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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 28, 2003

OR

   For the transition period from              to             

Commission File No. 1-11427

NEW ENGLAND BUSINESS SERVICE, INC.

(Exact name of registrant as specified in its charter)

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

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

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

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

Yes x                No ¨

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes x                No ¨

The aggregate market value of the Registrant’s Common Stock, par value $1.00 per share, held by stockholders who are not affiliates of the Registrant at August 29, 2003 as computed by reference to the closing price of such stock on that date was approximately $380,431,913.

The number of shares of Registrant’s Common Stock, par value $1.00 per share, outstanding at August 29, 2003 was 13,210,145.

Documents Incorporated By Reference

Portions of the Proxy Statement sent to stockholders in connection with the Annual Meeting to be held on October 24, 2003 are incorporated by reference into Items 10, 11, 12 and 13 (Part III) of this Report. Such Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed “filed” for the purposes of this report on Form 10-K.

Table of Contents

New England Business Service, Inc.

2003 ANNUAL REPORT

ON FORM 10-K

TABLE OF CONTENTS

Table of Contents

PART I

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

In June 1998, the Company acquired all the outstanding shares of McBee Systems, Inc. and substantially all of the assets of McBee Systems of Canada, Inc. (collectively “McBee”) for consideration of approximately $48.5 million in cash (net of cash acquired) and $12.6 million in Company common stock. McBee manufactures and markets checks and related products to small businesses in the United States and, at the time of the acquisition, in Canada through a dedicated field sales force. The McBee business operation in the United States is reported in the Direct and Distributor Sales segment and the Canadian operation has been combined with the Company’s other operations in Canada and is reported in the International segment.

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

In March 2003, the Company acquired certain assets of the payroll division of Parkwood Computer Services, Inc. for consideration of approximately $1.2 million in cash. The newly-formed NEBS Payroll Service Limited offers payroll services to small businesses across Canada and is reported in the International segment.

In June 2003, the Company acquired all the outstanding shares of Safeguard Business Systems, Inc. (“SBS”) for consideration of approximately $74.6 million in cash (net of cash acquired). The purchase price is also subject to a post-closing working capital adjustment. SBS manufactures and markets a line of checks, check-writing systems and business forms to small businesses through a network of approximately 360 dedicated distributors in the United States and Canada. SBS is reported in the Direct and Distributor Sales segment.

The Company has identified five reportable segments. The first segment is “Direct Marketing-US” and represents those business operations that sell principally printed products such as checks and business forms to small businesses through direct marketing in the United States. The second segment, “Direct and Distributor Sales,” also sells primarily checks and business forms to small businesses; however, they sell through a direct sales force and both dedicated and independent distributors to small businesses in the United States and Canada. The third segment, “Apparel”, utilizes independent sales representatives to market its specialty apparel products and to solicit orders from customers in the promotional products/advertising specialty industry. “Packaging and Display Products”, the fourth segment, primarily resells packaging and shipping supplies and retail signage marketed through a combination of direct marketing and direct selling efforts. The fifth segment, “International”, sells principally printed products such as checks and business forms to small businesses in Europe and Canada through direct marketing, independent distributors or by directly selling to the customer.

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

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Products

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

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

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

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

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

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

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

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

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The Company, through its PremiumWear subsidiary, sells principally knit and woven sport shirts under the Munsingwear^®, Jockey^® and Field & Stream^® labels to promotional products/advertising specialty customers pursuant to licenses from PEI Licensing, Inc., Jockey International, Inc. and Field & Stream Licenses Company, respectively. The Company sells its owned Page & Tuttle^® brand of knit golf shirts and coordinated apparel to advertising specialty customers and golf course pro shops throughout the United States. Distribution of PremiumWear products to customers is accomplished through independent sales representatives. Also, PremiumWear receives commission income from representing other companies’ products to the promotional products industry.

Principally through its Direct and Distributor Sales segment, the Company sells payroll and payroll tax-filing services to small businesses in the United States on a private-label basis pursuant to a distribution agreement with a payroll services company. The service is designed to manage payroll processing and compliance by calculating and submitting all payroll tax payments and deposits to the federal, state and local tax jurisdictions, fulfilling regulatory payroll reporting requirements and delivering payroll checks. Payroll services are also sold through the Company’s Canadian operation to small businesses in Canada.

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

Product Development and Research

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

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

Sales and Marketing

The Company has four distinct channels of distribution. The Company’s primary channel, used by all segments except for Apparel, is direct mail, through which up to 100 million pieces of promotional advertising offering the Company’s products are delivered by mail to customers and prospective customers each year under the NEBS^®, RapidForms^®, McBee^®, Chiswick^®, Histacount^®, SYCOM^®, R&M Retail Merchandising Products^®, Visual Display Solutions^®, Bags & Bows^®, NCS National Clothier Supply^®, Main Street^®, Holiday Expressions^®, Ad Ideas^™, ASH^®, NAPCO^®, Education Matters^®, Company Colors^®, Business Envelopes^™ and SFL^™ brand names. The Company’s direct mail efforts are supplemented by the prospecting and account development efforts of an outbound telemarketing group.

The Company’s success to date has largely been the result of effective direct marketing and the strength of its customer relationships. Targeted direct mail marketing in combination with focused telemarketing allows the Company to identify and penetrate geographically dispersed but, in the aggregate, significant markets. The Company targets small businesses with 100 or fewer employees within these markets with specialized

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promotions and products specifically designed to meet small business needs. In the direct mail channel, the Company’s promotional materials contain one or more order forms to be completed by the customer and either mailed, faxed or telephoned to the Company’s telesales and customer service group. The Company and its subsidiaries also maintain numerous Internet sites for promotion, customer education and order taking.

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

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

The principal focus of the McBee sales force in the Direct and Distributor Sales segment is to generate first-time buyers for check and check-writing system products. An additional focus for the McBee sales force is selling payroll services. Prospective customer leads are generated for the McBee sales force under referral arrangements with accountants servicing small businesses and commercial banks representing approximately 30,500 geographically dispersed branch offices. The McBee sales effort typically targets small business customers with fewer than ten employees. The principal focus of the Chiswick and Russell & Miller sales forces in the Packaging and Display Products segment is to develop high-potential customer relationships initially established through the direct mail channel. The Chiswick and Russell & Miller sales efforts typically focus on businesses with more than 100 employees or retail chains with geographically dispersed store locations.

The Company’s third principal distribution channel is through independent local dealers and distributors used primarily by the Direct and Distributor Sales segment. The Company distributes a full line of standard and custom printed products, including manual and computer forms, checks, greeting cards and labels through this channel. The more significant component of this channel is the approximately 360 Safeguard dealers who exclusively market Safeguard^® products throughout North America. In addition, the Company has a network of approximately 26,000 independent dealers comprised of local printers and print distributors, office supply dealers, ad specialty dealers, computer retailers and computer systems value-added resellers.

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

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

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

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

Raw Materials, Production and Distribution

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

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

Due to business primarily from within the Packaging and Display Products segment, the Company has significant revenue generated by the sale of stock business products produced by third parties, but shipped to customers by the Company, including industrial packaging and warehouse supplies, and retail supplies. The Company principally utilizes a “pick and pack” operation to aggregate stock products from warehoused inventory into distinct order groups and to package these order groups for shipment to the customer. The Company’s stock business products are obtained from a large number of suppliers at competitive prices. In addition, the Company relies on a limited number of suppliers to produce and drop-ship products directly to Company customers. The Company believes that alternative sources are generally available for products purchased from third-party vendors and is continually evaluating its sourcing of these third-party supplied products. PremiumWear, which comprises the Apparel segment, primarily sources its product from “full package” manufacturers outside the United States. These “full package” manufacturers produce a finished garment, and do not require PremiumWear to do any additional assembly. There currently is reasonable availability of raw materials, manufacturing and assembly capacity for the product lines in this segment.

The Company does not operate with a significant backlog of orders. The Company’s objective is to produce and ship product as expeditiously as possible following receipt of a customer’s order. Approximately 70% of printed products are routinely produced and shipped within one day and approximately 90% within four days of order. The Company’s stock business products are routinely shipped within 24 hours of receipt of a customer order. Approximately 53% of apparel products were shipped within one day and substantially all within five days of order.

To facilitate expeditious production and shipment of product, the Company maintains inventories of unprinted paper ($4.6 million at June 28, 2003), and partially printed business forms, packaging, shipping and retail supplies, work and promotional apparel and related business products ($35.2 million at June 28, 2003).

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

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For a further discussion of the risks and uncertainties associated with the Company’s reliance on certain individual third-party vendors to provide raw materials and services critical to the Company’s operation, see “Certain Factors That May Affect Future Results” included in Part II, Item 7 to this Annual Report on Form 10-K.

Competition

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

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

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

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

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

Employees

The Company had 4,356 full and part-time employees at June 28, 2003. The Company believes its relationship with its employees to be satisfactory.

Environment

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

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The Company’s principal operating facilities are set forth below:

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

On June 30, 2000, a complaint entitled “Perry Ellis International, Inc. v. PremiumWear Inc.”, was filed. The Company was subsequently named a co-defendant. The amended complaint relates to a Right of First Refusal Agreement dated as of May 22, 1996 (the “RFR Agreement”) between the plaintiff and PremiumWear, Inc., and to the Company’s acquisition of all the outstanding shares of PremiumWear in July 2000. In the amended complaint, the plaintiff alleges breach of the RFR Agreement and breach of an implied covenant of good faith and fair dealing against PremiumWear as a result of PremiumWear’s alleged failure to notify the plaintiff of

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certain discussions between PremiumWear and the Company preceding the Company’s agreement to purchase all of the outstanding shares of PremiumWear. The amended complaint also alleges that the Company tortiously interfered with the plaintiff’s rights under the RFR Agreement by allegedly inducing PremiumWear to breach its obligations to the plaintiff under the RFR Agreement. The plaintiff is seeking damages in an unspecified amount, attorneys’ fees, interest and costs. The Company believes the allegations in the amended complaint are without merit and intends to defend the lawsuit vigorously.

On July 24, 2002, a class action lawsuit entitled “OLDAPG, Inc. v. New England Business Service, Inc.” was filed in the Court of Common Pleas of the Ninth Judicial Circuit in and for Charleston County, South Carolina. The named plaintiff in the lawsuit seeks to represent a class consisting of all persons who allegedly received facsimiles containing unsolicited advertising from the Company in violation of the Telephone Consumer Protection Act of 1991 (the “TCPA”). The plaintiff is seeking statutory damages in the amount of $500.00 per individual violation, which amount can be trebled to $1,500.00 for each violation found to have been “willful and knowing”. The litigation has been settled by agreement between the parties, subject to approval by the Court, on terms which the Company believes will not be material to its financial condition and results of operations.

The Company is also involved in a number of other legal matters related to the business and in the opinion of management the outcome of these matters will not have a material effect on the Company’s consolidated financial position or results of operations.

There were no matters submitted to a vote of stockholders during the fourth quarter of fiscal 2003.

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

Robert J. Murray, age 62, joined the Company in 1995, and has served as Chairman of the Board and Chief Executive Officer of the Company since that date. From 1995 to 2002 he also served as President of the Company. Mr. Murray retired from The Gillette Company, a diversified consumer products company, in 1995, having been with Gillette for more than 34 years. Mr. Murray served in a variety of capacities during his career at Gillette, and during the four years immediately preceding his retirement, he was Executive Vice-President, North Atlantic Group of Gillette. Mr. Murray has been a director of the Company since 1991 and he is also a director of LoJack Corporation, Allmerica Financial Corporation and the Delhaize Group.

Richard T. Riley, age 47, joined the Company in 1997 in connection with the Company’s acquisition of Rapidforms, Inc., and has served as President and Chief Operating Officer of the Company since 2002. Prior to that, he served as a Senior Vice President of the Company from 1998 to 2002, and as President, NEBS Direct Marketing from 2001 to 2002, as President, Integrated Marketing Services from 2000 to 2001, and as President of Rapidforms from 1992 to 2001. During 1998 he held the additional office of Vice President of the Company. Mr. Riley has been a director of the Company since 2002.

George P. Allman, age 61, joined the Company in 1996, and he served as a Senior Vice President of the Company since 1998. He has also served as President, Distributor Sales since June 2003, and prior to that he served as President, Diversified Operations from 1998 to June 2003. Prior to that he served as Vice President, Diversified Operations from 1996 to 1998, and as Vice President, Retail Sales and Operations during 1996.

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Jeffrey W. Angus, age 48, joined the Company in 1995, and has served as Senior Vice President, Information Systems, since 1998. Prior to that, he served as Vice President, Information Systems from 1996 to 1998.

David E. Berg, age 46, joined the Company in 2000 in connection with the Company’s acquisition of PremiumWear, Inc., and has served as a Senior Vice President of the Company since 2000. Mr. Berg has also served as PremiumWear’s President since 1997, and as Chief Executive Officer since 1999. He also served as PremiumWear’s Chief Operating Officer from 1996 to 1999.

John F. Fairbanks, age 42, joined the Company in 1994, and has served as a Senior Vice President of the Company since 1998. He has served as President, Integrated Marketing Services since June 2003, and prior to that he served as President, Chiswick from 1998 to June 2003. Prior to that, he served as Vice President and Chief Financial Officer from 1996 to 1998, and prior to that in different capacities in corporate administration.

Daniel M. Junius, age 51, joined the Company in 1998, and has served as Executive Vice President, Chief Financial Officer and Treasurer since 2002. Prior to that, he served as Senior Vice President, Chief Financial Officer and Treasurer from 1998 to 2002.

Steven G. Schlerf, age 51, joined the Company in 1979, and has served as Senior Vice President, Manufacturing and Technical Operations since 1998. Prior to that, he served as Vice President, Manufacturing and Technical Operations from 1996 to 1998, and prior to that in a variety of capacities in manufacturing and operations.

Robert D. Warren, age 52, joined the Company in 1996, and has served as a Senior Vice President of the Company since 1998. He has also served as President, NEBS Direct Marketing since 2002, and prior to that he served as President, International from 2000 to 2002. Prior to that, he served as Senior Vice President, Business Management and Development from 1998 to 2000, and as Vice President, Business Management and Development from 1996 to 1998.

Hedwig V. Whitney, age 52, joined the Company in 2002, and has served as Senior Vice President, Human Resources since that date. Prior to joining the Company, Ms. Whitney served as Senior Vice President and Director of Human Resources for Fidelity Investments Retirement Services Company, a provider of 401(k) retirement plan services, from 1997 to 2000.

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PART II

Common Stock

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

As of August 29, 2003, there were 564 stockholders of record, and the Company believes that as of such date there were approximately 6,000 beneficial owners of the Company’s Common Stock, based on information provided by the Company’s transfer agent. Information with respect to dividends paid on the Company’s Common Stock during the past two fiscal years is shown in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides details regarding the shares of common stock issuable upon the exercise of outstanding options, warrants and rights granted under the Company’s equity compensation plans (including individual equity compensation arrangements) as of the end of the last fiscal year. The securities referred to in the table are shares of the Company’s common stock.

Equity Compensation Plan Information

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On February 2, 1996, the Company granted to Robert J. Murray, the Company’s Chairman and Chief Executive Officer, a 10-year option to purchase 250,000 shares of common stock at a price of $18.25 per share, which was the fair market value of the common stock on the date of grant. The option vested as to 25% of the shares covered by the award on the date of grant, and as to an additional 25% of the shares covered by the award on each of the first three anniversaries of the date of grant. The option is generally non-transferable, and is not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

The option was not approved by the Company’s stockholders; however, in connection with the grant of the option, the Company’s Board of Directors reduced the number of shares that were authorized to be issued under the NEBS 1994 Key Employee and Eligible Director Stock Option and Stock Appreciation Rights Plan by 250,000 shares. As of the date of this Annual Report on Form 10-K, Mr. Murray has not exercised any portion of the option.

On August 14, 2000, the Company granted to eighteen key employees of PremiumWear options to purchase an aggregate of 105,083 shares of common stock authorized for issuance under the NEBS 2000 Stock Option Plan for PremiumWear Employees (the “2000 Plan”) at a price of $19.25 per share, which was the fair market value of the common stock on the date of grant. Shares allocable to the unexercised or surrendered portion of any expired or terminated option are available for issuance under future option grants to PremiumWear employees; however, the Company does not currently intend to make any additional option grants pursuant to the 2000 Plan.

With respect to four of the grantees who were executives of PremiumWear, the options vest as to one-third of the shares covered by each award on each of the first three anniversaries of the date of grant, and with respect to one grantee who was an executive of PremiumWear, the option vests as to 50% of the shares covered by the award on each of the first two anniversaries of the date of grant. With respect to the remaining non-executive grantees, the options vest as to 25% of the shares covered by each award on the date of grant, and as to an additional 25% of the shares covered by each award on each of the first three anniversaries of the date of grant, except that all options granted pursuant to the 2000 Plan will vest immediately in case of a change in control of the Company (as defined in the 2000 Plan).

Once vested, the options may be exercised by the holder at any time prior to the cessation of the holder’s employment with the Company or a subsidiary of the Company (or within three months following the holder’s retirement from the Company or a subsidiary), or by the holder’s legal representative within twelve months following the termination of the holder’s employment with the Company or a subsidiary by reason of the holder’s death, but in no event later than ten years from the date of grant. Options granted pursuant to the 2000 Plan are generally non-transferable, and are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

Neither the adoption of the 2000 Plan, nor the granting of any options thereunder, was approved by the Company’s stockholders. The options were granted to certain executives of PremiumWear as a material inducement to the executives’ entering into employment agreements in connection with the Company’s acquisition of PremiumWear, and in order to retain the employment of certain other key employees of PremiumWear following such acquisition.

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FIVE YEAR SUMMARY

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

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

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Overview

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

In June 1998, the Company acquired all the outstanding shares of McBee Systems, Inc. and substantially all of the assets of McBee Systems of Canada, Inc. (collectively “McBee”) for consideration of approximately $48.5 million in cash (net of cash acquired) and $12.6 million in Company common stock. McBee manufactures and markets checks and related products to small businesses in the United States and Canada through a dedicated field sales force. The McBee business operation in the United States is reported in the Direct and Distributor Sales segment and the Canadian operation is reported in the International segment.

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

In March 2003, the Company acquired certain assets of the payroll division of Parkwood Computer Services, Inc. for consideration of approximately $1.2 million in cash. The newly-formed NEBS Payroll Service Limited offers payroll services to small businesses across Canada and is reported in the International segment.

In June 2003, the Company acquired all of the outstanding shares of Safeguard Business Systems, Inc. (“SBS”) for consideration of approximately $74.6 million in cash (net of cash acquired). The purchase price is also subject to a post-closing working capital adjustment. SBS manufactures and markets a line of checks, check-writing systems and business forms to small businesses through a network of approximately 360 dedicated distributors in the United States and Canada. SBS is reported in the Direct and Distributor Sales segment.

The Company’s fiscal year ends the last Saturday of June. The Company’s results for fiscal years 2002 and 2003 encompassed 52 weeks; fiscal year 2001 encompassed 53 weeks.

The Company has identified five reportable segments. The first segment is “Direct Marketing-US” and represents those business operations that sell principally printed products such as checks and business forms to small businesses through direct marketing in the United States. The second segment, “Direct and Distributor Sales,” also sells primarily checks and business forms to small businesses; however, they sell through a direct sales force and both dedicated and independent distributors to small businesses in the United States and Canada. The third segment, “Apparel”, utilizes independent sales representatives to market its specialty apparel products and to solicit orders from customers in the promotional products/advertising specialty industry. “Packaging and Display Products”, the fourth segment, primarily resells packaging and shipping supplies and retail signage marketed through a combination of direct marketing and direct selling efforts. The fifth segment, “International”, sells principally printed products such as checks and business forms to small businesses in Europe and Canada through direct marketing, independent distributors or by directly selling to the customer.

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

Results of Operations

2003 versus 2002

Net sales decreased $6.3 million or 1.1% to $551.2 million for fiscal year 2003 from $557.5 million in fiscal year 2002. The comparison includes net sales of SBS acquired in June 2003, thus not part of the comparable figures for fiscal year 2002. SBS net sales for the month of June amounted to $12.3 million. Their results are included with the results of the Direct and Distributor Sales segment. The sales decrease by segment was comprised of a $13.6 million or 4.8% decrease in Direct Marketing-US, with lower buyer counts attributable to the economic slowdown. Management also believes economic conditions impacted discretionary spending by corporate customers associated with many of the products offered by the Apparel segment, contributing to a $10.2 million or 20.2% decrease as compared to the prior year. These decreases were partially offset by an increase of $15.7 million or 14.8% in the sales of the Company’s Direct and Distributor Sales segment due to the SBS acquisition and benefits from expanded bank relationships and implemention of direct marketing strategies in McBee. The Packaging & Display segment increased $1.3 million or 1.7%, which benefited from improved order rates from larger customers in the manufacturing market and the International segment increased  $.4 million or 1.1% as a result of the timing of shipments in the first quarter and foreign currencies strengthening against the U.S. dollar.

For fiscal year 2003, cost of sales declined to 42.5% of net sales from 43.4% in fiscal year 2002. This is the result of a shift in channel and product mix, which resulted in a lower percentage of total sales coming from the Apparel segment. The Apparel segment has higher cost of sales as a percentage of sales than the other segments. In addition, gross margin in the Apparel segment improved due to a shift in their sales mix tied to lower sales to wholesalers. The Company also benefited from improvements in material costs as a result of favorable vendor negotiations. SBS did not impact cost of sales as a percentage of sales. Cost of sales as a percent of sales is expected to be slightly lower during fiscal year 2004.*

Selling and advertising expense increased to 34.2% of sales in fiscal year 2003 as compared to 33.9% of sales in fiscal year 2002. This increase is the result of the proportion of sales coming from the Direct and Distributor Sales segment which has a higher selling and advertising expense as a percentage of sales than in the Company’s other business segments due to its selling structure being comprised of a direct sales force and independent distributors. This increase was partially offset by lower amortization expense. Excluding the impact of SBS, selling expense as a percent of sales was 34.0%. Selling and advertising expense as a percentage of sales is expected to be slightly higher during fiscal year 2004.*

General and administrative expense increased to 13.7% of sales in fiscal year 2003 from 12.8% of sales in fiscal year 2002. The increase is due to higher legal expense, executive salaries, Canadian pension expense, incentive compensation and deferred compensation expense. These expense increases constituted .6% points of the .9% point increase from 2002 to 2003. Excluding the impact of SBS, general and administrative expense as a percent of sales was 14.0%. General and administrative expense as a percent of sales is expected to be slightly higher during fiscal year 2004.*

In fiscal year 2003, the Company recognized an impairment charge to write-off goodwill and long-term contracts in the amounts of $9.6 million and $3.6 million, respectively, relating to its PremiumWear business which comprises the Apparel business segment.

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During fiscal year 2001, the Company undertook two distinct restructuring actions. The first resulted in a net restructuring charge of $4.5 million in fiscal years 2002 and 2001 to provide for costs primarily associated with the Company’s decision to more closely align its direct marketing and direct sales activities. As part of the restructuring program, the McBee US headquarters was relocated from Parsippany, New Jersey to the existing RapidForms facility in Thorofare, New Jersey. In addition, the McBee manufacturing plant in Damascus, Virginia was closed and a portion of leased warehousing space occupied by Chiswick in Sudbury, Massachusetts was vacated. In Canada, the McBee sales and marketing organizations were combined with NEBS Direct Marketing and began operating under the NEBS name. The second restructuring resulted in a net charge of $3.3 million in fiscal years 2002 and 2001 to provide for costs associated with the Company’s decision to eliminate excess capacity by closing a manufacturing facility in Ogden, Utah and a leased distribution facility in Sudbury, Massachusetts, along with other actions to reduce the workforce in various locations Approximately 315 employees were affected by these restructuring actions either through elimination of their positions or relocation.

During fiscal year 2003, the Company implemented a workforce reduction in specific areas of the business, affecting approximately 44 employees. This action primarily included the closure of a sales office in Canada, as well as targeted reductions of staff in the Company’s direct marketing operation in Groton as well as in Chiswick and PremiumWear. In addition, as part of the purchase accounting for the SBS acquisition and included in the allocation of the acquisition costs, a liability of $3.3 million was recorded to cover the anticipated costs (primarily termination benefits) related to a plan to close redundant SBS manufacturing and warehouse facilities and to reduce manufacturing and administrative personnel. The following is a table of the charges incurred and the cash paid pursuant to these actions (in thousands of dollars):

Activities related to all restructuring actions identified above are anticipated to be completed by the Company during fiscal year 2004 with the exception of lease payments, which may extend beyond this time frame.*

Interest expense decreased to 1.5% of sales in fiscal year 2003 from 2.4% of sales in fiscal year 2002. The decrease is the result of a lower average balance of debt outstanding and lower interest rates as compared to the same period last year.

The provision for income taxes as a percentage of pre-tax income increased to 48.3% in fiscal year 2003 from 38.4% in fiscal year 2002. The change is the result of an increase in the required state tax provision due to recently enacted tax legislation and the non-deductible nature of the Company’s goodwill impairment charge described above.

The Company will continue to seek opportunities to acquire companies, businesses and product lines to enhance the Company’s competitive position in the marketplace or to gain access to new markets, products,

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competencies or technologies.* In addition, the Company will continue to seek opportunities to enhance the cost structure of the Company, to improve operating efficiencies, and to fund investments in support of the Company’s strategies.*

2002 versus 2001

Net sales decreased $28.6 million or 4.9% to $557.5 million for fiscal year 2002 from $586.1 million in fiscal year 2001. The comparison for all segments is affected by a 52-week fiscal year in 2002 as compared to a 53-week fiscal year in 2001. The sales decrease by segment was comprised of a $17.3 million decrease in Direct Marketing-US, a $6.3 million decrease in Apparel and a $5.5 million decrease in Packaging and Display Products, which management believes are principally attributable to an economic slowdown. The $1.6 million decrease in International is due to the effect of exchange rate changes. These decreases were partially offset by an increase of $2.1 million in the sales of the Company’s Direct and Distributor Sales segment due to expanding sales presence and bank relationships.

For fiscal year 2002, cost of sales declined to 43.4% of net sales from 43.9% in fiscal year 2001. The Company’s cost management strategies and the effect of actions announced/taken in all segments offset the impact of the decrease in sales on cost of sales.

Selling and advertising expense decreased to 33.9% of sales in fiscal year 2002 as compared to 34.4% of sales in fiscal year 2001. The Company’s adoption of SFAS 142, which decreased the amortization charge in the current fiscal year, positively impacted selling and advertising expense. This decrease was partially offset by a slight increase in the proportion of sales coming from the Direct and Distributor Sales segment, which has a higher selling and advertising expense as a percentage of sales than in the Company’s other business segments due to its selling structure depending on a direct sales force.

General and administrative expense decreased to 12.8% of sales in fiscal year 2002 from 13.0% of sales in fiscal year 2001. General and administrative expenses in fiscal year 2001 included an impairment charge of $1.7 million for the write-off of capitalized internal-use software related to an enterprise resource planning system the Company no longer plans to implement. The Company also recognized an impairment charge in fiscal year 2001 of $.5 million for the write-off of its investment in a privately owned web-hosting company. These charges are included in general and administrative expenses. Excluding the asset impairment write-off, general and administrative expense as a percentage of sales for fiscal year 2002 approximated 12.6%, which is consistent with fiscal year 2001.

Interest expense increased to 2.4% of sales in fiscal year 2002 from 2.3% of sales in fiscal year 2001. The increase is the result of additional debt, primarily from an additional investment in Advantage Payroll Services, Inc. in the first quarter 2002 and significant additional treasury share repurchases in the third quarter of fiscal year 2001 both of which increased the Company’s average debt outstanding in fiscal year 2002 as compared to fiscal year 2001.

The provision for income taxes as a percentage of pre-tax income decreased to 38.4% in fiscal year 2002 from 39.0% in fiscal year 2001 due to a decrease in the Company’s overall effective state tax rate.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. On an on-going basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, bad debts, inventories,

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intangible assets, and incomes taxes. Estimates and judgments are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. The Company believes the following accounting policies are the most critical due to their affect on the Company’s more significant estimates and judgments used in preparation of its consolidated financial statements.

Revenue is recognized on product sales at the point in time when persuasive evidence of an arrangement exists, the price is fixed and final, delivery has occurred and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of product at a specified price and considers delivery to have occurred at the point of shipment. While the Company does provide its customers with a right of return, revenue is not deferred. Rather, a reserve for sales returns is provided based on significant historical experience.

Asset valuation includes assessing the recorded value of certain assets, including accounts receivable, inventories, property, plant and equipment, investments, capitalized software, goodwill, deferred mail costs and intangible and other assets. Asset valuation is governed by various accounting principles, including Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, SFAS No. 141, “Business Combinations”, SFAS No. 142 “Goodwill and Other Intangible Assets” and Accounting Research Bulletin No. 43, among others. Management uses a variety of factors to assess valuation depending on the asset. For example, accounts receivable are evaluated based upon an aging schedule. The recoverability of inventories is based upon the types and levels of inventory held. Property, plant and equipment, capitalized software and intangible and other assets are evaluated utilizing various factors, including the expected period the asset will be utilized, forecasted cash flows, the cost of capital and customer demand. Investments are evaluated for impairment based upon market conditions and the viability of the investment. Deferred mail is capitalized and amortized over its expected period of future benefit in accordance with AICPA Statement of Position 93-7. Changes in any of these factors could impact the value of the asset.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each jurisdiction in which we operate that imposes a tax on income. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance, we must include an expense within the tax provision in the consolidated statements of income. In the event that actual results differ from these estimates, our provision for income taxes could be materially impacted.

New Accounting Pronouncements

On July 1, 2001, the Company adopted SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. SFAS No. 142 eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition for goodwill and intangible assets.

As of July 1, 2001, the Company had identified those intangible assets that remain separable under the provisions of SFAS 141 and those that are to be included in goodwill. In applying SFAS 142, the Company completed the transitional intangible asset impairment test. As a result, the Company recognized an impairment charge to write-off goodwill in the amount of $2.8 million relating to its European business within its International business segment. In 2003, the Company recognized an impairment charge to write-off goodwill and other intangible assets in the amount of $13.2 million relating to its PremiumWear subsidiary in the Apparel segment.

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In July 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supercedes SFAS No. 121 on the same topic and the accounting and certain reporting provisions of APB Opinion 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as defined in that Opinion). This Statement also amends Accounting Research Bulletin (“ARB”) 51, “Consolidated Financial Statements,” to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The Company adopted this Statement in fiscal year 2003. As described above, the Company recognized an impairment charge of $3.7 million for the write-down of a long-term contract.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Consensus No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. Adoption of this Statement is required for exit activities initiated after December 31, 2002 (see note 3).

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair-value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amended certain provisions of SFAS 133 for decisions made by the Board as part of the Derivatives Implementation Group (DIG) process. This statement is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 will not have a material impact on the Company’s consolidated financial position or results of operations.

In May 2003, SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” was issued. This statement establishes standards concerning the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise primarily effective for the Company on July 1, 2003. The Company is evaluating the effect of SFAS No. 150 on its consolidated financial statements but believes that it will not have a material impact.

In November 2002, FASB Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” was issued. FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for guarantees issued after December 31, 2002, while the disclosure requirements were effective for financial statements for periods ending after December 15, 2002. The adoption of FIN 45 did not have a material impact on the Company’s consolidated financial position or results of operations.

In the first quarter of fiscal 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This adoption resulted in an initial credit of $.4 million (net of tax) to Accumulated Other Comprehensive Loss.

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Liquidity and Capital Resources

Cash provided by operating activities amounted to $52.9 million in fiscal year 2003, approximately $17.9 million, or 25.2%, lower than the $70.8 million provided in fiscal year 2002. This decrease in cash provided by operating activities was due to lower net income and lower sources of cash provided by deferred income taxes and employee benefit charges, as well as the benefit from an inventory reduction in last year’s comparable period versus an increase in the current year. In fiscal year 2002, cash provided by operating activities amounted to $70.8 million which was approximately $15.2 million, or 27.3%, higher than the $55.6 million provided in fiscal year 2001. This increase in cash provided by operating activities was due to working capital changes, primarily inventory reductions, being a source of cash in fiscal 2002 as compared to those changes being a use of cash in fiscal 2001.

Working capital as of June 28, 2003 amounted to $59.4 million, including $4.7 million of cash and short-term investments. This represents an increase of $2.9 million from the working capital balance of $56.5 million, including cash and short-term investments of $6.1 million, at the end of fiscal year 2002. The increase in working capital is primarily the result of terminating interest rate swaps and the effect of the SBS acquisition in June 2003. The Company does not expect to experience any significant change to the amount of working capital investment required to support its business during fiscal year 2004.* Working capital in fiscal year 2002 decreased primarily as a result of inventory reductions in the Apparel segment.

Capital expenditures of $16.1 million in fiscal year 2003 represented a $.7 million increase from the $15.4 million expended in fiscal year 2002 and a $10.7 million decrease from the $26.8 million expended in fiscal year 2001. Capital expenditures included improvements in our information systems infrastructure and investments to enhance manufacturing capability. Capital expenditures in fiscal year 2002 included significant investments in the purchase, development and implementation of information systems infrastructure, operating systems and the Company’s website and manufacturing-related equipment. The Company expects capital expenditures to approximate $21.0 million in fiscal year 2004, which will include additional planned improvements in information systems capabilities and investments to enhance manufacturing capability.*

In March 2000, the Company invested $12.9 million in the common stock of Advantage Payroll Services, Inc. In August 2001 and July 2002, the Company invested an additional $17.6 and $5.4 million, respectively, in the common stock of Advantage Payroll Services, Inc. for a total investment of $35.9 million. In September 2002, Advantage merged with Paychex, Inc. The Company received a total of $47.3 million in proceeds from the acquisition and recognized a gain of $11.4 million in the year ended June 28, 2003.

The Company used the proceeds from the sale of the Advantage investment to pay down floating rate debt and to terminate three interest rate swap agreements with a notional amount of $75.0 million with two commercial banks. These interest rate swaps were no longer needed to hedge the reduced level of the Company’s floating rate debt. The Company was required to make termination payments equivalent to the fair value of the swaps totaling $3.3 million. This amount, which was reclassified from other comprehensive income to other expense, represents a loss on settlement of interest rate swaps.

The Company repurchased 220,615 shares of the Company’s common stock for $4.9 million in cash during fiscal year 2003 and 1,111,432 shares of the Company’s common stock for $17.6 million in cash during fiscal year 2001. There were no repurchases of the Company’s common stock during fiscal year 2002. In addition, the Company declared and paid cash dividends totaling $.80 per share during each of the last three fiscal years, amounting to a total of $10.4 million in fiscal 2003, $10.2 million in fiscal 2002 and $10.4 million in fiscal 2001. As of June 28, 2003, the Company has authorization from its Board to purchase up to an additional 981,985 shares of its stock.

In addition to its present cash and short-term investment balances, the Company has historically generated sufficient cash internally to fund its needs for working capital, dividends and capital expenditures. The Company

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currently has a committed, unsecured, revolving credit agreement for $200 million. The credit agreement contains various restrictive covenants which, among other things, require the Company to maintain certain minimum levels of consolidated net worth and specific consolidated debt and fixed charge ratios. The Company is in compliance with these covenants and at June 28, 2003, the Company had $106.5 million outstanding under this arrangement.

In November 2001, the Company entered into a $50 million Note Purchase Agreement with The Prudential Insurance Company of America. Under this agreement, the Company borrowed at the Eurodollar rate plus a spread for the first year, after which the interest rate became fixed at 7.23%. This agreement contains various restrictive covenants, which, among other things, require the Company to maintain certain minimum levels of consolidated net worth and specific consolidated debt and fixed charge ratios. The Company is in compliance with these covenants and at June 28, 2003, the Company had $50 million outstanding under this arrangement.

The following table summarizes the Company’s contractual obligations and commercial commitments as of June 28, 2003 (in thousands of dollars):

In order to effectively fix the interest rate on a portion of its variable rate debt outstanding, under the revolving credit agreement, the Company as of June 28, 2003 had one interest rate swap agreement with one of the banks party to its credit agreement. This swap agreement contains a notional principal amount and other terms (including rate of interest paid and received and maturity date) determined with respect to the Company’s forecasts of future cash flows and borrowing requirements. At June 28, 2003 the notional principal amount outstanding under the interest rate swap agreement totaled $20.0 million. Credits of approximately $14 and $25 thousand was recognized related to the ineffective portion of the Company’s swaps for fiscal years 2003 and 2002, respectively. In fiscal year 2001, there were no amounts recognized in earnings related to the Company’s swaps as the ineffective portion of the swaps was insignificant. During fiscal year 2003, the Company terminated three other interest rate swaps at a pretax cost of $3.3 million.

The Company anticipates that its current cash on hand, cash flow from operations and additional availability under the revolving credit agreement will be sufficient to meet the Company’s liquidity requirements for its operations and capital expenditures during fiscal year 2004.* However, the Company may pursue additional acquisitions from time to time, which would likely be funded through the use of available cash, issuance of stock, obtaining of additional credit, or any combination thereof.*

Certain Factors That May Affect Future Results

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

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

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

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

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

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

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

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

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

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

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

Average annual sales per customer of our core products have remained relatively stable over time. As a result, we rely, in part, on continually attracting new customers for these products. Our sales and profits have been adversely affected by economic-related contractions in the small business economy. We expect that our sales and profits will continue to be affected by changes in the levels of small business formations and failures and from other economic events that affect the small business economy generally.

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

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

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

In addition, the enactment of privacy laws could constrain our ability to obtain prospect lists or to market to prospective customers via the telephone or through the use of marketing-oriented faxes.

Declining response rates to the Company’s catalogs and other direct mail promotional materials could reduce our sales and profits.

Our direct mail-based businesses have experienced declines in the response rates to our catalogs and other direct mail promotional materials from both existing customers and prospects. We believe that these declines are attributable to a number of factors, including current economic conditions, the overall increase in direct mail solicitations received by our target customers generally, and the gradual obsolescence of our standardized forms products. To the extent that we cannot compensate for reduced response rates through increases in average order value or improve response rates through new product introductions and improved direct mail contact strategies, our sales and profits may be adversely affected.

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

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

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

We use a limited number of vendors to provide key services to our business. Examples of this are as follows:

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

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

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

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

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

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

We purchase a majority of our apparel products from “full package” manufacturers outside the United States. In most cases, these same manufacturers supply other apparel companies, many of which are significantly larger than our apparel business and are able, when necessary, to secure preferential treatment from the manufacturers. The availability of product from these manufacturers can also be adversely affected by social,

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political and economic conditions in their respective regions. Any significant disruption in our relationships with our current manufacturers could adversely affect our apparel business to the extent we cannot readily find alternative sources of supply at comparable levels of price and quality.

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

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

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

We believe that brand awareness is an important factor to the end-user of our apparel products, and in that regard we market and sell a majority of our apparel products under nationally-recognized brands licensed from third parties. In each case, the licensor is primarily responsible for promoting its brand and protecting its brand from infringement. The failure of one or more of our licensors to adequately promote or defend their brands could diminish the perceived value of those brands to our customers, which could lead to reduced sales and profits.

Reductions in the number of apparel lines carried by wholesalers in the promotional products/advertising specialty industry may adversely impact our sales and profits.

Until recently, a significant portion of the sales in our apparel business has been to a relatively small number of wholesalers serving the promotional products/advertising specialty market. Sales to these wholesalers recently have been decreasing, and has been partially offset by increases in direct sales to our advertising specialty dealers and golf pro shops. We believe that the wholesale apparel business serving this market is undergoing fundamental change, with wholesalers increasingly carrying only private label lines and branded lines on an exclusive basis. We believe that these changes, together with current economic conditions, are likely to result in an accelerated decrease in our sales to wholesalers. To the extent that increases in our direct sales to advertising specialty dealers, together with increases in our apparel sales to other markets, cannot keep pace with the erosion in our sales to wholesalers, sales and profits could be adversely impacted.

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

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

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

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the benefits that we expect to obtain from any given acquisition and could result in an impairment of intangible assets, which would reduce our reported earnings for the period the impairment occurs.

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

The Company does, however, have a component of its borrowings that is not hedged. A 10% upward movement in interest rates would impact earnings and cash flows by approximately $.2 million because of this unhedged position. For more information on these market risks and financial exposures, see the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company does not hold or issue financial instruments for trading, profit or speculative purposes.

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

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

Not applicable.

The Company carried out an evaluation, under the supervision and with the participation of management, including its principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934), as of the end of the Company’s fourth fiscal quarter. Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART III

The Company will furnish to the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year ended June 28, 2003, a definitive Proxy Statement (the “Proxy Statement”) for the Annual Meeting of Stockholders to be held on October 24, 2003. The information required by this Item concerning the directors of the Company who have been nominated for reelection is incorporated by reference to “Election of Directors” in the Proxy Statement.

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

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

The information required by this Item is incorporated by reference to “Voting Securities” in the Proxy Statement and to “Securities Authorized for Issuance Under Equity Corporation Plans” in Part II, Item 5 to this Annual Report on Form 10-K.

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

The information required by this Item is incorporated by reference to “Independent Auditor Fees” in the Proxy Statement.

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PART IV

The following documents are filed as part of this report:

(a)(1) Consolidated Financial Statements

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

(a)(3) List of Exhibits

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

(b) Reports on Form 8-K

On April 23, 2003, the Company filed a Current Report on Form 8-K announcing earnings for the fiscal quarter ended March 29, 2003.

On April 24, 2003, the Company filed a Current Report on Form 8-K announcing that the Company had entered into a definitive agreement to acquire Safeguard Business Systems, Inc.

On June 2, 2003, the Company filed a Current Report on Form 8-K announcing that it had completed the acquisition of Safeguard Business Systems, Inc.

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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.

Date:    September 5, 2003

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and directors of New England Business Service, Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints Robert J. Murray, Richard T. Riley and Daniel M. Junius, and each of them, with full power to act without the other, his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (until revoked in writing) to sign the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2003, and any and all amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

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NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 28, 2003 and June 29, 2002

(In thousands of dollars, except share data)

F-2

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NEW ENGLAND BUSINESS SERVICE, INC. AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

For the Fiscal Years Ended June 28, 2003, June 29, 2002 and June 30, 2001

(In thousands of dollars, except per share data)