
decision to cease manufacturing fax papers. The dry gum and heat seal sales
declines were primarily due to lower volume. The segment's pretax income was
unchanged from the prior year. Sales increases were offset by an unfavorable
product mix.

Label Products Segment

The Label Products segment reported an 8.3 percent increase in sales in 1999
compared to 1998 as a result of higher volume in converted label products.
Improved customer retention and new customer initiatives, primarily in the
supermarket thermal product line, were the primary reasons for the sales
improvement. The segment's pretax income decreased 1.4 percent compared to 1998,
primarily due to the impact of an increase in the reserves for certain
environmental exposures and the future collectibility of a large customer
receivable.

Imaging Supplies Segment

The Imaging Supplies segment reported a 7.2 percent decrease in sales from 1998
to 1999 primarily due to a reduction in volume in the remanufactured laser
cartridge product line and selling price reductions in the toner and developer
product lines. The remanufactured laser cartridge sales decline was primarily
volume driven due to the loss of two significant customers. Sales of
remanufactured laser cartridges declined 13.7 percent in 1999 when compared to
1998 which contributed to a pretax loss for this product line of approximately
$2.4 million in 1999 as compared to a pretax profit of $.4 million in 1998. As a
result of the declining operating performance of the remanufactured laser
cartridge business, on February 8, 2000, Nashua announced that it would
discontinue the manufacture of this product line. The segment's pretax loss in
1999 improved 30.4 percent over 1998 primarily due to lower selling and
administrative expenses related to the restructuring of the dealer-agent selling
channel in the toner and developer product lines.

              LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

Excluding the changes in assets and liabilities resulting from the acquisition
of Rittenhouse, cash used in operations totaled $1.1 million for the year ended
December 31, 2000, a decrease of $13.0 million over cash flows provided by
operations in 1999 of $11.9 million. This decline was primarily due to the
settlement of the Ricoh patent infringement lawsuit against the Company during
the fourth quarter of 2000. The Company paid $15.1 million of the $15.8 million
settlement in December of 2000, of which $5.0 million was funded by restricted
cash. The remaining $.7 million was paid in 2001. Operating cash flow generated
from decreases in accounts receivable and inventory, partially offset by
decreases in accounts payable, resulted primarily from the discontinuance of the
remanufactured laser cartridge product line and a decrease in toner sales within
the Imaging Supplies segment.

         Working capital decreased $13.0 million to $22.5 million at December
31, 2000. Cash and cash equivalents and restricted cash decreases and accounts
payable and short-term debt increases, more than offset a decrease in accruals
and increases in accounts receivable, inventory and taxes receivable. The
combined decrease in cash and cash equivalents and restricted cash of $29.0
million was primarily due to the Rittenhouse acquisition and the settlement of
the Ricoh patent infringement lawsuit against the Company. The decrease in
accruals was also related to the settlement of the Ricoh patent infringement
lawsuit. Taxes receivable includes $2.9 million relating to the Company's
decision to forego a tax election and to treat the acquisition of Rittenhouse as
a stock purchase versus an asset purchase for tax purposes, a $1.9 million U.K.
tax refund received in February of 2001 and $5.9 million consisting primarily of
tax refunds generated from the settlement of the Ricoh patent infringement
lawsuit against the Company.

         Net cash used in investing activities consisted primarily of the
acquisition of Rittenhouse, net of cash acquired, totaling $60.3 million and
capital expenditures of $9.6 million, offset by $1.9 million in proceeds from
the sale of certain real estate located in Nashua, N.H. The Company used $25.3
million, net of cash acquired of $1.5 million, during 2000 for the acquisition
of Rittenhouse and related expenses, as detailed in the "Business Changes" Note
to the Consolidated Financial Statements. The capital expenditures reflect
purchases of machinery and equipment in all segments and building improvements
in the Imaging Supplies segment.


                                      -15-
<PAGE>   16
         Net cash provided by financing activities of $44.6 million consisted
primarily of $35.0 million in borrowings used to fund the Rittenhouse
acquisition and borrowings used to finance the settlement of the Ricoh patent
infringement lawsuit against the Company.

         During April 2000, the Company entered into a new financing agreement
with Fleet Bank - NH and LaSalle Bank, NA as detailed in the "Indebtedness" Note
to the Consolidated Financial Statements. The Loan Agreement requires the
Company to maintain certain financial covenants such as Total Funded Debt to
earnings before interest, income taxes, depreciation and amortization and a
Fixed Charge Coverage Ratio. The Company was not in compliance with the above
quarterly financial covenants and received a waiver from the Banks for the
quarters ended September 29, 2000 and December 31, 2000. The Company and its
lender established more favorable covenants for the Company for 2001 and made
certain other changes to the financing agreement as described more fully in the
"Indebtedness" Note to the Consolidated Financial Statements. The aggregate
amounts of maturities on long-term debt for each of the next five years are as
follows: 2001 - $9.8 million; 2002 - $28.2 million; 2003 - $3.1 million; 2004 -
$3.1 million; and 2005 - $1.5 million. The Company expects to fund 2001
maturities using the proceeds from taxes receivable.

         Management believes that current cash and cash equivalents, cash flows
from operations and amounts available under the Company's financing agreement
are sufficient to fund its planned capital expenditures, working capital needs
and other cash requirements for 2001.

                          LITIGATION AND OTHER MATTERS

In December 1999, the Internal Revenue Service ("IRS") completed an examination
of the Company's corporate income tax returns for the years 1995 through 1997.
On December 16, 1999, the IRS issued a Notice of Proposed Adjustment which
assessed additional taxes of $5.2 million, excluding interest. The assessment
represents a total of $14.0 million of adjustments to taxable income for the
years under review. The proposed adjustments relate to the deductibility of
restructuring and other reserves applicable to continuing and discontinued
operations as well as the utilization of foreign net operating losses primarily
associated with discontinued operations. The Company disagrees with the position
taken by the IRS and filed a formal protest of the proposed adjustments on April
6, 2000. A hearing was held before the IRS Appeals Officer on March 14, 2001.

         In December 1998, the IRS completed an examination of the Company's
corporate income tax returns for the years 1992 through 1994. On December 11,
1998, the IRS issued a Notice of Proposed Adjustment which assessed additional
taxes of $4.6 million, excluding interest. The assessment represents a total of
$18.2 million of adjustments to taxable income for the years under review. The
proposed adjustments relate to the deductibility of restructuring and other
reserves applicable to discontinued operations as well as certain losses
deducted in connection with the divestiture of the Company's Computer Products
Division. The Company disagrees with the positions taken by the IRS and filed a
formal protest of the proposed adjustment on January 12, 1999. Formal hearings
were held before the IRS Appeals Officer on November 16, 1999 and March 14,
2001.

         On March 31, 1998, the New Hampshire Department of Revenue ("DOR")
issued a notice of deficiency in connection with an examination of the Company's
corporate income tax returns for the years 1989 through 1992 in the amount of
$4.4 million, including interest. The deficiency principally relates to the tax
treatment of the sale of the Company's International Office Systems business in
1990. A petition for reconsideration was filed with an appeals officer on May
26, 1998 and a formal hearing was held before the DOR officers on August 31,
1999. On October 27, 2000, the State of New Hampshire issued a revised
assessment of $1.8 million, including interest, in accordance with the New
Hampshire Department of Revenue hearing officer's final order. The Company
disagrees with the final order and on November 15, 2000 filed suit against the
New Hampshire Department of Revenue Administration in the New Hampshire Superior
Court.

         The Company believes that it will prevail in all material respects
against the IRS' assertions related to the corporate income tax returns filed
for years 1992 through 1994. In the fourth quarter of 1999, the Company recorded
a charge of $1.3 million in continuing operations, which included $.8 million of
interest, and a charge of $4.0 million in discontinued operations primarily to
provide for potential liabilities for tax deficiencies that could arise from
resolution of the IRS's examination of the corporate tax returns filed for years
1995 through 1997 and for resolution of New Hampshire DOR's examination of the
corporate income tax returns for years 1989 through 1992. While management


                                      -16-
<PAGE>   17
believes that it has provided adequately for its tax liabilities through
December 31, 2000, including liabilities related to matters in dispute with
taxing authorities, it can provide no assurances that the Company will prevail
in its defense against adjustments proposed in these pending or future federal
and state examinations. In addition, management can provide no assurances that
the ultimate resolution of these open tax matters will not be in excess of
current provisions.

         In August and September 1996, two individual plaintiffs initiated
lawsuits in the Circuit Court of Cook County, Illinois against the Company,
Cerion, certain directors and officers of Cerion, and the Company's underwriter,
on behalf of classes consisting of all persons who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. These two complaints were
consolidated. In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated
Complaint"). The Consolidated Complaint alleged that, in connection with
Cerion's initial public offering, the defendants issued materially false and
misleading statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In October 1997, the
Circuit Court on motion by the defendants, dismissed the Consolidated Complaint.
The plaintiffs filed a Second Amended Consolidated Complaint alleging
substantially similar claims as the Consolidated Complaint seeking damages and
injunctive relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended Consolidated Complaint.
The plaintiffs filed with the Appellate Court an appeal of the Circuit Court's
ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court's
ruling dismissing the Second Amended Consolidated Complaint. The Appellate Court
ruled that the Second Amended Consolidated Complaint stated a claim and remanded
the case to the Circuit Court for further proceedings. On December 27, 1999, the
Company filed a Petition for Leave to Appeal from the Appellate Court with the
Supreme Court of Illinois. In that Petition, the Company asked the Supreme Court
of Illinois to hear the Company's further appeal and determine whether the
Circuit Court or the Appellate Court is correct. That Petition was denied and
the case was remanded to the Circuit Court for trial. Discovery is in process.
The Company believes that the lawsuit is without merit and will continue to
defend itself in this matter.

         The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
estimate. At December 31, 2000, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.4 million to $1.6
million for certain of the Company's continuing operations, and a range of $.1
million to $.4 million for certain of the Company's discontinued operations.
These ranges are based, in part, on an allocation of certain sites' costs which,
due to the joint and several nature of the liability, could increase if the
other PRPs are unable to bear their allocated share. At December 31, 2000, the
Company's accrual balances were $1.6 million for continuing operations and $.3
million for discontinued operations, which represent, in management's view, the
most likely amounts within the ranges stated above. Based on information
currently available to the Company, management believes that it is probable that
the major responsible parties will fully pay the costs apportioned to them.
Management believes that, based on its financial position and the estimated
environmental accrual recorded, its remediation expense with respect to those
sites is not likely to have a material adverse effect on its consolidated
financial position or results of operations.

                     IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires that all
derivative instruments be recognized as either assets or liabilities on the
balance sheet at their fair value. Changes in the fair value of derivatives
(gains or losses) are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FAS 133" ("FAS 137"). FAS 137 changed the



                                      -17-
<PAGE>   18
effective date of FAS 133 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. As a result, FAS 133 will be effective for the Company
beginning on January 1, 2001. Management of the Company anticipates that, due to
its limited use of derivative instruments, the adoption of FAS 133 will not have
a significant effect on the Company's results of operations or its financial
position.


ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to certain market risks from interest rate fluctuations
relating to its Loan Agreement entered into with Fleet Bank-NH and LaSalle Bank,
NA on April 14, 2000. Management has performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in interest rates applied to our debt. As of
December 31, 2000, the analysis indicated that the hypothetical market movement
would not have a material effect on the Company's consolidated financial
position, results of operations or cash flows. Actual changes in interest rate
and the related effects may differ materially from that analysis.


                                      -18-
<PAGE>   19
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                       NASHUA CORPORATION AND SUBSIDIARIES


           CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                                  2000              1999              1998
------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>               <C>
Net sales                                                           $ 253,122         $ 170,844         $ 167,831
Cost of products sold                                                 202,357           129,872           127,089
                                                                    ---------------------------------------------
Gross margin                                                           50,765            40,972            40,742
                                                                    ---------------------------------------------
Selling, distribution and administrative expenses                      49,269            34,696            34,119
Research and development expense                                        4,224             5,051             5,938
Pension settlement income                                             (18,606)             --                --
Restructuring and other unusual charges (income)                          966            (1,300)           13,825
Loss from equity investment                                                 5               320              --
Interest expense                                                        2,852               743               377
Interest income                                                          (859)           (1,421)           (1,567)
                                                                    ---------------------------------------------
Income (loss) from continuing operations before income taxes           12,914             2,883           (11,950)
Provision (benefit) for income taxes                                    7,528             3,303            (4,721)
                                                                    ---------------------------------------------
Income (loss) from continuing operations                                5,386              (420)           (7,229)
Loss from discontinued operations, net of taxes                          --              (4,001)           (6,687)
Gain on disposal of discontinued operation, net of taxes                 --                --               1,052
                                                                    ---------------------------------------------
Net income (loss)                                                       5,386            (4,421)          (12,864)
Retained earnings, beginning of period                                 59,650            64,071            76,935
Dividends                                                                 (57)             --                --
                                                                    ---------------------------------------------
Retained earnings, end of period                                    $  64,979         $  59,650         $  64,071
                                                                    =============================================

Basic and diluted earnings per share:
   Income (loss) from continuing operations per common share        $     .95         $    (.07)        $   (1.15)
   Loss from discontinued operations per common share                    --                (.70)            (1.06)
   Gain on disposal of discontinued operation                            --                --                 .17
                                                                    ---------------------------------------------
   Net income (loss) per common share                               $     .95         $    (.77)        $   (2.04)
                                                                    =============================================
</TABLE>

        The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      -19-
<PAGE>   20
                       NASHUA CORPORATION AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                         December 31,
------------------------------------------------------------------------------------------------------------
(In thousands, except share data)                                                   2000              1999
------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>
Assets
Current assets
   Cash and cash equivalents                                                    $   1,035         $  25,056
   Restricted cash                                                                   --               5,000
   Accounts receivable                                                             27,915            17,448
   Inventories
      Raw materials                                                                12,112             7,911
      Work in process                                                               3,658             3,788
      Finished goods                                                                8,956             6,194
                                                                                ---------         ---------
                                                                                   24,726            17,893
   Taxes receivable                                                                10,708             3,608
   Other current assets                                                             7,159            10,562
                                                                                ---------         ---------
                                                                                   71,543            79,567
                                                                                ---------         ---------
Plant and equipment
   Land                                                                               978               804
   Buildings and improvements                                                      28,787            26,907
   Machinery and equipment                                                         57,249            44,804
   Construction in progress                                                         4,004             4,081
                                                                                ---------         ---------
                                                                                   91,018            76,596
    Accumulated depreciation                                                      (36,465)          (36,594)
                                                                                ---------         ---------
                                                                                   54,553            40,002
Goodwill, net of amortization                                                      30,490              --
Other assets                                                                       13,885            10,876
                                                                                ---------         ---------
Total assets                                                                    $ 170,471         $ 130,445
                                                                                =========         =========

Liabilities and Shareholders' Equity
Current liabilities
   Current maturities of long-term debt                                         $   9,806         $     511
   Accounts payable                                                                19,104            10,946
   Accrued expenses                                                                20,102            30,253
   Income taxes payable                                                              --               2,295
                                                                                ---------         ---------
                                                                                   49,012            44,005
                                                                                ---------         ---------

Long-term debt                                                                     35,905               511
Other long-term liabilities                                                        13,217            19,103

Commitments and contingencies (see "Commitments and Contingencies" Note)

Shareholders' equity
   Preferred stock, par value $1.00: 2,000,000 shares
     authorized and unissued                                                         --                --
   Common stock, par value $1.00: authorized 40,000,000 shares:
      Issued 7,011,601 shares in 2000 and 6,915,767 shares in 1999                  7,012             6,916
   Additional paid-in capital                                                      15,268            15,182
   Retained earnings                                                               64,979            59,650
    Treasury stock, at cost                                                       (14,922)          (14,922)
                                                                                ---------         ---------
                                                                                   72,337            66,826
                                                                                ---------         ---------
Total liabilities and shareholders' equity                                      $ 170,471         $ 130,445
                                                                                =========         =========
</TABLE>


        The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      -20-
<PAGE>   21
                       NASHUA CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
------------------------------------------------------------------------------------------------------------------------------
(In thousands)                                                                        2000             1999             1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>              <C>
Cash Flows from Operating Activities of Continuing Operations
Net income (loss)                                                                  $  5,386         $ (4,421)        $(12,864)
Adjustments to reconcile net income (loss) to cash provided by (used in)
   continuing operating activities:
      Depreciation and amortization                                                   9,304            6,381            6,846
      Deferred income taxes                                                          14,326            2,357           (4,721)
      Stock issued for director compensation                                            105               90               89
      Pension settlement income                                                     (18,606)            --               --
      Loss on sale/disposal of fixed assets                                              48              786             --
      Loss from discontinued operations                                                --              4,001            6,687
      Gain on disposal of discontinued operation                                       --               --             (1,052)
      Equity in loss from unconsolidated joint ventures                                   5              320             --
      Change in operating assets and liabilities, net of effects
         from acquisition and disposal of businesses:
            Restricted cash                                                           5,000             --             (5,000)
            Accounts receivable                                                       2,475              784           (3,317)
            Tax receivable                                                           (7,100)            --               --
            Inventories                                                               8,683           (3,217)             (39)
            Other assets and other current assets                                    (2,105)             227            4,354
            Accounts payable                                                         (2,696)           1,918           (3,567)
            Accrued expenses                                                        (13,464)           1,603           14,162
            Income taxes payable                                                     (2,295)           2,295             --
            Other long-term liabilities                                                (169)          (1,228)            (449)
                                                                                   -------------------------------------------
   Cash provided by (used in) operating activities                                   (1,103)          11,896            1,129

Cash Flows from Investing Activities of Continuing Operations
Investment in plant and equipment                                                    (9,625)          (7,855)          (6,702)
Investment in unconsolidated joint venture                                             (201)            (499)            --
Proceeds from sale of plant and equipment                                             1,854               16              166
Business acquisition, net of cash acquired                                          (60,341)            --               --
                                                                                   -------------------------------------------
   Cash used in investing activities                                                (68,313)          (8,338)          (6,536)

Cash Flows from Financing Activities of Continuing Operations
Proceeds from borrowings                                                             45,200             --               --
Repayment of borrowings                                                                (511)            (553)          (2,425)
Dividends paid                                                                          (57)            --               --
Proceeds and tax benefits from shares issued under stock compensation plans            --               --              3,061
Purchase of treasury stock                                                             --             (4,083)         (10,081)
                                                                                   -------------------------------------------
   Cash provided by (used in) financing activities                                   44,632           (4,636)          (9,445)

Proceeds from sale of discontinued operations                                          --               --             49,858
Cash provided by (used in) activities of discontinued operations                        763           (5,831)          (6,781)
Effect of exchange rate changes on cash                                                --               --                  4
                                                                                   -------------------------------------------
Increase (decrease) in cash and cash equivalents                                    (24,021)          (6,909)          28,229
Cash and cash equivalents at beginning of year                                       25,056           31,965            3,736
                                                                                   -------------------------------------------
Cash and cash equivalents at end of year                                           $  1,035         $ 25,056         $ 31,965
                                                                                   ==========================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid                                                                      $  2,937         $  1,055         $    220
                                                                                   ==========================================
Income tax payments, net of refunds                                                $  2,579         $  1,486         $  4,664
                                                                                   ==========================================
</TABLE>

        The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      -21-
<PAGE>   22
                       NASHUA CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Company: The Company manufactures and markets a wide variety
of specialty imaging products and services to industrial and commercial
customers to meet various print application needs.

Segment and Related Information: Beginning with the second quarter of 2000, the
Company realigned operating segments for financial reporting purposes due to the
acquisition of Rittenhouse Paper Company as described in the "Business Changes"
section of this report. The Company now has three reportable segments: (1)
Imaging Supplies, (2) Specialty Paper Products, and (3) Label Products. The
Imaging Supplies segment includes remanufactured laser cartridge and toner and
developer products and, effective in the first quarter of 2000, the Company
transferred responsibility for the cut-sheet paper product line to the Specialty
Paper Products segment. The Label Products segment, formerly included in the
Specialty Coated and Label Products segment, includes pressure sensitive
laminated paper, entertainment tickets, stickers, retail shelf tags and
thermosensitive label product lines. The Specialty Paper Products segment, which
was also included in the Specialty Coated and Label Products segment, is now
reported as a separate segment. The Specialty Paper Products segment's product
scope includes thermal papers, bond papers, carbonless paper, specialty printed
papers, such as ATM receipts and point-of-sale receipts, wide format papers,
dry-gum papers, heat seal papers and ribbons. Historical segment data has been
restated to reflect these changes.

Basis of Consolidation: The accompanying consolidated financial statements
include the accounts of Nashua Corporation and its wholly-owned subsidiaries
("the Company"). All significant intercompany transactions and balances have
been eliminated.

Revenue Recognition: Sales are recognized at the time the goods are shipped or
when title passes.

Environmental Expenditures: Environmental expenditures relating to ongoing
operations are expensed when incurred unless the expenditures extend the life,
increase the capacity or improve the safety or efficiency of the property,
mitigate or prevent environmental contamination that has yet to occur and
improve the property compared with its original condition, or are incurred for
property held for sale.

         Expenditures relating to site assessment, remediation and monitoring
are accrued and expensed when the costs are both probable and the amount can be
reasonably estimated. Estimates are based on in-house or third-party studies
considering current technologies, remediation alternatives and current
environmental standards. In addition, if there are other participants and the
liability is joint and several, the financial stability of the other
participants is considered in determining the Company's accrual. Insurance and
other recoveries relating to these expenditures are recorded separately once
recovery has been made.

Shipping Costs: The Company classifies third-party shipping costs as a component
of selling, distribution and administrative expenses in its Consolidated
Statement of Operations and Retained Earnings. Third-party shipping costs
totaled $9.4 million, $5.6 million and $5.6 million for the years ended December
31, 2000, 1999 and 1998, respectively. Amounts billed to customers for shipping
costs are not significant.

Research and Development: Research and development costs are expensed as
incurred.

Use of Estimates: The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. The more significant areas
requiring the use of management estimates relate to tax contingency reserves,
allowances for obsolete inventory and uncollectible receivables, environmental
obligations, postretirement and other employee benefits, valuation allowances
for deferred tax assets, future cash flows associated with assets, and useful
lives for depreciation and amortization. Actual results could differ from those
estimates.


                                      -22-
<PAGE>   23
Cash Equivalents: The Company considers all highly liquid investment instruments
purchased with a maturity of three months or less to be cash equivalents. The
Company held no cash equivalents at December 31, 2000. At December 31, 1999, the
Company held cash equivalents of $22.9 million, consisting of various money
market instruments carried at cost, which approximated market.

Restricted Cash: Restricted cash at December 31, 1999 represented $5.0 million
placed in escrow to secure a bond related to a patent infringement judgement
against the Company. The Company settled the patent infringement lawsuit during
the fourth quarter of 2000.

Accounts Receivable: The consolidated balance is net of allowances for doubtful
accounts of $1.0 million at December 31, 2000 and $1.3 million at December 31,
1999.

Inventories: Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out ("FIFO") method for approximately 73
percent and 51 percent of the inventories at December 31, 2000 and 1999,
respectively, and by the last-in, first-out ("LIFO") method for the balance. If
the FIFO method had been used to cost all inventories, the balances would have
been approximately $1.9 million and $2.0 million higher at December 31, 2000 and
1999, respectively.

Plant and Equipment: Plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred, while additions,
renewals and betterments of plant and equipment are capitalized. Items which are
fully depreciated, sold, retired or otherwise disposed of, together with the
related accumulated depreciation, are removed from the accounts and, where
applicable, the related gain or loss is recognized.

         For financial reporting purposes, depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:

<TABLE>
<S>                                                           <C>
--------------------------------------------------------------------------
Buildings and improvements                                    5 - 40 years
Machinery and equipment                                       2 - 20 years
</TABLE>

         The Company reviews the value of its plant and equipment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable.

Goodwill: Goodwill represents the excess of the cost of acquired businesses over
the fair value of identifiable net assets acquired. Goodwill is amortized on a
straight-line basis over 20 years. Amortization of goodwill was $1.1 million for
2000. The carrying value of goodwill is evaluated periodically in relation to
the estimated operating performance and undiscounted future cash flows of the
underlying segments.

Stock Compensation: The Company's employee stock option plans are accounted for
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company follows the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."

Income Taxes: Prepaid or deferred income taxes result principally from the use
of different methods of depreciation and amortization for income tax and
financial reporting purposes, the recognition of expenses for financial
reporting purposes in years different from those in which the expenses are
deductible for income tax purposes and the recognition of the tax benefit of net
operating losses and other tax credits.

Foreign Currency Translation: The functional currency of the Company's foreign
subsidiaries is the local currency. Accordingly, assets and liabilities of these
subsidiaries have been translated using exchange rates prevailing at the
appropriate balance sheet date and income statement items have been translated
using average monthly exchange rates. Due to the size of the Company's foreign
operations relative to the consolidated operations, the impact of the foreign
currency translation on the Company's financial position, results of operations
and cash flows is not significant.



                                      -23-
<PAGE>   24
Financial Instruments: The Company enters into foreign currency forward
contracts to manage foreign exchange exposure related to specific accounts
receivable trade and accounts payable trade transactions with certain customers
and vendors who require settlement in their local currency. The forward
contracts are effective as hedges of these foreign currency denominated assets
and liabilities.

Concentrations of Credit Risk: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, trade receivables and financial instruments used in hedging
activities.

         The Company places its temporary cash investments with high quality
financial institutions and in high quality liquid investments. Concentrations of
credit risk with respect to accounts receivable are limited because a large
number of geographically diverse customers comprise the Company's customer base,
thus mitigating the trade credit risk. The Company performs ongoing credit
evaluations of its customers' financial condition and maintains allowances for
potential credit losses. The Company generally does not require collateral or
other security to support customer receivables.

         The counterparties to the agreements relating to the Company's foreign
exchange contracts consist of a number of high quality financial institutions.
The Company does not believe that there is significant risk of nonperformance by
these counterparties.

         Approximately 42 percent of the Company's employees are members of one
of several unions, principally the Paper, Allied-Industrial, Chemical and Energy
International Union. There are three agreements with the Paper,
Allied-Industrial, Chemical and Energy International Union covering
approximately one-half of the Company's hourly employees. These agreements have
initial durations of two to four years, which expire on March 31, 2002 and March
31, 2003, respectively.

Fair Value of Financial Instruments: The recorded amounts for cash and cash
equivalents, other current assets, accounts receivable and accounts payable and
other current liabilities approximate fair value due to the short-term nature of
these financial instruments. The fair values of amounts outstanding under the
Company's debt instruments approximates their book values in all material
respects due to the variable nature of the interest rate provisions associated
with such instruments.

Earnings per Common and Common Equivalent Share: Earnings per common and common
equivalent share are computed based on the total of the weighted average number
of common shares and, when applicable, the weighted average number of common
equivalent shares outstanding during the period presented.

Impact of New Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 requires that all derivative instruments be recognized as either assets
or liabilities on the balance sheet at their fair value. Changes in the fair
value of derivatives (gains or losses) are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FAS 133" ("FAS 137"). FAS 137 changed the
effective date of FAS 133 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. As a result, FAS 133 will be effective for the Company
beginning on January 1, 2001. Management of the Company anticipates that, due to
its limited use of derivative instruments, the adoption of FAS 133 will not have
a significant effect on the Company's results of operations or its financial
position.

Reclassification: Certain amounts from the prior year have been reclassified to
conform to the present year presentation.


                                BUSINESS CHANGES

Business Acquisition

On April 17, 2000, the Company completed the acquisition of all outstanding
shares of stock of Rittenhouse Paper Company, an Illinois corporation
("Rittenhouse"), pursuant to a Stock Purchase Agreement, dated March 21, 2000,
by


                                      -24-
<PAGE>   25
and among the Company, Rittenhouse and the stockholders of Rittenhouse.
Rittenhouse manufactures and markets a wide range of paper media,
pressure-sensitive labels and imaging supplies. In paper, Rittenhouse is
primarily a converter of large rolls of paper into products such as cut/roll,
bond paper, thermal, point-of-sale, ATM and wide format papers. In labels, it
manufactures a wide assortment of pressure-sensitive and entertainment tickets
for both commercial and consumer use. In imaging, it manufactures and markets
ribbons for use in imaging devices.

         Total consideration, including direct acquisition costs, paid by the
Company was approximately $61.8 million. The Company funded $35.0 million of the
purchase price from borrowings under a secured loan agreement and the remainder
from its cash reserves.

         The acquisition of Rittenhouse was accounted for using the purchase
method of accounting and the operations of Rittenhouse are included in the
Consolidated Statement of Operations and Retained Earnings from the date of
acquisition. Purchase consideration was allocated to the assets acquired and
liabilities assumed based on their respective fair values, with the excess of
purchase consideration over the fair value of net assets of $31.6 million
allocated to goodwill. Goodwill is being amortized on a straight-line basis over
twenty years.

         The Company began formulating plans related to workforce reductions and
plant closings prior to the purchase date. Liabilities assumed include
restructuring charges of approximately $2.1 million related primarily to planned
workforce reductions in the acquired business. The provision for planned
workforce reductions included amounts for salary and benefit continuation for 67
employees, of which $.3 million was paid in 2000.

Pro Forma Results of Continuing Operations:

The following unaudited pro forma financial information presents the combined
results of operations of the Company and Rittenhouse, including the amortization
of goodwill and increased interest expense, as if the acquisition had occurred
at January 1, 1999.

<TABLE>
<CAPTION>
                                                               Year Ended
                                                      ----------------------------
                                                        Dec. 31,          Dec. 31,
(In thousands, except per share information)              2000              1999
                                                          ----              ----
<S>                                                   <C>                 <C>
Pro forma revenues                                    $    286,702        $309,950
                                                      ============        ========
Pro forma net income                                  $      3,800        $     83
                                                      ============        ========
Pro forma basic earnings per share                    $        .67        $    .01
                                                      ============        ========
Pro forma diluted earnings per share                  $        .67        $    .01
                                                      ============        ========
Shares used in pro forma share calculations:
    Average common shares                                    5,649           5,718
                                                      ============        ========
    Average common and potential common shares               5,667           5,728
                                                      ============        ========
</TABLE>

         The pro forma results of operations are not necessarily indicative of
the results that would have occurred had the merger occurred at January 1, 1999,
and are not intended to be indicative of future results of operations.

Restructuring and Other Unusual Charges

Restructuring and other unusual charges for 2000 of $1.0 million consisted
primarily of $1.0 million in exit costs associated with the discontinuance of
the laser cartridge product line, $.5 million in connection with a 15 percent
workforce reduction in the Imaging Supplies segment and $.5 million of workforce
reductions resulting from acquisition synergies, partially offset by unusual
income of $1.0 million resulting from the reversal of a loss accrual relating to
the settlement of the Ricoh patent infringement lawsuit against the Company. The
2000 provision for workforce reductions included amounts payable to 122
employees. The restructuring activities provided for in the balance at December
31, 1999 were completed during 2000 and the amounts charged against the reserve
did not change materially from the reserve balance of $.2 million.



                                      -25-
<PAGE>   26
         Details of the restructuring reserves related to continuing operations
and activity recorded during 2000 were as follows:

<TABLE>
<CAPTION>
                                                                 Reserve                                           Reserve
                                                                 Balance          Current            Current       Balance
                                                                Dec. 31,           Year               Year         Dec. 31,
(In thousands)                                                    1999           Provision         Utilization       2000
---------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>             <C>
2000 Activity:
Provisions for severance related to workforce reductions           $123            $1,445              $(854)         $714
Provisions for assets to be sold or discarded                         -               216               (216)            -
Other                                                                86               184               (270)            -
                                                                -----------------------------------------------------------
Total                                                              $209            $1,845            $(1,340)         $714
                                                                ===========================================================
</TABLE>

         The restructuring and other unusual income for 1999 of $1.3 million
consisted primarily of $1.3 million in income from an insurance settlement
related to environmental matters, a gain of $.4 million from the sale of a
portion of the Company's Microsharp imaging technology and $.2 million of other
miscellaneous gains, offset by a provision of $.6 million resulting from the
Company's decision to cease its manufacturing of fax papers. The restructuring
activities provided for in the balance at December 31, 1998 were substantially
completed at December 31, 1999 and amounts charged against the reserve did not
change materially from the reserve balance of $.6 million at December 31, 1998.
The balance at December 31, 1999 for severance related to workforce reductions
included amounts payable to nine employees related to the discontinuance of the
fax manufacturing line in the Specialty Paper Products segment. Details of
restructuring reserves related to continuing operations and the activity
recorded during 1999 were as follows:

<TABLE>
<CAPTION>
                                                                      Reserve                                            Reserve
                                                                      Balance         Current              Current       Balance
                                                                     Dec. 31,           Year                Year         Dec. 31,
(In thousands)                                                         1998           Provision         Utilization       1999
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>               <C>              <C>
1999 Activity:
Provisions for severance related to workforce reductions                $472            $142              $  (491)         $123
Provisions for assets to be sold or discarded                              -             441                 (441)            -
Other                                                                    149              32                  (95)           86
                                                                     ------------------------------------------------------------
Total                                                                   $621            $615              $(1,027)         $209
                                                                     ============================================================
</TABLE>

         The restructuring and other unusual charges for 1998 included an
unusual charge of $15.0 million related to damages awarded to Ricoh Corporation
in a patent infringement lawsuit, partially offset by unusual income of $1.2
million related to an insurance settlement for environmental matters. The
balance at December 31, 1998 for severance related to workforce reductions
consisted primarily of amounts payable to employees who had already left the
Company during the 1997 restructuring.

Discontinued Operations

During the fourth quarter of 1999, the Company recorded charges of $4.0 million,
net of taxes, related to discontinued operations as described more fully in the
Note entitled "Income Taxes" of this report.

         The Company owns a 37.1 percent interest in the Cerion Technologies
Liquidating Trust, a trust established pursuant to the liquidation of Cerion
Technologies Inc. ("Cerion"), formerly a publicly held company. Cerion ceased
operations during the fourth quarter of 1998 and is currently in the process of
liquidation. Accordingly, the Company accounts for its investment in Cerion
based on its expected net realizable value, net of taxes.

         On April 9, 1998, the Company completed the sale of its Photofinishing
segment. The Company received net proceeds of $49.9 million for the net assets
of the businesses and after recording taxes of $7.9 million, recorded a gain of
$1.1 million.


                                      -26-
<PAGE>   27
         Operating results for the discontinued operations described above for
1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
(In millions)                                                          1999                1998
------------------------------------------------------------------------------------------------
<S>                                                                  <C>                  <C>
Net sales                                                             $   -               $21.6
Loss before income taxes                                                  -                (6.5)
Provision (benefit) for income taxes                                    4.0                  .2
                                                                     ---------------------------
Loss from discontinued operations                                     $(4.0)              $(6.7)
                                                                     ===========================
</TABLE>

         The net assets (liabilities) of the discontinued operations described
above included in the December 31, 2000 and December 31, 1999 consolidated
balance sheets are summarized as follows:

<TABLE>
<CAPTION>
(In thousands)                                                           2000               1999
-------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>
Assets                                                               $ 2,801            $  3,865
Liabilities                                                           (3,301)             (3,857)
                                                                     ----------------------------
Net assets and (liabilities) of discontinued operations              $  (500)           $      8
                                                                     ============================
</TABLE>

                                  INDEBTEDNESS

In April 2000, Nashua, Rittenhouse Paper Company and Rittenhouse, L.L.C.
(collectively, the "Company" as of April 17, 2000) entered into a Revolving
Credit Agreement and a Term Loan Agreement (collectively the "Loan Agreement")
with Fleet Bank - NH and LaSalle Bank, NA (the "Banks"). The Revolving Credit
Agreement and the Term Loan Agreement were in the amounts of $35.0 million and
$20.0 million at December 31, 2000, respectively. Borrowings under this facility
are collateralized by a security interest in the Company's accounts receivable,
inventory, certain machinery and equipment and real estate located in Merrimack,
NH. This agreement with the Banks replaced Nashua's prior credit facility, which
was scheduled to expire April 22, 2001. Borrowings of $25.2 million and $20.0
million were outstanding at December 31, 2000 under the Revolving Credit
Agreement and the Term Loan Agreement, respectively. Interest on the loans
outstanding, at the Company's option, is either at a rate per annum equal to the
Base Rate (prime) or LIBOR plus applicable margin. The Revolver LIBOR margin was
2.0 percent and the Term LIBOR margin was 2.25 percent at December 31, 2000. The
maturity of the Loan Agreement is June 30, 2005 with respect to the Term Loan
and June 30, 2002 with respect to the Revolving Credit Loan. There were no
borrowings outstanding at December 31, 1999 under the previous secured line of
credit.

         Effective January 1, 2001, the Loan Agreement between the Company and
the Banks was amended to reduce the Revolving Credit Agreement to $30.0 million
from $35.0 million, revise the terms of the variable portion of the Company's
interest rates, adjust the terms of the quarterly principal payments, decrease
the limit on annual capital expenditures from $5.5 million to $3.5 million,
revise certain quarterly financial covenants and increase the Banks' collateral
in certain machinery and equipment by $5.0 million. Effective January 1, 2001,
the applicable margin on the Base Rate (prime) and LIBOR were 1.5 percent and
3.5 percent, respectively, for the Term Loan and 1.0 percent and 3.0 percent,
respectively, for the Revolving Credit Loan.

         The Loan Agreement requires the Company to maintain certain financial
covenants such as Total Funded Debt to earnings before interest, income taxes,
depreciation and amortization and a Fixed Charge Coverage Ratio. The Company was
not in compliance with the above quarterly financial covenants and received a
waiver from the Banks for the quarters ended September 29, 2000 and December 31,
2000. The Company and its lender established more favorable covenants for the
Company for 2001.

         The Revolving Credit Agreement is subject to certain limitations such
as, if the aggregate principal amount at any one time outstanding under the
Revolving Credit Loan exceeds $15.0 million or the amount of certain eligible
accounts receivable, as defined in the Loan Agreement, declines to $25.0 million
or less, the maximum principal amount of the Revolving Credit Loan shall be the
lesser of (a) $30.0 million effective January 1, 2001 or (b) the Borrowing Base,
which is defined as the sum of 80 percent of the eligible accounts receivable,
plus 50 percent of the eligible inventory, minus a reserve of $1.0 million as
defined in the Loan Agreement. The Borrowing Base was $26.8 million at December
31, 2000.


                                      -27-
<PAGE>   28
         On December 26, 1996, the Company entered into a note agreement under
which the Company borrowed $2.6 million. The note is being paid back in sixty
equal monthly payments which began in January of 1997. The note bears interest
at a rate per annum equal to 2.5 percent above the LIBOR rate. The note is
collateralized by a security interest in certain equipment. At December 31, 2000
and 1999, borrowings of $.5 million and $1.0 million, respectively, were
outstanding under this note agreement.

         The aggregate amounts of maturities on long-term debt for each of the
next five years are as follows: 2001 - $9.8 million; 2002 - $28.2 million; 2003
- $3.1 million; 2004 - $3.1 million; and 2005 - $1.5 million. At December 31,
2000, the weighted average annual interest rate on long-term debt was 8.9
percent.

                                  INCOME TAXES

The domestic and foreign components of income (loss) from continuing operations
before income taxes are as follows:

<TABLE>
<CAPTION>
(In thousands)                                                                              2000           1999            1998
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>             <C>           <C>
Domestic                                                                                 $12,413         $2,599        $(11,873)
Foreign                                                                                      501            284             (77)
                                                                                         ---------------------------------------
Consolidated pretax income (loss)                                                        $12,914         $2,883        $(11,950)
                                                                                         =======================================
</TABLE>

         The provision (benefit) for income taxes relating to continuing
operations consists of the following:

<TABLE>
<CAPTION>
(In thousands)                                                                              2000           1999            1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>         <C>
Current:
     United States                                                                       $(6,233)        $  821         $    --
     Foreign                                                                                 291             99              --
     State and local                                                                        (856)            26              --
                                                                                         --------------------------------------
Total current                                                                             (6,798)           946              --
Deferred:
     United States                                                                        12,632          1,426          (3,824)
     Foreign                                                                                   -              -             (18)
     State and local                                                                       1,694            931            (879)
                                                                                         ---------------------------------------
Total deferred                                                                            14,326          2,357          (4,721)
                                                                                         ---------------------------------------
Provision (benefit) for income taxes                                                     $ 7,528         $3,303         $(4,721)
                                                                                         =======================================
</TABLE>

         Total net deferred tax assets (liabilities) are comprised of the
following:

<TABLE>
<CAPTION>
(In thousands)                                                                             2000           1999
----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Depreciation                                                                             $(2,822)       $(2,137)
Pension                                                                                   (3,360)             -
Other                                                                                       (301)          (466)
                                                                                        ------------------------
Gross deferred tax liabilities                                                            (6,483)        (2,603)

Restructuring                                                                              2,384          6,378
Pension and postretirement benefits                                                        4,076          7,765
Loss carryforwards                                                                         3,204          4,285
Accrued expenses                                                                           1,248          1,656
Inventory reserve                                                                            724            399
Bad debt reserve                                                                             460            586
Other                                                                                      2,821          2,499
                                                                                         -----------------------
Gross deferred tax asset                                                                  14,917         23,568
Deferred tax assets valuation allowance                                                   (1,885)        (1,100)
                                                                                         -----------------------
Net deferred tax assets                                                                  $ 6,549        $19,865
                                                                                         =======================
</TABLE>


                                      -28-
<PAGE>   29
         Reconciliations between income tax provision (benefit) from continuing
operations computed using the United States statutory income tax rate and the
Company's effective tax rate are as follows:

<TABLE>
<CAPTION>
                                                                                 2000              1999            1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>              <C>             <C>
United States federal statutory rate (benefit)                                   35.0%             35.0%          (35.0)%
State and local income taxes, net of federal tax benefit                          4.2               4.8            (4.8)
Change in valuation allowance                                                     6.1              27.7               -
Expired net operating loss                                                       13.8                 -               -
Non-deductible goodwill                                                           3.4                 -               -
Tax contingency reserve                                                             -              45.7               -
Other, net                                                                       (4.2)              1.4              .3
                                                                                 ----------------------------------------
Effective tax rate (benefit)                                                     58.3%            114.6%          (39.5)%
                                                                                 ========================================
</TABLE>

         At December 31, 2000, $5.6 million and $.9 million of net tax assets
were included in "Other Current Assets" and "Other Assets," respectively. At
December 31, 1999, $10.2 million and $9.7 million of net tax assets were
included in "Other Current Assets" and "Other Assets," respectively. At December
31, 2000 and 1999, $5.5 million and $4.8 million of accrued taxes were included
in "Accrued Expenses".

         At December 31, 2000, the Company had $3.2 million of state net
operating loss carryforwards and $.5 million of alternative minimum tax credit
carryforwards, which are available to offset future domestic taxable earnings.
The net operating loss carryforward benefits expire as follows: $.2 million in
2001; and $3.0 million thereafter. The tax credit carryforwards expire after
2001. In the fourth quarter of 2000, management updated its assessment of the
realizability of state net operating loss carryforwards taking into
consideration current projections of future taxable income, recent product line
divestitures and changes in the forecasted timing for deductibility of certain
significant temporary differences. Based upon this assessment, management
believes that it is more likely than not that $1.9 million of state net
operating loss carryforwards will not be realized prior to their expiration. As
a result, a $.8 million charge was recorded in the fourth quarter of 2000 to
increase the valuation allowance for state net operating loss carryforwards to
$1.9 million.

         In December 1999, the Internal Revenue Service ("IRS") completed an
examination of the Company's corporate income tax returns for the years 1995
through 1997. On December 16, 1999, the IRS issued a Notice of Proposed
Adjustment which assessed additional taxes of $5.2 million, excluding interest.
The assessment represents a total of $14.0 million of adjustments to taxable
income for the years under review. The proposed adjustments relate to the
deductibility of restructuring and other reserves applicable to continuing and
discontinued operations as well as the utilization of foreign net operating
losses primarily associated with discontinued operations. The Company disagrees
with the position taken by the IRS and filed a formal protest of the proposed
adjustments on April 6, 2000. A hearing was held before the IRS Appeals Officer
on March 14, 2001.

         In December 1998, the IRS completed an examination of the Company's
corporate income tax returns for the years 1992 through 1994. On December 11,
1998, the IRS issued a Notice of Proposed Adjustment which assessed additional
taxes of $4.6 million, excluding interest. The assessment represents a total of
$18.2 million of adjustments to taxable income for the years under review. The
proposed adjustments relate to the deductibility of restructuring and other
reserves applicable to discontinued operations as well as certain losses
deducted in connection with the divestiture of the Company's Computer Products
Division. The Company disagrees with the position taken by the IRS and filed a
formal protest of the proposed adjustment on January 12, 1999. Formal hearings
were held before the IRS Appeals Officer on November 16, 1999 and March 14,
2001.

         On March 31, 1998, the New Hampshire Department of Revenue ("DOR")
issued a notice of deficiency in connection with an examination of the Company's
corporate income tax returns for the years 1989 through 1992 in the amount of
$4.4 million, including interest. The deficiency principally relates to the tax
treatment of the sale of the Company's International Office Systems business in
1990. A petition for reconsideration was filed with an appeals officer on May
26, 1998 and a formal hearing was held before the DOR officers on August 31,
1999. On October 27, 2000 the State of New Hampshire issued a revised assessment
of $1.8 million, including interest, in accordance with the New Hampshire
Department of Revenue hearing officer's final order. The Company disagrees with


                                      -29-
<PAGE>   30
the final order and on November 15, 2000 filed suit against the New Hampshire
Department of Revenue Administration in the New Hampshire Superior Court.

         The Company believes that it will prevail in all material respects
against the IRS' assertions related to the corporate income tax returns filed
for years 1992 through 1994. In the fourth quarter of 1999, the Company recorded
a charge of $1.3 million in continuing operations, which included $.8 million of
interest, and a charge of $4.0 million in discontinued operations primarily to
provide for potential liabilities for tax deficiencies that could arise from
resolution of the IRS' examination of the corporate tax returns filed for years
1995 through 1997 and for resolution of New Hampshire DOR's examination of the
corporate income tax returns for years 1989 through 1992. While management
believes that it has provided adequately for its tax liabilities through
December 31, 2000, including liabilities related to matters in dispute with
taxing authorities, it can provide no assurances that the Company will prevail
in its defense against adjustments proposed in these pending or future federal
and state examinations. In addition, management can provide no assurances that
the ultimate resolution of these open tax matters will not be in excess of
current provisions.

                              SHAREHOLDERS' EQUITY

On April 24, 2000, the Company's Board of Directors voted to redeem the stock
purchase rights issued pursuant to its Shareholder Rights Plan. In redeeming the
rights, a one-time payment of $0.01 per common share was distributed to
shareholders of record on May 9, 2000.

         In 1999, the Board of Directors authorized the Company to repurchase up
to 1,000,000 shares of its common stock. As of December 31, 2000, no shares had
been purchased under this authorization.

         In 1998, the Board of Directors authorized the Company to repurchase up
to an additional 1,000,000 shares of its common stock. As of December 31, 2000,
the Company had purchased 999,754 shares under this authorization.

         The following summarizes the changes in selected shareholders' equity
accounts for each of the three years in the period ended December 31, 2000:

<TABLE>
<CAPTION>
                                                            Common Stock              Add'l                Treasury Stock
                                                        ----------------------       Paid-In           ----------------------
(In thousands, except share data)                       Shares       Par Value       Capital           Shares            Cost
------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>            <C>              <C>
Balance, January 1, 1998                              6,715,495       $ 6,716       $ 12,129          (24,064)      $    (758)
Stock issued for Director compensation                    5,802             5             84               --              --
Stock options exercised and related tax benefit         236,600           237          2,828               --              --
Restricted stock issuances                              105,000           105          1,568               --              --
Deferred compensation                                        --            --         (1,673)              --              --
Restricted stock forfeiture and conversion             (124,500)         (125)        (1,518)              --              --
Deferred compensation forfeiture                             --            --          1,639               --              --
Purchase of treasury shares                                  --            --             --         (651,674)        (10,081)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                            6,938,397       $ 6,938       $ 15,057         (675,738)      $ (10,839)
Stock issued for Director compensation                    8,370             9             81               --              --
Deferred compensation forfeiture                             --            --            460               --              --
Restricted stock forfeiture                             (31,000)          (31)          (416)              --              --
Purchase of treasury shares                                  --            --             --         (348,080)         (4,083)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                            6,915,767       $ 6,916       $ 15,182       (1,023,818)      $ (14,922)
Stock issued for Director compensation                   16,834            17             92               --              --
Restricted stock issuances                              189,000           189          1,398               --              --
Deferred compensation                                        --            --         (1,282)              --              --
Restricted stock forfeiture and conversion             (110,000)         (110)        (1,223)              --              --
Deferred compensation forfeiture                             --            --          1,101               --              --
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,2000                             7,011,601       $ 7,012       $ 15,268       (1,023,818)      $ (14,922)
==============================================================================================================================
</TABLE>


                                      -30-
<PAGE>   31
                       STOCK OPTION AND STOCK AWARD PLANS

The Company has four stock compensation plans at December 31, 2000: the 1987
Stock Option Plan ("1987 Plan"), the 1993 Stock Incentive Plan ("1993 Plan"),
the 1996 Stock Incentive Plan ("1996 Plan") and the 1999 Shareholder Value Plan
("1999 Plan"). Awards may no longer be granted under the 1987 Plan and the 1993
Plan. Awards under the 1996 Plan and the 1999 Plan are made at the discretion of
the Leadership and Compensation Committee of the Board of Directors (the
"Committee").

         Under the 1987 Plan, nonqualified stock options have been awarded and
are currently exercisable. Nonqualified stock options expire 10 years and one
day from the date of grant. In the event of a change in control, certain option
holders may, with respect to stock option agreements which so provide, have a
limited right with respect to options under the plans to elect to surrender the
options and receive cash or shares equal in value to the difference between the
option price and the larger of either the highest reported price per share on
the New York Stock Exchange during the sixty-day period before the change in
control or, if the change in control is the result of certain defined
transactions, the highest price per share paid in such defined transactions.

         Nonstatutory stock options and shares of performance based restricted
stock have been awarded under the 1993 Plan, the 1996 Plan and the 1999 Plan. Of
the 660,000 and 600,000 shares authorized by the Company's Board of Directors
for the 1996 and 1999 Plans, respectively, 123,119 and 160,600 shares are
available to be awarded as of December 31, 2000. Stock options awarded under the
1993 Plan are currently exercisable. Stock options under the 1996 Plan and the
1999 Plan generally become exercisable either (a) 50 percent on the first
anniversary of grant and the remainder on the second anniversary of grant, (b)
100 percent at one year from the date of grant, or (c) otherwise as determined
by the Committee. Certain options may become exercisable immediately in the
event of a change in control as defined under these plans and option agreements.
Nonstatutory stock options under the 1993 Plan and the 1996 Plan expire 10 years
and one day from the date of grant, and incentive stock options expire 10 years
from the date of grant. Nonstatutory and incentive stock options under the 1999
Plan expire 10 years from the date of grant.

         Performance based restricted stock awards under the 1993 Plan and the
1996 Plan have been granted to certain key executives and are earned only if the
closing price of the Company's common stock meets specific target prices for
certain defined periods of time or if significant performance based events are
achieved. Restrictions on such shares lapse either (i) in equal amounts when the
average closing price of the Company's common stock reaches $20 and $25 for a
consecutive 10 trading day period; (ii) in equal amounts when the average
closing price of the Company's common stock reaches $19 and $21 for a
consecutive 10 trading day period; (iii) in equal amounts when the average
closing price of the Company's common stock reaches $21 and $23 for a
consecutive 10 trading day period; (iv) 100% upon the occurrence of certain
significant performance based events; or (v) 33-1/3 percent per year on each of
the three anniversary dates following the date of grant. Shares issued under the
plans are initially recorded at their fair market value on the date of grant
with a corresponding charge to additional paid-in capital representing the
unearned portion of the award. Shares of performance based restricted stock are
forfeited if the specified closing prices of the Company's common stock are not
met within five years of grant, the executive leaves the Company or if the
significant performance based events do not take place within the specified time
period.



                                      -31-
<PAGE>   32
         A summary of the status of the Company's fixed stock option plans as of
December 31, 2000, 1999 and 1998 and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
                                                       2000                         1999                           1998
-----------------------------------------------------------------------------------------------------------------------------------
                                                              Weighted                      Weighted                       Weighted
                                                               Average                       Average                        Average
                                                              Exercise                      Exercise                       Exercise
                                               Shares           Price        Shares           Price        Shares            Price
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>           <C>             <C>           <C>              <C>
Outstanding beginning of year                  618,435         $ 11.94       547,370         $ 15.47       853,920         $ 14.75
Granted                                        206,200            7.06       275,500            7.50        64,500           15.60
Exercised                                           --              --            --              --      (233,100)          12.37
Forfeited - non-vested                         (86,500)           7.10        (2,000)           9.88       (34,500)          11.63
Forfeited - exercisable                        (85,900)          16.21      (202,435)          15.47      (103,450)          17.83
Expired                                         (2,500)          33.88            --              --            --              --
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding end of year                        649,735         $ 10.39       618,435         $ 11.94       547,370         $ 15.47
Options exercisable at end of year             356,785         $ 13.01       344,935         $ 15.48       446,120         $ 15.83
Weighted average fair value of options
   granted during the year (exercise
   price equals market price)                                  $  2.91                       $  3.41                       $  6.60
</TABLE>

         The following table summarizes information about stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                             Options Outstanding                                      Options Exercisable
                              ------------------------------------------------------          ---------------------------------
                                                   Weighted
                                  Number            Average              Weighted                 Number            Weighted
    Range of                   Outstanding         Remaining              Average              Exercisable           Average
Exercise Prices               at 12/31/00      Contractual Life       Exercise Price           at 12/31/00       Exercise Price
-------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>                    <C>                      <C>               <C>
$ 4.38                            55,000           10.0 years             $  4.38                     --                 N/A
$ 6.25 - $ 6.63                  145,000            9.1 years             $  6.60                 67,500              $ 6.63
$ 8.06 - $11.63                  199,200            9.0 years             $  8.83                 38,750              $10.43
$12.13 - $19.75                  228,800            6.3 years             $ 14.03                228,800              $14.03
$22.63 - $34.63                   21,735            2.6 years             $ 26.79                 21,735              $26.79
-------------------------------------------------------------------------------------------------------------------------------
$ 4.38 - $34.63                  649,735            7.9 years             $ 10.39                356,785              $13.01
</TABLE>

         A summary of the status of the Company's restricted stock plans as of
December 31, 2000, 1999 and 1998 and changes during the years ended on those
dates is presented below:

<TABLE>
<CAPTION>
                                                                          2000             1999              1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Restricted stock outstanding at beginning of year                       255,000           286,000           305,500
Granted                                                                 189,000                --           105,000
Forfeited and converted                                                (110,000)          (31,000)         (124,500)
--------------------------------------------------------------------------------------------------------------------
Restricted stock outstanding at end of year                             334,000           255,000           286,000

Weighted average fair value per restricted share at grant date        $    8.46         $      --         $    9.66
Weighted average share price at grant date                            $    8.46         $      --         $   15.93
</TABLE>

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation." The Company continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25. If
the Company had elected to recognize compensation cost based on the fair value
of the options and restricted stock granted at grant date as prescribed by SFAS
No. 123, net income (loss) and income (loss) per share would have decreased
(increased) to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
(In thousands, except per share amounts)                                  2000           1999           1998
---------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>            <C>
Net income (loss) - as reported                                         $ 5,386       $ (4,421)      $ (12,864)
Net income (loss) - pro forma                                           $ 4,981       $ (4,732)      $ (14,266)

Basic and diluted net loss per common share - as reported               $   .95       $   (.77)      $   (2.04)
Basic and diluted net loss per common share - pro forma                 $   .88       $   (.83)      $   (2.26)
</TABLE>


                                      -32-
<PAGE>   33
         The assumptions and methods used in estimating the fair value at the
grant date of options and restricted shares granted are listed below:

<TABLE>
<CAPTION>
                                                     Grant Year
------------------------------------------------------------------------------
                                       2000             1999             1998
------------------------------------------------------------------------------
<S>                               <C>              <C>              <C>
Volatility of Share Price:
   Options                             31.0%            39.0%            37.0%
   Restricted stock                     N/A              N/A             12.0%
Dividend yield:
   Options                               --               --               --
   Restricted stock                      --               --               --
Interest rate:
   Options                              6.3%             6.2%             4.8%
   Restricted stock                     N/A              N/A              4.8%
Expected life of options          5.5 years        5.3 years        5.5 years
Valuation methodology:
   Options                        Black-Scholes Option Pricing Model
   Restricted stock               Binomial Pricing Model
</TABLE>

         Because the determination of the fair value of all options granted
includes vesting periods over several years and additional option grants are
expected to be made each year, the above pro forma disclosures are not
representative of pro forma effects of reported net income for future periods.


                               EARNINGS PER SHARE

Reconciliation of the numerators and denominators used in earnings per share
("EPS") calculations are presented below:

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31, 2000
                                                                           --------------------------------------------------
                                                                                 Income                Shares       Per Share
(in thousands, except per share data)                                        (Numerator)         (Denominator)         Amount
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                    <C>                <C>
Net income                                                                       $5,386                     -              -
                                                                          ---------------------------------------------------
Basic EPS
  Income available to common shareholders                                        $5,386                 5,649           $.95
Effect of dilutive securities
  Stock options                                                                       -                    18              -
                                                                          ---------------------------------------------------
Diluted EPS
  Income available to common shareholders plus assumed conversions               $5,386                 5,667           $.95
                                                                          ==================================================
</TABLE>

         Since the effect of stock options which have an exercise price below
the average market price of the Company's stock of 9,900 shares in 1999, and
57,103 shares in 1998 would be antidilutive to loss per share computations,
Basic EPS and Diluted EPS are identical for the years ended December 31, 1999
and 1998. The computations of EPS for 1999 and 1998 include weighted average
shares (denominator) of 5,718,224 and 6,319,775, respectively.

         Performance based restricted stock of 334,000, 255,000 and 286,000
shares for the years ended December 31, 2000, 1999 and 1998, respectively, were
not included in the above computations. Such shares may be issued in the future
subject to the occurrence of certain events as described in the "Stock Option
and Stock Award Plans" Note.

                          COMMITMENTS AND CONTINGENCIES

Rent expense for office equipment, facilities and vehicles was $1.0 million for
each of the years ended December 31, 2000, 1999 and 1998. At December 31, 2000,
the Company was committed, under non-cancelable operating leases, to minimum
annual rentals as follows: 2001 - $.8 million; 2002 - $.6 million; 2003 - $.4
million; 2004 - $.3 million; 2005 - $.1 million.

         At December 31, 2000, the Company had a $.9 million obligation under
standby letters of credit with Fleet Bank-NH.


                                      -33-
<PAGE>   34
         In August and September 1996, two individual plaintiffs initiated
lawsuits in the Circuit Court of Cook County, Illinois against the Company,
Cerion, certain directors and officers of Cerion, and the Company's underwriter,
on behalf of classes consisting of all persons who purchased the common stock of
Cerion between May 24, 1996 and July 9, 1996. These two complaints were
consolidated. In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action Complaint (the "Consolidated
Complaint"). The Consolidated Complaint alleged that, in connection with
Cerion's initial public offering, the defendants issued materially false and
misleading statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In October 1997, the
Circuit Court on motion by the defendants, dismissed the Consolidated Complaint.
The plaintiffs filed a Second Amended Consolidated Complaint alleging
substantially similar claims as the Consolidated Complaint seeking damages and
injunctive relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended Consolidated Complaint.
The plaintiffs filed with the Appellate Court an appeal of the Circuit Court's
ruling. On November 19, 1999, the Appellate Court reversed the Circuit Court's
ruling dismissing the Second Amended Consolidated Complaint. The Appellate Court
ruled that the Second Amended Consolidated Complaint stated a claim and remanded
the case to the Circuit Court for further proceedings. On December 27, 1999, the
Company filed a Petition for Leave to Appeal from the Appellate Court with the
Supreme Court of Illinois. In that Petition, the Company asked the Supreme Court
of Illinois to hear the Company's further appeal and determine whether the
Circuit Court or the Appellate Court is correct. That Petition was denied and
the case was remanded to the Circuit Court for trial. Discovery is in process.
The Company believes that the lawsuit is without merit and will continue to
defend itself in this matter.

         The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency ("EPA") as a potentially
responsible party ("PRP") for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These sites
are in various stages of investigation and remediation. Due to the unique
physical characteristics of each site, the technology employed, the extended
timeframes of each remediation, the interpretation of applicable laws and
regulations and the financial viability of other potential participants, the
ultimate cost to the Company of remediation for each site is difficult to
estimate. At December 31, 2000, based on the facts currently known and the
Company's prior experience with these matters, the Company has concluded that
there is at least a reasonable possibility that site assessment, remediation and
monitoring costs will be incurred by the Company with respect to those sites
which can be reasonably estimated in the aggregate range of $1.4 million to $1.6
million for certain of the Company's continuing operations, and a range of $.1
million to $.4 million for certain of the Company's discontinued operations.
This range is based, in part, on an allocation of certain sites' costs which,
due to the joint and several nature of the liability, could increase if the
other PRPs are unable to bear their allocated share. At December 31, 2000, the
Company's accrual balances were $1.6 million for continuing operations and $.3
million for discontinued operations which were included in "Accrued Expenses"
and represent, in management's view, the most likely amounts within the ranges
stated above. Based on information currently available to the Company,
management believes that it is probable that the major responsible parties will
fully pay the costs apportioned to them. Management believes that, based on its
financial position and the estimated environmental accrual recorded, its
remediation expense with respect to those sites is not likely to have a material
adverse effect on its consolidated financial position or results of operations.

                             POSTRETIREMENT BENEFITS

Pension Plans: The Company and its subsidiaries have several pension plans which
cover a portion of the Company's regular full-time employees. Benefits under
these plans are generally based on years of service and the levels of
compensation during those years. The Company's policy is to fund amounts
deductible for income tax purposes. Assets of the plans are invested in common
stocks, fixed-income securities and interest-bearing cash equivalent
instruments.

Retiree Health Care and Other Benefits: The Company also provides certain health
care and other benefits to eligible retired employees and their spouses.
Salaried participants generally become eligible for retiree health care benefits
after reaching age 60 with ten years of service. Benefits, eligibility and
cost-sharing provisions for hourly employees vary by location or bargaining
unit. Generally, the medical plans are fully insured managed care plans. In
1993, the postretirement benefit plan was changed to share the cost of benefits
with all retirees, resulting in an unrecognized benefit which is being amortized
over the future service period of the active employees.


                                      -34-
<PAGE>   35
<TABLE>
<CAPTION>
                                                         Pension Benefits            Postretirement Benefits
(In thousands)                                         2000            1999            2000            1999
--------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>             <C>
Change in benefit obligation
Benefit obligation at beginning of year             $ 121,421       $ 125,356       $   6,133       $   7,698
Service cost                                            1,600           1,614              74              57
Interest cost                                           3,729           8,512             481             417
Amendments                                              2,494              --              --              --
Settlement                                            (75,621)             --              --              --
Actuarial (gain)/loss                                   3,862          (5,510)            514          (1,437)
Benefits paid                                          (1,027)         (8,551)           (583)           (602)
                                                    ----------------------------------------------------------
Benefit obligation at end of year                   $  56,458       $ 121,421       $   6,619       $   6,133
                                                    ==========================================================
Change in plan assets
Fair value of plan assets at beginning of year      $ 138,061       $ 129,727       $      --       $      --
Actual return on plan assets                           (1,197)         16,602              --              --
Settlement                                            (75,621)             --              --              --
Employer contribution                                      --              25              --              --
Benefits paid                                            (770)         (8,293)             --              --
                                                    ----------------------------------------------------------
Fair value of plan assets at end of year            $  60,473       $ 138,061       $      --       $      --
                                                    ==========================================================

RECONCILIATION OF FUNDED STATUS
Funded status                                       $   4,016       $  16,640       $  (6,619)      $  (6,133)
Unrecognized net actuarial (gain)/loss                   (301)        (28,739)         (3,310)         (4,055)
Unrecognized prior service cost                         5,567           3,157            (545)           (600)
Unrecognized net transition (asset)/obligation            (80)             70              --              --
                                                    ----------------------------------------------------------
Net amount of asset (liability) recognized          $   9,202       $  (8,872)      $ (10,474)      $ (10,788)
                                                    ==========================================================

The amount recognized in the consolidated
 balance sheet consists of the following:
Accrued benefit asset (liability)                   $   9,202       $  (8,872)      $ (10,474)      $ (10,788)
Additional minimum liability                              (25)            (45)             --              --
Intangible asset                                           25              45              --              --
                                                    ----------------------------------------------------------
Net amount of asset (liability) recognized          $   9,202       $  (8,872)      $ (10,474)      $ (10,788)
                                                    ==========================================================
</TABLE>

<TABLE>
<CAPTION>
                                                               Pension Benefits                  Postretirement Benefits
                                                       2000          1999          1998          2000      1999      1998
--------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>           <C>       <C>       <C>
Weighted-average assumptions as of December 31
Discount rate                                          7.25%         7.75%         6.75%         7.25%     7.75%     6.75%
Expected return on plan assets                         9.70%         9.70%         9.70%          N/A       N/A       N/A
Average rate of compensation increase                  4.00%         4.50%         5.00%          N/A       N/A       N/A
</TABLE>

         Net periodic pension and postretirement benefit (income) costs from
continuing operations for the plans, exclusive of enhanced early retirement and
curtailment costs, includes the following components:

<TABLE>
<CAPTION>
                                                                Pension Benefits                   Postretirement Benefits
(In thousands)                                          2000          1999          1998         2000       1999        1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>           <C>           <C>         <C>         <C>
Components of net periodic benefit (income) cost
Service cost                                         $  1,600      $  1,614      $  1,470      $   75      $   57      $   54
Interest cost                                           3,729         8,512         8,288         481         417         532
Expected return on plan assets                         (5,624)      (11,089)      (10,712)         --          --          --
Amortization of prior service cost                      1,001           592           605         (56)        (56)        (56)
Recognized net actuarial (gain)                           (76)           --           (53)       (232)       (251)       (136)
Amortization of transition obligation                     150           151           161          --          --          --
                                                     -------------------------------------------------------------------------
Net periodic benefit (income) cost                   $    780      $   (220)     $   (241)     $  268      $  167      $  394
                                                     =========================================================================
</TABLE>


                                      -35-
<PAGE>   36
         The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for pension plans with accumulated benefit obligations
in excess of plan assets were $2.8 million, $2.8 million, and $0, respectively,
as of December 31, 2000 and $2.8 million, $2.7 million, and $0, respectively, as
of December 31, 1999.

         Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. The assumed health care cost trend
rate was 10 percent for 2001 and ranges from 10 percent to 5 percent for future
years. A one percentage-point change in assumed health care cost trend rates
would have the following effects:

<TABLE>
<CAPTION>
                                                                 1-Percentage            1-Percentage
(In thousands)                                                   Point Increase          Point Decrease
-------------------------------------------------------------------------------------------------------
<S>                                                              <C>                     <C>
Effect on total of service and interest cost components                $  21                 $  (19)
Effect on accumulated postretirement benefit obligation                $ 171                 $ (153)
</TABLE>

         The Company recognized curtailment expenses of $.3 million relating to
the sale of the photofinishing businesses in 1998.

         Approximately $2.8 million and $8.9 million of the accrued pension cost
and $9.9 million and $10.2 million of the accrued postretirement benefits for
2000 and 1999, respectively, are included in "Other long-term liabilities" in
the accompanying consolidated balance sheet. Pension assets of $12.0 million for
2000, are included in "Other assets" in the accompanying consolidated balance
sheet. Additionally, approximately $.6 million of the accrued postretirement
benefits for 2000 and 1999 are included in "Accrued expenses" in the
accompanying consolidated balance sheet.

         The Company is in the process of liquidating a pension plan related
primarily to the UK photofinishing business sold in 1998. At December 31, 2000,
the projected benefit obligation and accumulated benefit obligation under the
plan were $0 and the fair value of plan assets was $.9 million.

         In the first quarter, the Company recorded a pretax gain of $18.6
million associated with the purchase of non-participating annuity contracts from
Principal Life Insurance Company to settle the Company's pension benefit
obligation with respect to the retired salaried and hourly employees covered
under its pension plans and receiving pension benefits as of December 1, 1999.

                          INFORMATION ABOUT OPERATIONS

Beginning with the second quarter of 2000, the Company realigned operating
segments for financial reporting purposes due to the acquisition of Rittenhouse.
The Company now has three reportable segments - (1) Imaging Supplies, (2)
Specialty Paper Products, and (3) Label Products. The Imaging Supplies segment
includes remanufactured laser cartridge and toner and developer products and,
effective in the first quarter of 2000, the Company transferred responsibility
for the cut-sheet paper product line to the Specialty Paper segment. The Label
Products segment, formerly included in the Specialty Coated and Label Products
segment, includes pressure sensitive laminated paper, entertainment tickets,
stickers, retail shelf tags and thermosensitive label product lines. The
Specialty Paper segment, which was also included in the Specialty Coated and
Label Products segment, is now reported as a separate segment. The Specialty
Paper segment's product scope includes thermal papers, bond papers, carbonless
paper, specialty printed papers, such as ATM receipts and point-of-sale
receipts, wide format papers, dry-gum papers, heat seal papers and ribbons.
Historical segment data has been restated to reflect these changes.

         The Imaging Supplies segment produces and sells copier supplies
(primarily toner and developer) to distributors, value-added resellers and end
users. The Specialty Paper Products segment manufactures various converted paper
products sold primarily to domestic converters and re-sellers, end users and
private-label distributors. The Label Products segment manufactures pressure
sensitive laminated paper, entertainment tickets, stickers, retail shelf tags
and thermosensitive label product lines to merchants, converters and end-users.


                                      -36-
<PAGE>   37
         The accounting policies of the segments are the same as those described
in the "Summary of Significant Accounting Policies" Note to the Consolidated
Financial Statements. Segment data does not include restructuring and other
unusual items, and does not allocate all corporate costs and assets to the
divisions. The Company evaluates the performance of its segments and allocates
resources to them based on pretax income before restructuring and other unusual
items.

         The Specialty Paper Products segment is a major supplier of thermal
roll stock to the Label Products segment. Eliminations represent sales between
these business segments. Sales between segments and between geographic areas are
generally priced at the lowest price offered to unaffiliated customers.

         The Company's reportable segments are strategic business units grouped
by product class. They are managed separately because each business requires
different technology and marketing strategies.

         The table below presents information about reported segments for the
years ended December 31:

<TABLE>
<CAPTION>
                                         Net Sales From                 Pretax Income (Loss) From
                                      Continuing Operations               Continuing Operations               Identifiable Assets
------------------------------------------------------------------------------------------------------------------------------------
(In millions)                    2000        1999        1998        2000        1999        1998        2000       1999       1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>         <C>         <C>         <C>         <C>         <C>         <C>        <C>        <C>
By Reportable Segment
Imaging Supplies               $  27.9     $  41.1     $  44.3     $  (4.2)    $  (1.6)    $  (2.3)    $  16.3    $  21.6    $  21.2
Specialty Paper Products         138.8        66.3        62.9         7.5         2.6         2.6        54.5       19.8       21.7
Label Products                   105.1        78.6        72.6         5.4         6.9         7.0        37.6       31.0       25.3

Reconciling Items:
   Eliminations                  (19.2)      (15.4)      (12.1)         --          --          --          --         --         --
   Other (1)                        .5          .2          .1         1.0         (.2)        (.6)         .7         .1        1.0
   Corporate expenses and
      assets                        --          --          --       (14.4)       (6.1)       (4.9)       58.6       54.0       64.1
   Pension settlement income        --          --          --        18.6          --          --          --         --         --
   Restructuring and other
      unusual items                 --          --          --        (1.0)        1.3       (13.8)         --         --         --
   Discontinued operations          --          --          --          --          --          --         2.8        3.9         .8
------------------------------------------------------------------------------------------------------------------------------------
Consolidated                   $ 253.1     $ 170.8     $ 167.8     $  12.9     $   2.9     $ (12.0)    $ 170.5    $ 130.4    $ 134.1
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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


         Capital expenditures and depreciation and amortization by reportable
segment are set forth below for the years ended December 31:

<TABLE>
<CAPTION>
                                       Capital Expenditures                       Depreciation & Amortization
---------------------------------------------------------------------------------------------------------------
(In millions)                    2000         1999         1998                  2000         1999         1998
---------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>                   <C>          <C>          <C>
Imaging Supplies              $   3.1      $   3.0      $   1.1               $   2.0      $   1.9      $   2.1
Specialty Paper Products          4.7          1.2           .9                   2.7          1.9          2.2
Label Products                    1.4          3.5          4.5                   2.9          2.0          1.5

Reconciling Items:
     Other (1)                     --           --           --                    --           .1           .2
     Goodwill                      --           --           --                   1.1           --           --
     Corporate                     .4           .2           .2                    .6           .5           .8
---------------------------------------------------------------------------------------------------------------
Consolidated                  $   9.6      $   7.9      $   6.7               $   9.3      $   6.4      $   6.8
---------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                      -37-
<PAGE>   38
         The following is information by geographic area as of and for the years
ended December 31:

<TABLE>
<CAPTION>
                                            Net Sales From
                                         Continuing Operations                    Long-Lived Assets
(In millions)                       2000         1999         1998         2000         1999         1998
----------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
By Geographic Area
United States                     $ 251.8      $ 169.1      $ 166.9      $  97.2      $  40.4      $  39.3
Europe                                1.3          1.7           .9           --           --           .4

Reconciling Items:
     Discontinued Operations           --           --           --           .8           .8           .8
     Deferred tax assets               --           --           --           .9          9.7         10.2
----------------------------------------------------------------------------------------------------------
Consolidated                      $ 253.1      $ 170.8      $ 167.8      $  98.9      $  50.9      $  50.7
----------------------------------------------------------------------------------------------------------
</TABLE>

         Net sales from continuing operations by geographic area are based upon
the geographic location from which the goods were shipped and not the customer
location.

                     QUARTERLY OPERATING RESULTS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          1st         2nd           3rd          4th
(In millions, except per share data)                                  Quarter     Quarter       Quarter      Quarter         Year
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>           <C>          <C>         <C>
2000(1)
  Net sales                                                          $44,010      $68,723       $73,310      $67,079     $253,122
  Gross profit                                                         8,922       15,373        14,031       12,439       50,765
  Net income (loss)(2)                                                 9,841          202        (1,035)      (3,622)       5,386
  Earnings (loss) per common share(2)                                   1.75          .04          (.18)       (0.64)         .95

  Market price:
    High                                                               10.31         9.00         10.13         8.25        10.31
    Low                                                                 7.19         7.63          7.81         3.56         3.56

1999
  Net sales                                                          $42,649      $42,573       $43,668      $41,954     $170,844
  Gross profit                                                        10,287       10,422        10,338        9,925       40,972
  Income (loss) from continuing operations(3)                            218          514           652       (1,804)        (420)
  Loss from discontinued operations(4)                                    --           --            --       (4,001)      (4,001)
  Net income (loss)(3) (4)                                               218          514           652       (5,805)      (4,421)
  Earnings (loss) per common share:
    Continuing operations(3)                                             .04          .09           .12         (.32)        (.07)
    Discontinued operations(4)                                            --           --            --         (.71)        (.70)
    Net income (loss)(3) (4)                                             .04          .09           .12        (1.03)        (.77)

  Market price:
    High                                                               15.44        11.81         11.63         8.88        15.44
    Low                                                                11.50         9.63          8.88         6.56         6.56
</TABLE>

(1)      The Company acquired Rittenhouse on April 17, 2000, as described in the
         "Business Changes" Note. The operations of Rittenhouse have been
         included in the Company's quarterly operating results since the date of
         acquisition.


                                      -38-
<PAGE>   39
(2)      The first quarter includes a pretax gain of $18.6 million associated
         with the purchase of non-participating annuity contracts to settle the
         Company's pension benefit obligation with respect to the retired
         salaried and hourly employees covered under its pension plans and
         receiving pension benefits as of December 1, 1999. The first quarter
         also includes a pretax restructuring charge of $1.5 million related to
         the discontinuance of its remanufactured laser cartridge ("cartridge")
         product line. The third quarter includes unusual pretax income of $.1
         million resulting from a reduction in the reserve established in the
         first quarter for the discontinued cartridge product line. The fourth
         quarter includes a tax adjustment of $2.5 million relating to the
         write-off of expired net loss carryforwards and for non-deductible
         goodwill resulting from the Company's decision in the fourth quarter to
         forego the treatment of the Rittenhouse acquisition as an asset
         purchase for tax purposes. The fourth quarter also includes net unusual
         pretax income of $.4 million consisting primarily of unusual income
         resulting from the reversal of a loss accrual relating to the
         settlement of a patent infringement lawsuit against the Company,
         partially offset by restructuring charges associated with workforce
         reductions at Corporate and in the Imaging Supplies segment.

(3)      The third quarter includes a net pretax restructuring charge of $.1
         million, consisting of a restructuring charge associated with the
         Company's decision to cease manufacturing fax papers, partially offset
         by a gain resulting from the completion of the partial sale of the
         Company's Microsharp imaging technology. The fourth quarter includes
         unusual pretax income of $1.4 million resulting from an insurance
         settlement related to environmental matters. The fourth quarter also
         includes a tax charge of $2.1 million related to an increase in the
         Company's tax valuation allowance for state net operating loss
         carryforwards and the provision of a reserve for potential liabilities
         associated with open tax audits primarily related to an IRS notice
         received in the fourth quarter of 1999.

(4)      Represents a tax charge related to the provision of a reserve for
         potential liabilities associated with open tax audits.

                      COMMON STOCK INFORMATION (UNAUDITED)

The Company's stock is traded on the New York Stock Exchange under the trading
symbol "NSH." At December 31, 2000, there were 1,200 record holders of the
Company's common stock.

                                 RELATED PARTIES

Rent expense incurred on property and equipment leases with various entities
owned by a director and executive officer of the Company, and his affiliates,
was $.3 million in 2000. There were no material related party transactions in
1999 and 1998.


                                      -39-
<PAGE>   40
                                                                     SCHEDULE II


                       NASHUA CORPORATION AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

<TABLE>
<CAPTION>
                                       Balance at
                                         Previous                                       Balance at
Description                            End of Year      Additions       Deductions     End of Year
-----------                            -----------      ---------       ----------     -----------
<S>                                    <C>             <C>              <C>            <C>
DECEMBER 31, 2000:

Allowance for doubtful accounts         $ 1,327        $ 1,478(a)        $(1,770)(b)        $ 1,035
Valuation allowance on state net
  operating loss carryforwards            1,100            785                --              1,885


DECEMBER 31, 1999:

Allowance for doubtful accounts         $   866        $   647(c)        $  (186)(d)        $ 1,327
Valuation allowance on state net
  operating loss carryforwards              300            800                --              1,100



DECEMBER 31, 1998:

Allowance for doubtful accounts         $ 1,193        $   176(c)        $  (503)(d)        $   866
Valuation allowance on state net
  operating loss carryforwards              328             --               (28)               300
</TABLE>


(a)      Includes the impact of the Rittenhouse acquisition and amounts charged
         to costs and expenses.

(b)      Includes the impact of the Rittenhouse acquisition and accounts deemed
         uncollectible.

(c)      Includes amounts charged to costs and expenses.

(d)      Includes accounts deemed uncollectible.



                                      -40-
<PAGE>   41
                         REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NASHUA CORPORATION:

We have audited the accompanying consolidated balance sheet of Nashua
Corporation as of December 31, 2000, and the related consolidated statements of
operations and retained earnings and of cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit. The financial statements
and schedule of the Company as of December 31, 1999 and 1998, were audited by
other auditors whose report dated February 18, 2000, expressed an unqualified
opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Nashua Corporation
as of December 31, 2000, and the consolidated results of operations and retained
earnings and cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.





                                            ERNST & YOUNG LLP
Manchester, New Hampshire
February 26, 2001



                                      -41-
<PAGE>   42

                       REPORT OF INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NASHUA CORPORATION:


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Nashua
Corporation and its subsidiaries at December 31, 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




PricewaterhouseCoopers LLP
Boston, Massachusetts

February 18, 2000


                                      -42-
<PAGE>   43
                        REPORT OF INDEPENDENT ACCOUNTANTS

                         ON FINANCIAL STATEMENT SCHEDULE




TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF NASHUA CORPORATION:


Our audits of the consolidated financial statements referred to in our report
dated February 18, 2000, appearing in this Annual Report Form 10-K also included
an audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.









PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000


                                      -43-
<PAGE>   44
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

On March 15, 2000, the Company filed a report on Form 8-K with respect to a
change in the Company's independent auditors.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The information required by this Item with respect to directors will be included
in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 8, 2001, and is incorporated herein by reference.

EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item with respect to executive officers is
contained in Part I of this Form 10-K.



ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item will be included in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
May 8, 2001, and is incorporated herein by reference.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item with respect to directors will be included
in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 8, 2001, and is incorporated herein by reference.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item with respect to directors will be included
in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on May 8, 2001, and is incorporated herein by reference.


                                      -44-
<PAGE>   45
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      The following documents are included in Item 8 of Part II of this Form
         10-K:

         (1)    Financial statements:
                Consolidated statements of operations and retained earnings for
                    each of the three years ended December 31, 2000, 1999 and
                    1998
                Consolidated balance sheets at December 31, 2000 and December
                    31, 1999
                Consolidated statements of cash flows for each of the
                    three years ended December 31, 2000, 1999 and 1998
                Notes to consolidated financial statements
                Report of independent auditors

         (2)    Financial statement schedule:
                Report of independent auditors on financial statement schedule
                Schedule II - Valuation and qualifying accounts for each of the
                   three years ended December 31, 2000, 1999 and 1998

         The financial statement schedule should be read in conjunction with the
financial statements included in Item 8 of Part II of this Form 10-K. All other
schedules have been omitted as they are not applicable, not required, or the
information is included in the consolidated financial statements or notes
thereto.

<TABLE>
<S>               <C>
         (3)      Exhibits:

         3.01     Certificate of Incorporation, as amended. Exhibit to the
                  Company's Annual Report on Form 10-K for the year ended
                  December 31, 1989 and incorporated herein by reference.

         3.02*    By-laws, as amended.

         4.01     Revolving Credit and Term Loan Agreement entered into as of
                  April 14, 2000 by and among the Company, Rittenhouse, L.L.C.,
                  Rittenhouse Paper Company, Fleet Bank-NH and LaSalle Bank,
                  NA Exhibit to the Company's Form 8-K dated April 14, 2000
                  and incorporated herein by reference.

         4.02     Amendment to the Revolving Credit and Term Loan Agreement as
                  of October 23, 2000 by and among the Company, Rittenhouse,
                  L.L.C., Rittenhouse Paper Company, Fleet National Bank and
                  LaSalle Bank, NA Exhibit to the Company's Form 10-Q for the
                  quarterly period ended September 29, 2000 and incorporated
                  herein by reference.

         4.03*    Amendment to the Revolving Credit and Term Loan Agreement
                  dated February 28, 2001 by and among the Company, Rittenhouse,
                  L.L.C., Rittenhouse Paper Company, Fleet National Bank and
                  LaSalle Bank, NA.

         +10.01   1987 Stock Option Plan. Exhibit to the Company's Proxy
                  Statement dated March 24, 1987 and incorporated herein by
                  reference.

         +10.02   Amendments to the 1987 Stock Option Plan effective as of April
                  28, 1989. Exhibit to the Company's Form 10-Q for the quarterly
                  period ended June 30, 1989 and incorporated herein by
                  reference.

         +10.03   Amended 1996 Stock Incentive Plan effective April 13, 1999.
                  Exhibit to the Company's Form 10-Q for the quarterly period
                  ended April 2, 1999 and incorporated herein by reference.

         +10.04   1999 Shareholder Value Plan effective April 30, 1999. Exhibit
                  to the Company's Form 10-Q for the quarterly period ended
                  April 2, 1999 and incorporated herein by reference.

</TABLE>


                                      -45-
<PAGE>   46
<TABLE>
<S>               <C>

         +10.05   Employment Agreement dated as of April 14, 2000 between the
                  Company and Andrew B. Albert. Exhibit to the Company's Form
                  8-K dated April 18, 2000 and incorporated herein by reference.

         +10.06   Change of Control and Severance Agreement dated as of June 24,
                  1998 between the Company and John L. Patenaude. Exhibit to the
                  Company's Form 10-Q for the quarterly period ended July 3,
                  1998 and incorporated herein by reference.

         +10.07   Change of Control and Severance Agreement dated as of June 24,
                  1998 between the Company and Joseph R. Matson. Exhibit to the
                  Company's Form 10-Q for the quarterly period ended July 3,
                  1998 and incorporated herein by reference.

         +10.08*  Change of Control and Severance Agreement dated as of December
                  15, 2000 between the Company and Robert S. Amrein.

         +10.09   Change of Control and Severance Agreement dated as of July 19,
                  1999 between the Company and John J. Ireland. Exhibit to the
                  Company's Form 10-Q for the quarterly period ended October 1,
                  1999 and incorporated herein by reference.

         +10.10   Change of Control and Severance Agreement dated as of February
                  25, 2000 between the Company and Donna J. DiGiovine. Exhibit
                  to the Company's Form 10-K for the year ended December 31,
                  1999 and incorporated herein by reference.

         +10.11   Management Incentive Plan dated as of March 1999. Exhibit to
                  the Company's Annual Report on Form 10-K for the year ended
                  December 31, 1999 and incorporated herein by reference.

         +10.12*  Form of Indemnification Agreement between the Company and its
                  directors and executive officers.

         +10.13*  Deferred Compensation Agreement dated as of December 23, 1996
                  between Rittenhouse Paper Company and Thomas R. Pagel.

         10.14*   Lease for corporate offices dated December 19, 1994.

         11.01*   Statement regarding Computation of Earnings Per Share and
                  Common Equivalent Share.

         21.01*   Subsidiaries of the Registrant.

         23.01*   Consent of Ernst & Young LLP.

         23.02*   Consent of PricewaterhouseCoopers LLP.

         24.01*   Powers of Attorney.
</TABLE>

         * - Filed herewith.

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


(4)      Reports on Form 8-K:

No reports on Form 8-K were filed by the Company during the three months ended
December 31, 2000.


                                      -46-
<PAGE>   47
                                   SIGNATURES

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

<TABLE>
<S>                                          <C>
                                             NASHUA CORPORATION

Date: March 28, 2001                         By /s/ John L. Patenaude
      --------------                            --------------------------------
                                                    John L. Patenaude
                                                    Vice President-Finance and
                                                    Chief Financial Officer
</TABLE>

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

<TABLE>
<CAPTION>
SIGNATURE                           TITLE                                       DATE
---------                           -----                                       ----
<S>                                 <C>                                         <C>
/s/Andrew B. Albert                 Chairman, President and                     March 28, 2001
---------------------------         Chief Executive Officer
 Andrew B. Albert                   (principal executive officer)


/s/John L. Patenaude                Vice President-Finance and                  March 28, 2001
---------------------------         Chief Financial Officer
 John L. Patenaude                  (principal financial officer)


/s/Joseph R. Matson                 Vice President, Corporate Controller        March 28, 2001
---------------------------         and Chief Accounting Officer
 Joseph R. Matson                   (principal accounting officer)


*                                   Director
---------------------------
 Sheldon A. Buckler

*                                   Director
---------------------------
 Avrum Gray

*                                   Director
---------------------------
 Charles S. Hoppin

*                                   Director
---------------------------
 John M. Kucharski

*                                   Director
---------------------------
 David C. Miller, Jr.

*                                   Director
---------------------------
 George R. Mrkonic, Jr.

*                                   Director
---------------------------
 Peter J. Murphy

*                                   Director
---------------------------
 James F. Orr III

*By /s/ John L. Patenaude                                                       March 28, 2001
-------------------------
        John L. Patenaude
        Attorney-In-Fact
</TABLE>


                                      -47-