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New England Business Service Announces Disappointing 1Q Results

Press release from the issuing company

GROTON, Mass- Oct. 24, 2001--New England Business Service, Inc. today announced results for its first quarter ended September 29, 2001. Revenues for the first quarter of fiscal 2002 declined 5.4% to $133.5 million from the prior year's $141.1 million. Net income of $1.9 million, or $.15 per share, compares with $2.8 million, or $.21 per share, in the year ago period. Excluding the impact of non-recurring items in both years, net income was $4.8 million in the quarter, or $.38 per share, versus $5.9 million, or $.44 per share, in the prior year's first quarter. First quarter results for fiscal 2002, excluding a goodwill impairment discussed below, include approximately $.11 per share of amortization expense versus $.15 per share last year. Results in the current period include $200,000 of after-tax integration costs, equivalent to approximately $.01 per share, versus $3.1 million of after-tax restructuring and integration costs, equivalent to approximately $.23 per share, in the period a year ago. Additionally, the Company adopted Financial Accounting Standards Board Statement Nos. 141 and 142 ("FAS 141'' and "FAS 142'') relating to business combinations and intangible assets and, in conjunction with the adoption of the new standards, recognized a goodwill impairment relating to its European operations in the amount of $2.8 million, or $.22 per share. In accordance with FAS 142 the Company has not recorded ongoing amortization expense on certain intangible assets with indefinite lives, such as goodwill and tradenames, in the first quarter of fiscal year 2002. Had the same accounting treatment occurred in the prior year's first quarter, amortization expense would have been $900,000 lower and earnings per share $.04 higher than reported. Mr. Robert J. Murray, Chairman and CEO, commented, "The economic slowdown continued to impact our business adversely in the first quarter. While all segments were affected, most notable was our apparel segment which had sales growth in last year's first quarter of 25%, but a sales decline of 27% this year due to the disproportionate effect of the slowdown on discretionary business spending. We continue to tightly control our expense levels while maintaining initiatives to develop the Company's long-term potential.'' Murray added, "The sale of payroll services is now a normal part of the activity of our McBee sales representatives, and we are continuing to test the ability of our direct marketing channels to sell this service. We are confident of our ability to do so, and, as previously announced, made an additional $17.7 million investment during the quarter in our partner, Advantage Payroll Services, Inc., to enhance the return we expect from this activity.'' Murray continued, "The economic outlook is uncertain for the remainder of this calendar year and the beginning of the next. Based on the sales level in the first quarter and this higher level of economic uncertainty, our current expectations for the year are for revenue to be flat to down 2% from a year ago which would equate to flat to approximately 2% growth when adjusted for the 53 week year in fiscal 2001. While results will be sensitive to the ultimate level of sales, our current expectation is that earnings per share, excluding one-time items and the goodwill impairment associated the previously noted accounting change, should increase between 10% and 15%. This increase does reflect the discontinuance of amortization of goodwill and certain intangibles with indefinite lives which will add approximately $.20 per share to fiscal 2002 earnings. It also reflects the full-year financing costs of approximately $.06 per share we will incur from the recent increase in our investment in Advantage Payroll.'' The Company has not repurchased any shares of its stock during the first quarter, leaving approximately 1.2 million shares remaining under the current authorization. The Company's Board of Directors declared a dividend of $.20 per share with a record date of November 9, 2001 and a payment date of November 23, 2001.

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