##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D. C. 20549




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Form 10-K



|  |                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|x | Annual report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 
     for the fiscal year ended December 31, 2002, or      
|o | Transition report pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934 for the transition period
    from                   to

Commission File No. 1-5842

Bowne & Co., Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                                      |  |                                            
|------------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware                                                                              |  | 13-2618477                                 
|(State or other jurisdiction of
    incorporation
    or organization)                |  | (I.R.S. Employer Identification
    Number)
|                                                                                     
|345 Hudson Street
    New York, New York
    (Address of principal executive offices) |  | 10014
    (Zip code)                       

(212) 924-5500

(Registrants telephone number, including
area code)


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

|                             |  |                         
|---------------------------- |  | ------------------------
|                             |  | Name of each exchange on
|Title of each class          |  | which registered        
|                             |  |                         
|Common Stock, Par Value $.01 |  | New York Stock Exchange 

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

None

(Title of class)


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
o

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.
o

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

 Yes x No
o

The aggregate market value of the Common Stock
issued and outstanding and held by nonaffiliates of the
Registrant as of March 14, 2003, based upon the closing
price for the Common Stock on the New York Stock Exchange on
June 30, 2002, was $463,276,711. For purposes of the
foregoing calculation, the Registrants Employees
Stock Purchase Plan and its Global Employees Stock Purchase Plan
are deemed to be affiliates of the Registrant.

The Registrant had 33,573,849 shares of
Common Stock outstanding as of March 14, 2003.

Documents Incorporated by Reference

Certain portions of the documents of the
Registrant listed below have been incorporated by reference into
the indicated parts of this Annual Report on Form 10-K:

|                                                                                                       |  |  |                       | 
|------------------------------------------------------------------------------------------------------ |  |  | --------------------- | 
|Notice of Annual Meeting of Stockholders and
    Proxy Statement anticipated to be dated April 9, 2003 |  |  | Part III, Items 10-12 | 



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TABLE OF CONTENTS



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|          |  |                                                                                                    |  |      |    | 
|--------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|Form 10-K |  |                                                                                                    |  |     
|Item No.  |  |                                                                                                    |  | Page
|          |  | Name of Item                                                                                       |  |     
|Part I    |  |                                                                                                    |  |      |    | 
|         
|Item 1.   |  | Business                                                                                           |  |      | 1  | 
|Item 2.   |  | Properties                                                                                         |  |      | 8  | 
|Item 3.   |  | Legal Proceedings                                                                                  |  |      | 9  | 
|Item 4.   |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 9  | 
|          |  | Supplemental Item. Executive Officers of the
    Registrant                                        |  |      | 9  | 
|         
|Part II   |  |                                                                                                    |  |      |    | 
|Item 5.   |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |  |      | 11 | 
|Item 6.   |  | Selected Financial Data                                                                            |  |      | 12 | 
|Item 7.   |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 13 | 
|Item 7A.  |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |      | 30 | 
|Item 8.   |  | Financial Statements and Supplementary Data                                                        |  |      | 31 | 
|Item 9.   |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  |      | 65 | 
|         
|Part III  |  |                                                                                                    |  |      |    | 
|Item 10.  |  | Directors and Executive Officers of the Registrant                                                 |  |      | 66 | 
|Item 11.  |  | Executive Compensation                                                                             |  |      | 66 | 
|Item 12.  |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |  |      | 66 | 
|Item 13.  |  | Certain Relationships and Related Transactions                                                     |  |      | 66 | 
|Item 14.  |  | Controls and Procedures                                                                            |  |      | 66 | 
|         
|Part IV   |  |                                                                                                    |  |      |    | 
|Item 15.  |  | Exhibits, Financial Statements Schedules, and
    Reports on Form 8-K                              |  |      | 67 | 
|          |  | Signatures                                                                                         |  |      | 69 | 
|          |  | Certifications                                                                                     |  |      | 70 | 



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TABLE OF CONTENTS



|                                                                         |                                                                                                         |                                                 |  |  |  |  |  | 
|------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                                                  
|                                                                         | Item 1. Business                                                                                       
|                                                                         | Item 2. Properties                                                                                     
|                                                                         | Item 3. Legal Proceedings                                                                              
|                                                                         | Item 4. Submission of Matters to a Vote of Security Holders                                            
|                                                                         | Supplemental Item.Executive Officers of the Registrant                                                 
|PART II                                                                 
|                                                                         | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                                         | Item 6. Selected Financial Data                                                                        
|                                                                         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                                         | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                                                                         | Item 8. Financial Statements and Supplementary Data                                                    
|INDEPENDENT AUDITORS REPORT                                            
|                                                                         |                                                                                                         | CONSOLIDATED STATEMENTS OF OPERATIONS          
|                                                                         |                                                                                                         | CONSOLIDATED BALANCE SHEETS                    
|                                                                         |                                                                                                         | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                                                                         |                                                                                                         | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|                                                                         |                                                                                                         | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|                                                                         | Note 1 -- Summary of Significant Accounting Policies                                                   
|                                                                         | Note 2 -- Acquisitions                                                                                 
|                                                                         | Note 3 -- Dispositions of Assets                                                                       
|                                                                         | Note 4 -- Cash and Cash Equivalents                                                                    
|                                                                         | Note 5 -- Marketable Securities                                                                        
|                                                                         | Note 6 -- Inventories                                                                                  
|                                                                         | Note 7 -- Goodwill and Intangible Assets                                                               
|                                                                         | Note 8 -- Employee Benefit Plans                                                                       
|                                                                         | Note 9 -- Stock Incentive Plans                                                                        
|                                                                         | Note 10 -- Income Taxes                                                                                
|                                                                         | Note 11 -- Debt                                                                                        
|                                                                         | Note 12 -- Deferred Employee Compensation and Other                                                    
|                                                                         | Note 13 -- Comprehensive Income (Loss)                                                                 
|                                                                         | Note 14 -- Commitments and Contingencies --                                                            
|                                                                         | Note 15 -- Stockholders Equity                                                                        
|                                                                         | Note 16 -- Segment Information                                                                         
|                                                                         | Note 17 -- Discontinued Operations                                                                     
|                                                                         | Note 18 -- Restructuring, Integration and Asset Impairment Charges                                     
|                                                                         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                                                
|                                                                         | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                                         | Item 11. Executive Compensation                                                                        
|                                                                         | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                                         | Item 13. Certain Relationships and Related Transactions                                                
|                                                                         | Item 14. Controls and Procedures                                                                       
|PART IV                                                                 
|                                                                         | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|                                                                         | SIGNATURES                                                                                             
|CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|EX-10.4: 1992 STOCK OPTION PLAN                                         
|EX-10.14: 1ST AMENDMENT TO NOTE PURCHASE AGREEMENT                      
|EX-10.15: INTERCREDITOR AGREEMENT                                       
|EX-21: SUBSIDIARIES OF THE COMPANY                                      
|EX-23.1: CONSENT OF KPMG LLP                                            
|EX-23.2: AUDITORS' REPORT ON SCHEDULE, KPMG LLP                         
|EX-99.1: CERTIFICATION PURSUANT TO SECTION 906                          
|EX-99.2: CERTIFICATION PURSUANT TO SECTION 906                          



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PART I






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

Bowne & Co., Inc. (Bowne and its
subsidiaries are hereinafter collectively referred to as
Bowne, the Company, We or
Our unless otherwise noted), established in 1775, is
a global provider of high-value document management services.
The Company is the worlds largest financial printer and a
market leader in outsourcing services for law firms and
investment banks, and in providing outsourced globalization and
localization services. Bowne empowers clients information
by combining superior customer service with advanced
technologies to manage, repurpose and distribute that
information to any audience, through any medium, in any
language, anywhere in the world.

The Company currently operates the following
business segments:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial
    Printing This segment is
    composed of two business units: Bowne Financial Print and Bowne
    Enterprise Solutions (BES). Bowne Financial Print,
    the worlds largest financial printer, offers the most
    comprehensive array of transactional and compliance-related
    services to create, manage, translate and distribute
    mission-critical documents. BES provides digital printing and
    electronic delivery of personalized communications that enable
    companies to strengthen their customer relationships. In 2002,
    the financial printing segment had revenue of
    $638.3 million (representing approximately 64% of total
    2002 revenue), and earnings before interest, taxes, depreciation
    and amortization (EBITDA) of $66.9 million,
    including $7.0 million of restructuring and asset
    impairment charges, and $20.2 million in gains from certain
    asset sales described below. The largest class of service in
    this segment, transactional financial printing, accounted for
    $256.2 million, or 26% of total 2002 Company revenue.
|
| | Outsourcing
    This segment consists of Bowne Business Solutions
    (BBS), providing a full array of outsourcing
    services in information technology, document processing
    services, creative services, litigation support services and
    office document services. In 2002, the outsourcing segment
    generated revenue of $233.9 million (representing
    approximately 23% of total revenue), and EBITDA of
    $11.4 million, including $1.7 million of restructuring
    and asset impairment charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Globalization
    This segment consists of Bowne Global Solutions
    (BGS), providing a broad range of translation,
    localization, technical writing and interpretation services that
    help customers adapt products and communications developed in
    one country so that they meet the social, cultural and business
    requirements for successful use in other countries. The
    globalization segment had 2002 revenue of $131.2 million
    (representing approximately 13% of total revenue), and a loss
    before interest, taxes, depreciation and amortization of
    $17.0 million, including $10.6 million of
    restructuring, integration and asset impairment charges.                                                                                                                                                                                                                                                                                                                                                                                                                   

In 2001, Bownes management discontinued the
operations of its Internet Consulting and Development business
segment, Immersant, which consisted of integrated Internet
applications primarily for the financial services sector. These
operations are shown as discontinued and all prior
period financial statements have been restated accordingly,
including the reallocation of fixed overhead charges to other
business segments.

During 2002, the Company continued to review its
non-core assets for possible sale. In June 2002, the Company
sold a Chicago office building for $8.3 million, resulting
in a gain of approximately $4.9 million. As part of the
Companys restructuring and technology investments, the
Chicago financial print customer service, sales and
administrative operations were moved to a more advanced facility
that is more convenient for customers and is shared with the
Chicago offices of BBS. Chicago financial print manufacturing
was moved to the Companys South Bend, Indiana facility. In
September 2002, the Company sold certain publishing assets and
liabilities in its financial printing segment for
$15 million. The carrying value of liabilities exceeded the
carrying value of assets by approximately $0.4 million,
therefore the sale resulted in a gain of approximately
$15.4 million.

During 2002, the Company also made two strategic
acquisitions. In September 2002, BGS completed the acquisition
of Berlitz GlobalNet, Inc. (GlobalNet) from Berlitz
International, Inc., a wholly-owned subsidiary of Japans
Benesse Corporation. BGS acquired all of the issued and
outstanding stock of GlobalNet

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for $75 million. GlobalNet was a provider of
globalization and localization services, software testing,
translation and interpretation services that has significantly
extended BGS capabilities in the globalization and
localization industry.


In December 2002, BBS acquired DecisionQuest,
Inc., a major provider of litigation resources, including trial
research, strategic communications and strategic marketing. This
acquisition increased BBS presence among law firm
customers from more than half of the top 100 global law firms to
nearly 90% of the top 200 global law firms. DecisionQuest,
re-named Bowne DecisionQuest following the acquisition, was
purchased for approximately $31 million in cash. The
purchase agreement also provides for additional payments in the
event certain future performance measures are achieved over a
one-year period.

Further information regarding segment revenues,
operating results, identifiable assets and capital spending
attributable to the Companys operations for the calendar
years 2002, 2001 and 2000, as well as a reconciliation of EBITDA
to pre-tax income (loss), are shown in Note 16 of the Notes
to Consolidated Financial Statements.

Financial Printing

Financial printing consists primarily of
transactional financial printing, corporate reporting, mutual
fund printing, delivery of customized and personalized
communications, and translation services.

Transactional financial printing includes
registration statements, prospectuses, debt agreements, special
proxy statements, offering circulars, tender offer materials and
other documents related to corporate financings, acquisitions
and mergers. Corporate reporting includes interim reports,
regular proxy materials prepared by corporations for
distribution to stockholders, U.S. Securities and Exchange
Commission reports on Forms 10-K, 10-Q and other forms, and
stock exchange listing applications. The Company also assists
companies in the United States and other countries with the
filing of many of these compliance documents under the
SECs EDGAR electronic filing system and Canadas
similar SEDAR system. We believe the Company is the largest
EDGAR filing agent, with approximately 46,000 such filings
handled in 2002. The Company provides both full-service and
self-service filing, the latter through a new Internet-based
filing product, BowneFile16TM, launched in early
2003. Mutual fund printing includes regulatory and shareholder
communications such as annual or interim reports, prospectuses,
information statements, and marketing-related materials.

The Company receives its clients
information in numerous formats and repurposes it for
distribution typically in print, digital or Internet formats.
One of the Companys newer print solution offerings,
digital printing, offered through BES, assists customers by
providing their individual clients with high-speed, customized
periodic statements or other on-demand printing. Such customers
include mutual funds, stock brokerage firms, investment banks,
retail banks and other financial institutions that manage
multi-option client portfolios as well as insurance companies
and others that manage 401(k) and other retirement plans, and
employers that offer multiple benefit options to their employees.

The Company provides some commercial printing,
which consists of annual reports, sales and marketing
literature, point of purchase materials, research reports,
newsletters and other custom-printed matter. The Company also
provides language translation of written documents, including
highly confidential legal and financial documents.

The Companys international financial
printing business provides similar services as those delivered
by its domestic operations, except for the services offered by
BES. International print capabilities are delivered either by
the Company or through a number of strategic relationships.

A significant portion of the Companys
revenues historically have been derived from transactional
financial printing services. Revenue from transactional
financial printing services declined from 41% of total revenue
in 2000 to 26% of total revenue in 2002, due to a combination of
the Companys diversification efforts and the overall
slowdown in capital market activity. To shift away from being
solely a financial printing company and to reduce dependence on
the volatile financial markets, Bowne has broadened and deepened
the

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services it offers throughout all phases of a
documents life cycle. Bowne is no longer just involved
with the typesetting, printing and filing of documents.


Over the past few years, the Company has expanded
its capabilities within all phases of the document lifecycle,
including electronic receipt of client documents, composition,
conversion, assembly, output, delivery, packaging, archiving,
content management, translation and data mining. The Company has
accomplished this via acquisitions, organic growth and the
development of new tools and technologies and, as a result, is
creating new customer relationships and broadening its solution
offerings to existing customers. The Company has invested in new
capabilities that enable it to better serve the changing manner
in which its clients communicate with their customers. These
capabilities, used primarily by BES, include digital on-demand
printing and electronic delivery of personalized communications,
as well as traditional print fulfillment. They enable the
Companys clients to strengthen their customer
relationships and increase their market leadership. For example,
through Bownes digital capabilities the Company can take
information from customers databases  such as
the financial records of a 401(k) plan  and develop
new ways to present this information on statements that are more
useful to participants. Bowne also produces on-demand enrollment
kits that eliminate the need for inventory and certain
information that is specifically targeted to the recipient.

Bownes digital, print-on-demand services
can provide clients with a full range of investor
communications, from one-to-many to one-to-one. This is referred
to as client-centric communications. Using advanced database
technology, coupled with high-speed laser printing or Internet
delivery, Bowne offers clients the opportunity to reach their
customers individually. Print-on-demand services also help
reverse the traditional process of printing information first
and then storing it until needed. Bowne can keep an electronic
library of clients documents in conjunction with an
inventory of conventionally printed materials, so that
fulfillment can be customized. Bownes ability to handle
householding  the customized printing,
grouping and mailing of multiple accounts for one
household  is particularly well-suited to the mutual
funds industry as it looks to lower distribution costs.

The documents produced by Bowne are personalized
because the information contained in each document can be
different. In the case of statements, each successive statement
can contain completely different data. What distinguishes Bowne
from other on-demand printers is the link between final
documents and the data that drives them. Clients who need to
reproduce documents in which the data changes from
document-to-document (or from day-to-day) benefit from these
services. The market for these solutions includes mutual funds,
stock brokerage firms, defined contribution providers,
investment banks, insurance companies and commercial banks.

As part of that positioning, the Company has
created BES as the newest business unit within its financial
printing business segment to focus its growth in this area.
Using a consultative and solutions-based selling model, BES is
partnering with clients to deliver quality applications based
upon the effective integration of data repurposing, document
creation, content management and variable distribution methods,
including offset, digital print or electronic delivery. With its
technology platforms, menu of document services, and reputation
for client service, BES has the ability to help its clients
create, manage and distribute critical information to produce
better returns on their marketing dollars. Potential revenue
opportunities for BES are in the following areas: 1) kits
(new brokerage accounts, healthcare enrollment, 401(k) plans),
2) statements (brokerage, 401(k) plans, asset management/
high net worth, mutual funds, variable annuities),
3) collateral fulfillment (brokerage, mutual funds),
4) collateral printing (banking/ insurance, mutual funds),
and 5) mutual funds (electronic document delivery, document
conversion, printing, document creation tools).

Outsourcing

Through Bowne Business Solutions, the Company
offers outsourcing of document management and related services
principally to the legal and financial services communities, and
also to multinational companies. Outsourcing includes the
on-site management of document creation, reproduction and
distribution operations at customers facilities, off-site
backup of those same services, specialized applications of
graphics and presentation technologies, desktop publishing,
helpdesk and IT systems management and a full line of litigation
support services. These litigation support services include
litigation resource management, which

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involves ongoing case and project management;
electronic data discovery processing; litigation software
application support and training; document imaging, optical
character recognition, coding and high-speed, high-volume
printing; custom database management; creation and
implementation of litigation support procedures best practices;
creation and conversion of PDF files; and creation of CD-ROMs.
These services help to make up the full range of Litigation
Lifecycle services provided by BBS. Other Litigation
Lifecycle services are provided by this business
units Bowne DecisionQuest operation, including trial
consulting and jury research, advanced strategic communications
and marketing, courtroom graphics and presentation technologies,
litigation support and case evaluation software, and custom case
strategy Web sites. Within this suite of services, BBS also
offers some of the industrys leading litigation support
software products: JFS Litigators Notebook®,
CaseMap® and TimeMapTM1.


Outsourcing allows BBS clients to focus on their
core businesses, gain access to the latest in technology
innovations without making direct investments, and reduce the
operating costs of investing in and managing non-core business
activities. The Company believes it is the leading provider of
these services to the legal and investment banking industries,
having customer relationships with nearly 90% of the top 200
global law firms and 8 of the top 10 investment banks.

BBS offers a full range of document and
information technology management solutions.

Presentation services involve the creation of
pitch books and presentations using presentation graphics, such
as custom made templates and corporate color palettes; charting;
graphics, including flow charts and conceptual diagrams; maps;
and multimedia, including animation, video, sound and other
technology. Document processing services include the management
of textual input, formatting and multiple applications to
provide a best-of-class team of highly trained professionals
supporting all technology platforms. Creative services develops
concepts and designs of brochures, conference materials and
road-show presentations by experienced designers for print and
production in almost any format.

Information technology services include desktop
support services, data center support, technical training,
knowledge management and telephone system support through the
management of on-site resources and external vendors. Office
document services include production of electronic data through
paper and other media with central reprographic operations,
desktop print management tools, litigation scanning services and
electronic job submissions.

A joint venture agreement with Williams Lea, one
of the United Kingdoms leading providers of document
management solutions, has helped BBS to extend its services to
Europe and Asia. Together, BBS and Williams Lea provide global
outsourcing services to multinational corporations,
international law firms, commercial and investment banks, and
financial institutions around the globe.

Globalization

Bowne Global Solutions provides globalization and
localization services consisting of technology and linguistic
expertise and outsourced processes which enable companies to
market products globally while reflecting local markets in terms
of culture, language, and business requirements.

BGS is the leading provider of comprehensive
translation, localization, technical writing and interpretation
services. Its mission is to enable clients to succeed in global
markets by providing innovative language and cultural solutions.
BGS solutions help clients adapt their products,
documents, and marketing communications programs; comply with
government regulations; implement training and e-learning
programs; and develop globalization strategies. With this suite
of integrated services, BGS assists companies to compete and
grow global market share by helping to accelerate their time to
market, and improve the quality and consistency of their
products and services. BGS currently serves a number of
industries, including the following: aerospace, automotive,
medical devices, pharmaceuticals, power and telecommunications,
high tech-software and hardware, financial services,
entertainment, e-learning, and government agencies in the United
States and Europe.





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1 CaseMap®
and TimeMap are registered trademarks of CaseSoft, Inc. or
its affiliates.


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As a companys domestic market becomes
saturated or faces an economic downturn, the drive to go
global is accelerated. Whether this means establishing
international sales channels, developing manufacturing plants in
low cost regions, or simply putting up an e-commerce Web site,
the result is that companies today, large and small, are doing
more and more business across borders and languages. Yet, while
forecasts and market potential often look promising on paper,
successfully executing in these markets against entrenched local
competition is very challenging. As a result, these companies
seek a flexible partner with the scope and breadth to support
their globalization and localization efforts. With its scale and
skill, backed by proven project management methods, BGS is able
to rapidly respond to its clients changing needs while
maintaining the highest standards of production quality.

In August 2001, Bowne acquired Mendez S.A.
(Mendez) from Lernout and Hauspie Speech Products
N.V. for $44.8 million in cash, plus related acquisition
costs. As mentioned earlier, the Company also acquired GlobalNet
from Berlitz International, Inc. in September 2002. With these
two acquisitions, BGS strengthened its leadership position in
the globalization and localization industry, enabling it to
combine complementary lines of business, improve efficiencies
and enhance service offerings. BGS enhanced size and scale
can be used to convince multinational companies with in-house
globalization and localization functions that there is now a
provider with a sufficient scope of outsourced services to meet
these needs. The combined entity has approximately
2,000 employees in 24 countries, as well as a global
contractor network of 15,000 qualified linguists covering
more than 60 languages and dialects.

Other Information

For each of the last three fiscal years, the
Companys financial printing business segment has accounted
for the largest share of consolidated total revenues, as shown
below:

|                                 |                    |                         |     |      |  |      |     |    |  |  |     |    | 
|-------------------------------- | ------------------ | ----------------------- | --- | ---- |  | ---- | --- | -- |  |  | --- | -- | 
|                                 |                    |                        
|                                 |                    | Year Ended December 31,
|                                 |                    |                        
|Type of Service                  |                    | 2002                    |     | 2001 |  | 2000
|                                 |                    |                         |     |      |  |     
|Transactional financial printing |                    |                         | 26  | %    |  |      | 27  | %  |  |  | 41  | % 
|Corporate reporting              |                    |                         | 16  |      |  |      | 15  |    |  |  | 11  |   
|Mutual fund printing             |                    |                         | 15  |      |  |      | 16  |    |  |  | 13  |   
|Commercial printing              |                    |                         | 3   |      |  |      | 6   |    |  |  | 8   |   
|Digital printing and other       |                    |                         | 4   |      |  |      | 4   |    |  |  | 5   |   
|                                 |                    |                         |     |      |  |      |     |    |  |  |     |   
|                                 | Financial Printing |                         |     | 64   |  |      |     | 68 |  |  |     | 78 | 
|Outsourcing                      |                    |                         | 23  |      |  |      | 22  |    |  |  | 16  |   
|Globalization                    |                    |                         | 13  |      |  |      | 10  |    |  |  | 6   |   
|                                 |                    |                         |     |      |  |      |     |    |  |  |     |   
|                                 |                    |                         | 100 | %    |  |      | 100 | %  |  |  | 100 | % 
|                                 |                    |                         |     |      |  |      |     |    |  |  |     |   

We have facilities to serve customers throughout
the United States, Canada, Europe, Latin America, South America
and Asia.

Although investment in equipment and facilities
is required, the Companys business is principally
service-oriented. In all of our activities, speed, accuracy, and
the need to preserve the confidentiality of the customers
information is paramount.

The Company maintains conference rooms and
telecommunications capabilities at all of its financial printing
offices for use by customers while transactions are in progress.
On-site conveniences are also provided to customers, which
promote speed and ease of editorial changes and otherwise
facilitate the completion of jobs. For many of its outsourcing
customers, the Company stations staff and equipment at the
customers premises. The Companys globalization
activities are conducted in a number of countries around the
world. In addition, the Company uses an extensive electronic
communications network, which facilitates data handling and
makes collaboration practicable among customers at different
sites.

The Company was established in 1775, incorporated
in 1909, reincorporated in 1968 in the State of New York, and
reincorporated again in 1998 in Delaware. Its corporate offices
are located at 345 Hudson Street,

5



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##### Table of Contents



New York, NY 10014, telephone
(212) 924-5500. The Companys Web site is
www.bowne.com. Our Web site contains complete electronic copies
of Bowne stockholder documents, news releases and
U.S. Securities and Exchange Commission filings, as well as
descriptions of Bownes products and services, and other
information about the Company. This information is available
free of charge.


Competition

The Company believes that it offers a unique
array of solutions for its clients to empower their information.
However, competition in the various individual services
described above is intense. Factors in this competition include
not only the speed and accuracy with which the Company can meet
customer needs, but also the price of the services, quality of
the product and supporting services.

In transactional financial, corporate reporting
and mutual fund printing, the Company competes directly with a
number of other financial printers having similar degrees of
specialization. Some of those financial printers operate at
multiple locations and some are subsidiaries or divisions of
companies having greater financial resources than those of the
Company. Based upon the most recently available published
information, the Company is the largest in terms of sales volume
in the financial printing market. In addition to its customer
base, the Company has experienced competition for sales,
customer service and production personnel in financial printing.

In commercial printing, the Company competes with
general commercial printers, which are far more numerous than
those in the financial printing market. The digital printing
unit faces diverse competition from a variety of industries
including other printers, transfer agents, banks and Internet
consultants.

The field of document management outsourcing also
has a great deal of competition, with some participants having
been established in this field much longer than the Company.
Furthermore, the costs of entry into this market are much lower
than those associated with the Companys other business
activities.

With respect to its globalization offerings, the
Company believes it holds the leading market position following
its 2001 acquisition of Mendez and its 2002 acquisition of
Berlitz GlobalNet. The Companys competition is from
(i) the in-house globalization and localization departments
of companies, (ii) small single-language vendors, and
(iii) multi-language vendors.

Cyclical, Seasonal and Other Factors Affecting
the Companys Business

The Companys transactional financial
printing service is affected by conditions in the worlds
capital markets. Revenue and net income depend upon the volume
of public financings, particularly equity offerings, which are
influenced by corporate funding needs, stock market
fluctuations, prevailing interest rates, and general economic
and political conditions.

Revenue derived from corporate reporting is
seasonal as the greatest number of proxy statements and
regulatory reports are required to be printed during the
Companys first fiscal quarter ending March 31 and the
early part of the Companys second quarter ending
June 30. Because of these cyclical and seasonal factors,
coupled with the general need to complete certain printing jobs
quickly after delivery of copy by the customers, the Company
must maintain physical plant and customer service staff
sufficient to meet peak work loads. However, mutual fund,
commercial and digital printing are not considered to be as
cyclical or seasonal.

In the first quarter of the year, the
globalization segment revenues are seasonally low due to the
relatively high volume of consumer products that ship in the
fourth quarter of any given year. This segment has relied on
more than half of its business from the currently weak
technology sector.

While certain aspects of financial printing, as
well as the globalization segment are seasonal or cyclical, the
Companys outsourcing segment, while impacted by capital
market activity, is less cyclical or seasonal.

During the last two years, the Company has
reduced costs in its financial printing segment largely through
a combination of staff reductions, the application of advanced
technologies, outsourcing during peak periods and through office
closings and consolidations. The Company continues to size this
business to the lower levels of capital market activity that are
expected during 2003. However, at a point when the capital
markets return

6



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##### Table of Contents



to higher levels of volume, the Company does not
anticipate the need to add significantly to staffing, as we
begin to more fully leverage the technology investments of the
past few years and outsource certain work to third parties.


Research and Development

The Company evaluates, on an ongoing basis,
advances in computer software, hardware and peripherals,
computer networking, telecommunications systems and
Internet-related technologies as they relate to the
Companys business and to the development and installation
of enhancements to the Companys proprietary systems.

Like its principal competitors, the Company
utilizes a computerized typesetting and telecommunications
system in the process of preparing financial print documents. In
order to serve the customers of its globalization business, the
Company continually tests new programs and often works directly
with its customers in the design and development of new software
and other technological products.

Patents and Other Rights

The Company has no significant patents, licenses,
franchises, concessions or similar rights other than certain
trademarks. Except for a proprietary computer typesetting and
telecommunication system, the Company does not have significant
specialized machinery, facilities or contracts which are
unavailable to other firms providing the same or similar
services to customers. The Company and its affiliates utilize
many trademarks and service marks worldwide, most of which are
registered or pending registration. The most significant of
these is the trademark and trade name Bowne®. The Company
utilizes the service marks Empowering InformationSM
and Empowering Your InformationSM and trademarks
BowneLink®, CaseMap®, FundSmith®,
Litigators Notebook®, BowneFile16TM,
Litigation LifecycleTM, and TimeMapTM.

Sales and Marketing

The Company employs approximately 390 sales and
marketing people. In addition to soliciting business from
existing and prospective customers by building relationships and
delivering customized solutions, the sales people act as a
liaison between the customer and those in charge of the
Companys customer service operations. They also provide
advice and assistance to customers. The Company periodically
advertises in trade publications and other media, and conducts
sales promotions by mail, by presentations at seminars and trade
shows and by direct delivery of marketing collateral material to
customers.

Customers and Backlog of Orders

The Companys customers include a wide
variety of business corporations, law firms, investment banks,
insurance companies, bond dealers, mutual funds and other
financial institutions, as well as the leading software
companies.

During the fiscal year ended December 31,
2002, no customer accounted for 10% or more of the
Companys sales. However, one customer, Microsoft, is
significant to the globalization segment. The Company has no
backlog, within the common meaning of that term, which is normal
throughout the service offerings in which the Company is
focused. However, within its financial printing segment, the
Company maintains a backlog of customers preparing for financial
offerings. This backlog is greatly affected by capital market
activity.

Employees

At December 31, 2002, the Company had
approximately 8,400 employees. Relations with the Companys
employees are considered to be good. Less than one percent of
the Companys employees are members of various unions. The
Company provides pension, 401(k), profit-sharing, certain
insurance and other benefits to most non-union employees.

7



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##### Table of Contents



Suppliers

The Company purchases or leases various materials
and services from a number of suppliers, of which the most
important items are paper, computer hardware, copiers, software
and peripherals, communication equipment and services, and
electrical energy. The Company purchases paper from paper mills
and paper merchants. The Company has experienced no difficulty
to date in obtaining an adequate supply of these materials and
services. Alternate sources of supply are presently available.
However, a severe paper or multi-market energy shortage could
have an adverse effect upon many of the Companys
operations.

International Sales

The Company conducts operations in Canada,
Europe, Latin America, South America and Asia. In addition, the
Company has affiliations with certain firms providing similar
services abroad. Revenues derived from foreign countries other
than Canada were approximately 15% of the Companys total
revenues in 2002, 12% in 2001 and 14% in 2000. During 2002, 2001
and 2000, revenues derived from foreign countries other than
Canada totaled $147, $122 and $161 million, respectively.
The financial printing segment had $44, $52 and
$109 million in these years, respectively. The
globalization segment had revenues of $99 million in 2002,
$70 million in 2001, and $52 million in 2000. The
outsourcing segment had revenues of $4 million in 2002.
Canadian revenues were approximately 4% of the Companys
total sales in 2002, and 5% in 2001 and 6% in 2000. During 2002,
2001, and 2000, revenues derived from Canada totaled $43, $50,
and $68 million, respectively.






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

Information regarding the material facilities of
the Company, as of December 31, 2002, five of which were
leased and eight of which were owned in fee, is set forth below.

|                                                            |  |         |       |             |  |                                                                                                 |  |        
|----------------------------------------------------------- |  | ------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------- |  | -------
|                                                            |  | Year    |       |             |  |                                                                                                
|                                                            |  | Lease   |       |             |  | Square                                                                                         
|Location                                                    |  | Expires |       | Description |  | Footage                                                                                        
|                                                            |  |         |       |             |  |                                                                                                
|345 Hudson Street  New York, NY                             |  |         | 2006  |             |  | Customer service center, general office space,
    computer center, and corporate headquarters. |  | 222,000
|800 Central Blvd  Carlstadt, NJ                             |  |         | 2009  |             |  | Digital printing plant and general office space.                                                |  | 130,000
|500 West Madison Avenue  Chicago, IL                        |  |         | 2016  |             |  | Customer service center and general office space.                                               |  | 73,000 
|60 Gervais Drive  Don Mills
    (Toronto),  Ontario, Canada |  |         | 2005  |             |  | Customer service center, typesetting, printing
    plant and general office space.              |  | 71,000 
|60 Queen Victoria Street  London,
    England               |  |         | 2020  |             |  | Customer service center and general office space.                                               |  | 30,000 
|5021 Nimtz Parkway  South Bend, IN                          |  |         | Owned |             |  | Printing plant and general office space.                                                        |  | 127,000
|215 County Avenue  Secaucus, NJ                             |  |         | Owned |             |  | Printing plant and general office space.                                                        |  | 125,000
|1200 Oliver Street  Houston, TX                             |  |         | Owned |             |  | Customer service center, typesetting, printing
    plant and general office space.              |  | 110,000
|2103 East University
    Drive  Dominguez Hills, CA         |  |         | Owned |             |  | Printing plant and general office space.                                                        |  | 103,000
|411 D Street  Boston, MA                                    |  |         | Owned |             |  | Customer service center, typesetting, printing
    plant and general office space.              |  | 73,000 

8



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##### Table of Contents



|                                           |  |         |       |             |  |                                                                    |  |       
|------------------------------------------ |  | ------- | ----- | ----------- |  | ------------------------------------------------------------------ |  | ------
|                                           |  | Year    |       |             |  |                                                                   
|                                           |  | Lease   |       |             |  | Square                                                            
|Location                                   |  | Expires |       | Description |  | Footage                                                           
|                                           |  |         |       |             |  |                                                                   
|1241 Superior Avenue  Cleveland, OH        |  |         | Owned |             |  | Customer service center, typesetting and general
    office space. |  | 73,000
|1931 Market Center Blvd,  Dallas, TX       |  |         | Owned |             |  | Customer service center, typesetting and general
    office space. |  | 68,000
|1500 North Central Avenue  Phoenix,
    AZ |  |         | Owned |             |  | Customer service center, typesetting and general
    office space. |  | 50,000

All of the properties described above are well
maintained, in good condition and suitable for all presently
anticipated requirements of the Company. The majority of the
Companys equipment is owned outright. The outsourcing
solutions business leases most of its machinery and equipment
over a term of three years with the expiration of the lease
coterminous with the related customer contract. The Company
moved to a new leased facility in Chicago during the first half
of 2002 and sold its Chicago facility during the third quarter
of 2002. Reference is made to Note 14 of the Notes to
Consolidated Financial Statements.






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

The Company is involved in no pending legal
proceedings other than routine litigation incidental to the
conduct of its business which is not material to its business.






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

No matters were submitted to a vote of
stockholders during the fourth quarter of fiscal year 2002.




Supplemental Item. Executive Officers of
the Registrant

The following information is included in
accordance with the provisions of Part III, Item 10 of
Form 10-K. The executive officers of the Company and their
recent business experience are as follows:

|                  |  |                                                                                                                                                                                                                                                              |  |     |    | 
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --- | -- | 
|                  |  | Principal Occupation                                                                                                                                                                                                                                         |  |    
|Name              |  | During Past Five Years                                                                                                                                                                                                                                       |  | Age
|                  |  |                                                                                                                                                                                                                                                              |  |    
|Robert M. Johnson |  | Chairman of the Board and Chief Executive Officer
    of the Company since June 1996; also, President from
    February 2000 through December 2000. Previously Vice
    Chairman, President and Chief Executive Officer of the Company
    from January 1996 |  |     | 57 | 
|Carl J. Crosetto  |  | Director since January 2000 and President
    since December 2000; previously Executive Vice President
    since December 1998, and Senior Vice President since
    May 1998; prior to that Director of Sales of the Company                                 |  |     | 54 | 
|Robert J. Baker   |  | Senior Vice President and President of Bowne
    Enterprise Solutions, L.L.C. since May 2002; previously
    President of Bowne Enterprise Solutions, L.L.C. since
    September 2001; previously President of Bowne of New York,
    L.L.C.                 |  |     | 55 | 
|C. Cody Colquitt  |  | Senior Vice President and Chief Financial Officer
    since March 2001, Corporate Controller since
    February 1999; previously Vice President, Finance and
    Controller from September 1996 of Bowne of Dallas, L.P., a
    subsidiary of the Company    |  |     | 41 | 

9



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##### Table of Contents



|                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                     |  |     |    | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -- | 
|                     |  | Principal Occupation                                                                                                                                                                                                                                                                                                                                                                                                |  |    
|Name                 |  | During Past Five Years                                                                                                                                                                                                                                                                                                                                                                                              |  | Age
|                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                     |  |    
|Susan W. Cummiskey   |  | Senior Vice President, Human Resources since
    December 1998; previously Vice President, Human Resources,
    from January 1998, and Director, Human Resources from
    February 1997                                                                                                                                                                                                                             |  |     | 50 | 
|James E. Fagan, Jr.  |  | Senior Vice President and President and Chief
    Executive Officer of Bowne Global Solutions, Inc. since
    December 2002; previously Senior Vice President, Strategy
    and New Business Development from May 2001; previously
    Senior Vice President and Director of Capital Market Global
    Sales for R.R. Donnelley                                                                                     |  |     | 51 | 
|Ruth A. Harenchar    |  | Senior Vice President and Chief Information
    Officer of the Company since July 2002; previously
    Director, Information Technology Account Management for
    Ernst & Young L.L.P.                                                                                                                                                                                                                             |  |     | 53 | 
|Philip E. Kucera     |  | Senior Vice President and General Counsel since
    December 1998; previously Deputy General Counsel of The
    Times Mirror Company                                                                                                                                                                                                                                                                                |  |     | 60 | 
|Joseph O. Miles      |  | Senior Vice President, and Executive Vice
    President and Chief Operating Officer, Bowne Enterprise
    Solutions since March 2003; previously Senior Vice President,
    Marketing from January 2001; previously Vice President,
    Corporate Marketing for The Bisys Group; previously Marketing
    Director for KPMG L.L.P.; theretofore Managing Director for
    Business Development for Dun & Bradstreet |  |     | 52 | 
|David J. Shea        |  | Senior Vice President and President of Bowne
    Business Solutions, Inc. since May 2002; previously
    President of Bowne Business Solutions, Inc. since
    January 2001; previously Executive Vice President, Business
    Development and Strategic Technology of Bowne Business
    Solutions, Inc. from July 1998                                                                                            |  |     | 47 | 
|Reed R. Smith        |  | Senior Vice President and President of the
    Financial Print Division since January 2003; previously
    President of Financial Print, Eastern Region since March 2000;
    previously President of Bowne of Atlanta since 1994                                                                                                                                                                                   |  |     | 45 | 
|Kenneth W. Swanson   |  | Senior Vice President, Operations since
    October 2001; previously Senior Vice President,
    Manufacturing since December 1998; also President of Bowne
    Business Communications, Inc. and Bowne of South Bend                                                                                                                                                                                                |  |     | 46 | 
|Richard Bambach, Jr. |  | Chief Accounting Officer of the Company since
    May 2002 and Vice President and Corporate Controller since
    August 2001; previously Vice President-External Financial
    Reporting for Winstar Communications, Inc. from
    August 1999; previously Vice President and Corporate
    Controller of ICG Communications, Inc. from February 1996                                                               |  |     | 38 | 

10



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##### Table of Contents



|                 |  |                                                                                                                                                                                                                                                            |  |     |    | 
|---------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -- | 
|                 |  | Principal Occupation                                                                                                                                                                                                                                       |  |    
|Name             |  | During Past Five Years                                                                                                                                                                                                                                     |  | Age
|                 |  |                                                                                                                                                                                                                                                            |  |    
|William J. Coote |  | Vice President and Treasurer since
    December 1998; formerly Assistant Treasurer from
    January 1998; previously Manager, Financial Analysis                                                                                                           |  |     | 48 | 
|Scott L. Spitzer |  | Vice President, Associate General Counsel and
    Corporate Secretary since March 2002; previously Vice
    President and Associate General Counsel from April 2001;
    previously Vice President, General Counsel and Secretary of
    Vital Signs, Inc. |  |     | 51 | 

There are no family relationships among any of
the executive officers, and there are no arrangements or
understandings between any of the executive officers and any
other person pursuant to which any of such officers was
selected. The executive officers are normally elected by the
Board of Directors at its first meeting following the Annual
Meeting of Stockholders for a one-year term or until their
respective successors are duly elected and qualify.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Share Prices

The Companys common stock is traded on the
New York Stock Exchange under the symbol BNE. The
following are the high and low share prices as reported by the
New York Stock Exchange, and dividends paid per share for
calendar 2002 and 2001 by year and quarters.

|               |  |      |       |     |  |           |       |  |  |   |      | 
|-------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|               |  |      |       |     |  | Dividends
|               |  |      |       |     |  | Per      
|               |  | High |       | Low |  | Share    
|               |  |      |       |     |  |          
|2002           |  |      |       |     |  |           |       |  |  |   |      | 
|Fourth quarter |  | $    | 12.14 |     |  | $         | 8.66  |  |  | $ | .055 | 
|Third quarter  |  |      | 14.80 |     |  |           | 9.62  |  |  |   | .055 | 
|Second quarter |  |      | 16.21 |     |  |           | 12.74 |  |  |   | .055 | 
|First quarter  |  |      | 14.37 |     |  |           | 11.30 |  |  |   | .055 | 
|               |  |      |       |     |  |           |       |  |  |   |      | 
|Calendar year  |  |      | 16.21 |     |  |           | 8.66  |  |  | $ | .22  | 
|               |  |      |       |     |  |           |       |  |  |   |      | 
|2001           |  |      |       |     |  |           |       |  |  |   |      | 
|Fourth quarter |  | $    | 13.80 |     |  | $         | 9.06  |  |  | $ | .055 | 
|Third quarter  |  |      | 12.25 |     |  |           | 8.94  |  |  |   | .055 | 
|Second quarter |  |      | 12.50 |     |  |           | 9.26  |  |  |   | .055 | 
|First quarter  |  |      | 11.31 |     |  |           | 9.00  |  |  |   | .055 | 
|               |  |      |       |     |  |           |       |  |  |   |      | 
|Calendar year  |  |      | 13.80 |     |  |           | 8.94  |  |  | $ | .22  | 
|               |  |      |       |     |  |           |       |  |  |   |      | 

The closing price of the Companys common
stock on March 14, 2003 was $9.46 per share, and the number
of holders of record on that date was approximately 1,305.

11



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

FIVE YEAR FINANCIAL SUMMARY

(In thousands, except per share
information)


|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |           |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------- | --------- | --------- | - | ---- | --------- | --------- | - | ---- | --------- | --------- | - | - | --------- | --------- | - | - | ------- | --------- | -
|                                                                 |                                                                           |                        
|                                                                 |                                                                           | Year Ended December 31,
|                                                                 |                                                                           |                        
|                                                                 |                                                                           | 2002                    |           | 2001      |   | 2000 |           | 1999      |   | 1998
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |     
|Operating Data                                                   |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Revenue                                                          |                                                                           | $                       | 1,003,326 |           |   | $    | 1,054,631 |           |   | $    | 1,179,338 |           |   | $ | 1,072,729 |           |   | $ | 906,361 |          
|Expenses:                                                        |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|                                                                 | Cost of revenue                                                           |                         |           | (673,952  | ) |      |           | (717,662  | ) |      |           | (758,482  | ) |   |           | (671,708  | ) |   |         | (549,198  | )
|                                                                 | Selling and administrative                                                |                         |           | (268,955  | ) |      |           | (264,821  | ) |      |           | (294,779  | ) |   |           | (276,811  | ) |   |         | (238,816  | )
|                                                                 | Depreciation                                                              |                         |           | (40,662   | ) |      |           | (41,117   | ) |      |           | (42,349   | ) |   |           | (39,606   | ) |   |         | (33,587   | )
|                                                                 | Amortization                                                              |                         |           | (2,017    | ) |      |           | (8,001    | ) |      |           | (7,318    | ) |   |           | (7,023    | ) |   |         | (4,485    | )
|                                                                 | Restructuring charges, integration costs and
    asset impairment charges |                         |           | (19,378   | ) |      |           | (20,949   | ) |      |           | (2,106    | ) |   |           |          |   |   |         |          |  
|                                                                 | Gain (loss) on sale of certain printing assets                            |                         |           | 15,369    |   |      |           | (1,858    | ) |      |           |          |   |   |           |          |   |   |         |          |  
|                                                                 | Gain on sale of building                                                  |                         |           | 4,889     |   |      |           |          |   |      |           |          |   |   |           |          |   |   |         |          |  
|                                                                 | Purchased in-process research and development and
    other charges       |                         |           |          |   |      |           | (800      | ) |      |           |          |   |   |           |          |   |   |         | (9,025    | )
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Operating income                                                 |                                                                           |                         | 18,620    |           |   |      | (577      | )         |   |      | 74,304    |           |   |   | 77,581    |           |   |   | 71,250  |          
|                                                                 | Interest expense                                                          |                         |           | (7,127    | ) |      |           | (6,422    | ) |      |           | (7,254    | ) |   |           | (6,281    | ) |   |         | (5,113    | )
|                                                                 | Other (expense) income, net                                               |                         |           | (1,993    | ) |      |           | 1,565     |   |      |           | (1,635    | ) |   |           | 983       |   |   |         | 2,788     |  
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Income (loss) from continuing operations
    before income taxes |                                                                           |                         | 9,500     |           |   |      | (5,434    | )         |   |      | 65,415    |           |   |   | 72,283    |           |   |   | 68,925  |          
|                                                                 | Income tax expense                                                        |                         |           | (9,145    | ) |      |           | (2,281    | ) |      |           | (28,145   | ) |   |           | (30,220   | ) |   |         | (31,486   | )
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Income (loss) from continuing operations                         |                                                                           | $                       | 355       |           |   | $    | (7,715    | )         |   | $    | 37,270    |           |   | $ | 42,063    |           |   | $ | 37,439  |          
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Balance Sheet Data                                               |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|                                                                 | Current assets                                                            |                         | $         | 261,833   |   |      | $         | 264,698   |   |      | $         | 314,508   |   |   | $         | 309,439   |   |   | $       | 276,064   |  
|                                                                 | Current liabilities                                                       |                         | $         | 179,494   |   |      | $         | 186,556   |   |      | $         | 180,966   |   |   | $         | 193,690   |   |   | $       | 160,638   |  
|                                                                 | Working capital                                                           |                         | $         | 82,339    |   |      | $         | 78,142    |   |      | $         | 133,542   |   |   | $         | 115,749   |   |   | $       | 115,426   |  
|                                                                 | Current ratio                                                             |                         |           | 1.46 to 1 |   |      |           | 1.42 to 1 |   |      |           | 1.74 to 1 |   |   |           | 1.60 to 1 |   |   |         | 1.72 to 1 |  
|                                                                 | Net plant and equipment                                                   |                         | $         | 151,557   |   |      | $         | 163,838   |   |      | $         | 171,938   |   |   | $         | 173,293   |   |   | $       | 166,367   |  
|                                                                 | Total assets                                                              |                         | $         | 704,402   |   |      | $         | 637,334   |   |      | $         | 660,215   |   |   | $         | 678,624   |   |   | $       | 642,298   |  
|                                                                 | Long-term debt                                                            |                         | $         | 142,708   |   |      | $         | 76,941    |   |      | $         | 85,676    |   |   | $         | 47,281    |   |   | $       | 74,887    |  
|                                                                 | Stockholders equity                                                      |                         | $         | 336,320   |   |      | $         | 330,029   |   |      | $         | 360,966   |   |   | $         | 408,460   |   |   | $       | 383,171   |  
|Per Share Data                                                   |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|Income (loss) from continuing operations:                        |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |         |          
|                                                                 | Basic                                                                     |                         | $         | .01       |   |      | $         | (.23      | ) |      | $         | 1.08      |   |   | $         | 1.14      |   |   | $       | 1.02      |  
|                                                                 | Diluted                                                                   |                         | $         | .01       |   |      | $         | (.23      | ) |      | $         | 1.05      |   |   | $         | 1.12      |   |   | $       | 1.00      |  
|Dividends                                                        |                                                                           | $                       | .22       |           |   | $    | .22       |           |   | $    | .22       |           |   | $ | .22       |           |   | $ | .20     |          

The operations of the Internet Consulting and
Development segment were discontinued in 2001, accordingly, the
amounts above have been restated from previously published
numbers to reflect the effect of discontinued operations.

In addition, in years prior to 2002, revenue and
cost of revenue have been restated for all periods to reflect
the reclassification of all amounts billed to customers for
out-of-pocket expenses as revenue in accordance with
Emerging Issues Task Force Topic D-103, Income Statement
Characterization of Reimbursements

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received for Out-of-Pocket Expenses
Incurred. The Company previously recorded these amounts
billed as reductions of cost of revenue. The adoption of this
provision had no effect on net income. The adoption of this new
standard resulted in restatements of revenue and cost of revenue
of $60.8 million, $77.5 million, $73.4 million,
and $72.0 million for each of the four years ended
December 31, 2001 through December 31, 1998,
respectively.







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

(In thousands, except per share information
and where noted)


Cautionary Statement Concerning Forward
Looking Statements

The Company desires to take advantage of the
safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the 1995 Act). The
1995 Act provides a safe harbor for forward-looking
statements to encourage companies to provide information without
fear of litigation so long as those statements are identified as
forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual
results to differ materially from those projected.

Set forth below is a summary of factors the
Company believes important and that could cause actual results
to differ from the Companys expectations. The Company is
publishing these factors pursuant to the 1995 Act. These factors
should not be construed as exhaustive or as an admission
regarding the adequacy of disclosure made by the Company prior
to the effective date of the 1995 Act. Readers should understand
that many factors govern whether any forward-looking statements
can or will be achieved. Any one of those results could cause
actual results to differ materially from those projected. The
words believe, expect,
anticipate, intend, aim,
will and similar words identify forward-looking
statements. The Company cautions readers that the following
important factors, along with other items discussed throughout
this section, could affect the Companys actual results and
could cause the Companys actual results to differ
materially from those expressed either orally or in writing in
any forward-looking statements made by or on behalf of the
Company:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | General economic or capital market conditions
    affecting the demand for transactional financial printing or
    other solution offerings.                                                                               
|
| |  | The effects of war or acts of terrorism.                                                                                                                                                                                   
|
| |  | Loss or retirement of key executives, employees
    or technical personnel.                                                                                                                                                
|
| |  | The effect of changes within the Companys
    organization or in the compensation and benefit plans and the
    ability of the Company to attract and retain experienced and
    qualified management and sales personnel.
|
| |  | Natural events and acts of God such as
    earthquakes, fires or floods.                                                                                                                                                   
|
| |  | The ability of the Company to integrate the
    operations of acquisitions into its operations.                                                                                                                            

Results of Operations

Historically, the Company has primarily provided
financial printing and other related services. Revenue related
to transactional financial printing services is affected by
cyclical conditions of the capital markets. Over the past few
years the Company has diversified and expanded its service
offerings to be less dependent on transactional financial
printing and to reduce the exposure that earnings have to the
cyclical financial markets. Revenue (as a percentage of the
Companys total revenue) relating to the financial printing
segment was 64% in 2002, compared to 68% and 78% in 2001 and
2000, respectively. Revenue relating to the financial printing
segment has declined as a percentage of total revenue due to a
combination of the Companys diversification efforts and
the overall slowdown in capital market activity.

Management evaluates the performance of its
operating segments separately to monitor the different factors
affecting financial results. Each segment is subject to review
and evaluation as management monitors current market conditions,
market opportunities and available resources. The performance of
each segment is discussed over the next few pages. The Internet
consulting and development segment is no longer being discussed
as it was classified as a discontinued operation during the
second quarter of 2001, based on managements decision to
exit this segment.

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In addition to measures of operating performance
determined in accordance with generally accepted accounting
principles, management also uses EBITDA and EBITA to evaluate
performance. EBITDA is defined as earnings before interest,
income taxes, depreciation and amortization expense. EBITA is
defined as earnings before interest, income taxes and
amortization expense. Segment performance is evaluated exclusive
of the disposal of certain assets, purchased in-process research
and development charges, restructuring, integration and asset
impairment charges, other expenses and other income. EBITDA and
EBITA, as adjusted for these items, are measured because
management believes that such information is useful in
evaluating the results of certain segments relative to other
entities that operate within these industries and to its
affiliated segments. EBITDA and EBITA are alternatives to, and
not replacement measures of, operating performance as determined
in accordance with generally accepted accounting principles.

The Company continually reviews its business,
manages costs, and aligns its resources with market demand,
especially in light of the recent volatility of the capital
markets and sustained decrease in transactional financial
printing activity. As a result, the Company took several steps
over the last two years to bring its costs in line with the
level of current market activity.

In the fourth quarter of 2000 the Company
undertook cost cutting initiatives resulting in reductions in
fixed and variable costs, and a staff reduction of approximately
3% of the Companys worldwide workforce. In April 2001 the
Company undertook an additional 10% reduction in the financial
print segment and related corporate overhead staff.

In August 2001, in conjunction with the upgrades
and investments made to its manufacturing network, Bowne
announced the discontinuance of its Chicago pressroom, thus
furthering the consolidation of the worldwide manufacturing
network. In October 2001, the Company undertook an additional
10% reduction in financial print staffing and related corporate
overhead. In total, the cost reduction initiatives taken by the
Company in 2001 resulted in a reduction of the Companys
annual cost base for continuing operations by approximately
$70 million.

In September 2002, the Company undertook
additional cost cutting initiatives resulting in reductions in
fixed and variable costs, and a staff reduction of approximately
2.5% of the Bowne worldwide workforce, primarily in the
financial printing segment. These staff reductions resulted in
approximately $2.3 million in severance and related
personnel costs. These cost reduction initiatives taken by the
Company are expected to result in an additional $10 million
reduction of the Companys annual cost base.

During the fourth quarter of 2002, the Company
recorded restructuring, integration and asset impairment charges
of $15.8 million in connection with additional workforce
reductions, office closings, and the integration of
GlobalNets operations with BGS. The Company reduced its
workforce 6.0%, or approximately 500 employees, during the
fourth quarter of 2002. In addition, several offices were closed
in both the financial printing and globalization segments. The
charges above also included approximately $2.2 million of
non-cash asset impairment charges related to the financial print
and globalization segments, as a result of the office closings.
In connection with its previously announced cost reduction
initiatives, the Company expects to incur additional
restructuring, integration and asset impairment charges during
2003 ranging from $10 million to $15 million,
primarily related to office closings, potential headcount
reductions and the integration of GlobalNets operations
into BGS. These cost reduction initiatives are expected to
provide an additional $35 million in annualized cost
savings on the Companys fixed cost base. In addition, the
Company may incur additional charges in 2003 if further cost
reduction efforts are considered necessary.

Since beginning its cost cutting initiatives in
the fourth quarter of 2000, the Company has reduced its
worldwide workforce by approximately 20%, and reduced its annual
cost base for continuing operations by approximately
$105 million through December 2002.

Much of the expense reductions within the
financial printing segment are the result of the elimination of
redundant staff and facilities that the Company maintained while
it was bringing new technology solutions and manufacturing
capacity on-line to support the unprecedented growth in
transactional financial print work from 1996-2000. The Company
does not anticipate the need to fully replace this staff or the
discontinued facilities in order to service the anticipated
eventual return of the capital transactional market. In addition
to the cost reductions in its financial printing segment, the
Company has also made workforce reductions in its

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outsourcing and globalization segments due to
softness in those markets, as well as the integration of the
acquisitions of Mendez and GlobalNet into the existing BGS
operation.


The Company completed two acquisitions during
2001 that affect comparability of results. In April 2001, the
Company completed the acquisition of Document Management
Services, Inc. (DMS), an outsourcing business in
Boston that is complementary to the Companys existing
outsourcing business and has strengthened its position in this
important market. In August 2001, the Company completed the
acquisition of Mendez S.A., which strengthened the
Companys leadership position in the globalization and
localization industry by combining complementary lines of
business, enhancing service offerings, and adding clients in the
transportation, aerospace and health care sectors, among others.

The Company also completed two acquisitions
during 2002 that affect comparability of results. On
September 27, 2002, BGS Companies, Inc. completed the
acquisition of GlobalNet from Berlitz International, Inc. and
Berlitz Investment Corporation for $75 million. GlobalNet
provides globalization and localization services, software
testing, translation and interpretation services. The Company
expects that the acquisition of GlobalNet will strengthen
BGSs position in the globalization and localization
industry and enhance BGSs results by enabling BGS to
combine complementary services, improve efficiencies, and
diversify its customer base. This acquisition became part of the
globalization segment. In December 2002, the Company acquired
DecisionQuest, a provider of litigation resources, including
trial research, strategic communications and strategic
marketing, for approximately $31 million in cash. The
purchase agreement also provides for additional payments in the
event certain future performance measures are achieved over a
one-year period. The Company expects that the acquisition of
DecisionQuest will enable BBS to provide a broader and deeper
array of outsourced services to the legal industry. This
acquisition became part of the outsourcing segment.

With regard to future acquisition activity, the
Company will continue to evaluate potential acquisition
candidates in areas that will enhance its existing businesses.

The Company also completed two other transactions
in the third quarter of 2002 that affect comparability of
results. The Company sold certain publishing assets and
liabilities in its financial printing segment for approximately
$15.0 million. The carrying value of liabilities exceeded
the carrying value of assets by approximately $0.4 million,
therefore the sale resulted in a gain of approximately
$15.4 million for the year ended December 31, 2002.
The Company also completed the sale of the Chicago office
building for approximately $8.3 million, resulting in a
gain of $4.9 million during the third quarter of 2002.

Year ended December 31, 2002 compared to
Year ended December 31, 2001

Financial
Printing

Revenue decreased $82,921, or 11%, to $638,269
for the year ended December 31, 2002, with the largest
class of service in this segment, transactional financial
printing, down $33,004, or 11% to $256,238 in 2002. The market
for transactional financial printing remained low and was down
during 2002, as compared to 2001, primarily due to the lack of
capital market activity in 2002, both domestic and
international. Over the past two years, the Company has
experienced a continued decline in transactional financial
printing revenue as the result of the capital market downturn.
Total transactional revenues in 2002 were the lowest in seven
years. Despite this downturn, the Company continues to maintain
its industry leading market share in both the domestic and
international markets. During the year ended December 31,
2002, the Company performed financial printing services for two
of the largest IPOs in the market, Travelers Property Casualty
and Nestles spin-off of Alcon, and for 45% of all IPOs
registered in the U.S. in that period. The Company also
performed financial printing services for some significant
mergers and acquisitions transactions during 2002, including
more than 40% of transactions over $50 million that
required printing during the year.

The international market was also affected by the
downturn in the capital markets, with 2002 revenues of $87,467
compared to 2001 revenues of $102,190, a 14% decline. We believe
that our share of this competitive market has remained stable
and that we continue to be the leading provider of services in
most international markets. In Europe, the Company performed the
financial printing services for the Schering acquisition of
Collateral Theurapeutics, and Barillas acquisition of
Kamps. Also, revenue increased in Asia, mainly from

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China, Korea and Taiwan, and the Company
performed financial printing services during the second quarter
of 2002 for the Bank of China initial public offering.


The resources that the Company commits to the
transactional financial market are significant and management
continues to balance these resources with market conditions.
During 2002, the Company responded to the continued lower levels
of activity in the capital markets by further reducing its
staffing and other operating expenses, including closing some
sales offices. As of year end, financial print staffing levels
were below the level of 1996. During 2002, total restructuring
and asset impairment charges related to the financial printing
segment incurred as a result of these programs were $7,034,
compared to $6,567 in 2001.

Commercial printing revenue decreased $32,861, or
49%, primarily as a result of the decreased demand for
commercial printing services, as well as the sale of the
Companys Montreal commercial printing operations in June
2001 and a decision by the Company to focus on higher margin
work. Digital printing revenue decreased $5,477, or 20%, due to
decreased volumes of statement printing, as well as a decision
by the Company to focus on higher margin digital printing work.
Mutual fund revenue decreased $14,685, or 9%, primarily due to
the consolidation of funds and tightened spending by mutual
funds in reaction to slowness in the financial markets. These
decreases were offset to some degree by increased revenue from
corporate reporting. Revenue from these services increased by
$5,963, or 4%, compared to 2001.

Gross margin contribution of this segment
decreased by $9,604. However, the gross margin percentage
increased by approximately three percentage points to 38%,
reflecting better resource utilization due primarily to the cost
savings realized as a result of the Companys cost
reduction initiatives, and also due to the focus on higher
margin business.

Selling and administrative expenses decreased
$10,307 or 5%, to $189,136, primarily as a result of cost
reductions implemented during the year, including realizing the
full effect of the workforce reductions during the second and
fourth quarters of 2001. The decrease was also the result of
lower expenses that are directly associated with sales such as
selling expenses (including commissions and bonuses) and certain
variable administrative expenses. As a percent of sales, selling
and administrative expenses increased by approximately two
percentage points to 30%. This increase is primarily the result
of lower revenues available to absorb certain fixed selling and
administrative expenses.

EBITDA from this segment for 2002 was $66,936,
including $7,034 of restructuring and asset impairment charges
and $20,258 in gains from the sales of the publishing assets and
the Chicago office building previously described. This was an
increase of $22,352, or 50%, over EBITDA of $44,584 in 2001,
which included $6,567 of restructuring and asset impairment
charges and a $1,858 loss on the sale of the commercial printing
operation in Montreal. The improvement in EBITDA is primarily a
result of the asset sales in 2002, as well as the Companys
cost reduction initiatives over the last two years. Refer to
Note 16 of the Consolidated Financial Statements for
additional segment financial information and reconciliation of
EBITDA to pre-tax income (loss).

Outsourcing

Revenue increased $2,095, or 1%, to $233,886 for
the year ended December 31, 2002. The slight increase is
attributed to both the acquisition of DMS in April 2001 and the
acquisition of DecisionQuest in December 2002. Other revenue was
down slightly compared to the prior year, as volume growth on
existing client contracts and new customers was more than offset
by decreased revenue from certain existing customers due to the
sustained downturn in the capital markets, as well as lost
revenue from former customers who have gone out of business or
are in bankruptcy.

The outsourcing segment provides a full array of
outsourcing services in information technology, document
processing services, creative services, litigation support
services, and office document services, primarily to the legal,
investment banking and financial services industries. Services
are contractual and, therefore, help provide a means to manage
business volatility more effectively. Declining volumes can be
offset somewhat through monthly minimum charges on certain
contracts, as well as contract language that calls for the
removal of underutilized assets such as copier machines. At the
same time, the Company expects that

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additional outsourcing opportunities from new
clients will become more prevalent as businesses continue to
focus on core competencies and look for cost-effective
alternatives to managing their document and infrastructure
requirements.


Gross margin from this segment increased $1,898,
or 4%, while the margin percentage increased approximately one
percentage point to 21%. This increase in gross margin
percentage is directly related to cost cutting initiatives such
as the 2001 workforce reduction, a continued focus on driving
productivity while improving costs, and improving bottom line
growth through effective asset management and automation. This
was partially offset by lower resource utilization at investment
banking clients due to decreased volumes as a result of the
downturn in the capital markets.

Selling and administrative expenses increased
$1,777, or 5%, to $35,526, and as a percent of sales, it
increased by approximately one percentage point to 15%. This
increase is caused by an increase in certain administrative
costs, including facilities costs, and the acquisition of DMS
and DecisionQuest.

During 2002, the outsourcing segment incurred
$420 in severance-related restructuring charges and $1,300 in
non-cash asset impairment charges, compared to $5,412 of
restructuring and asset impairment charges in 2001.

EBITDA from this segment in 2002 was $11,415,
including $1,720 of restructuring and asset impairment charges.
This was an increase of $3,813, or 50%, over EBITDA of $7,602 in
2001, which included $5,412 of restructuring and asset
impairment charges. The improvement in EBITDA was primarily a
result of the lower restructuring and asset impairment charges
in 2002. Refer to Note 16 of the Consolidated Financial
Statements for additional segment financial information and
reconciliation of EBITDA to pre-tax income (loss).

Globalization

Revenue increased $29,521, or 29%, to $131,171 in
2002. This is due to the acquisition of Mendez in August 2001
and GlobalNet in September of 2002. The acquisition related
increases were offset by lower spending by some of our largest
clients in the technology industry, caused primarily by delays
in their new product releases. In addition, 2001 benefited from
a large one-time project for a significant customer. The Company
anticipates increased revenue in 2003 as a result of the
GlobalNet acquisition as well as through organic growth.

Gross margin from this segment was nearly flat at
$37,864, while the gross margin percentage decreased
approximately eight percentage points to 29%. Lower than
expected revenue growth on a higher fixed cost base, resulting
from the Mendez acquisition, is the principal cause of the
margin decline. The Company has attempted to align its resource
levels with the lower level of revenue, but because of
restrictive labor laws in most European countries, where the
majority of BGS employees work, this process took most of
the year. In addition, constant price pressure throughout the
industry has eroded margins. The Company anticipates margin
improvement as it continues to merge redundant facilities and
further integrates BGSs workforce with that of GlobalNet.

Selling and administrative expenses increased
$12,661, or 40%, to $44,291, and as a percentage of revenue
increased approximately three percentage points to 34%. The
increase in selling and administrative expenses is generally
related to the acquisitions of Mendez and GlobalNet. The
increase as a percentage of revenue is primarily due to lower
than expected revenue growth on a higher fixed cost base. The
Company expects this segment to benefit from economies of scale
created by the acquisition of GlobalNet and anticipates cost
savings as it merges redundant facilities and integrates the two
workforces, resulting in a reduction of these costs as a
percentage of sales.

During 2002, restructuring, integration and asset
impairment charges related to the globalization segment were
$10,624. These charges primarily related to workforce
reductions, office closings, and other costs associated with the
integration of GlobalNet.

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As a result of the foregoing, EBITDA for this
segment in 2002 was a loss of $17,052, including $10,624 of
restructuring, integration and asset impairment charges. This
compares to EBITDA in 2001 of $180, which included $5,945 of
restructuring, integration and asset impairment charges. The
Company expects this segments EBITDA to improve in 2003
for the reasons discussed above. Refer to Note 16 of the
Consolidated Financial Statements for additional segment
financial information and reconciliation of EBITDA to pre-tax
income (loss).

During 2002, the globalization segments
goodwill balance increased by $40,833 to $107,766, primarily as
a result of the GlobalNet acquisition. As part of the
Companys year-end impairment testing, this segments
fair value was higher than its carrying value, and therefore the
goodwill balance was not impaired. The Company will continue to
monitor the globalization segments results compared to
projections. If the globalization segment does not meet its
projected operating results, then a non-cash goodwill impairment
charge could potentially result.

Summary

Overall revenue decreased $51,305, or 5%, to
$1,003,326. The decrease is attributed to the decline in
financial printing partially offset by increases in outsourcing
and globalization. There was a $7,595, or 2%, decrease in gross
margin, however, the gross margin percentage increased
approximately one percentage point to 33%. This increase in
gross margin percentage was attributable to the improvements
generated from better resource utilization due to workforce
reductions during 2001 and 2002, as well as a focus on higher
margin business, offset by declining margin percentages in
globalization.

Selling and administrative expenses on a
company-wide basis increased $4,134, or 2%, to $268,955. This
category is affected by increased selling and administrative
expenses from the acquisitions of Mendez, DMS, GlobalNet and
DecisionQuest, offset by decreases primarily due to lower costs
directly related to the decrease in sales, such as selling
expenses (including commissions and bonuses) and certain
variable administrative expenses, as well as decreases in
administrative expenses as a result of workforce reductions and
reductions in discretionary spending. As a percentage of sales,
these expenses increased by approximately two percentage points
to 27%. This percentage increase is primarily the result of
lower revenues available to absorb certain fixed selling and
administrative expenses.

Depreciation decreased $455, primarily as a
result of the sale of the commercial printing operations in
Montreal, Quebec in June 2001, and reduced capital expenditures
in recent years. Amortization decreased $5,984 as a result of
the adoption of SFAS 142 which eliminated goodwill
amortization effective January 1, 2002.

There were $19,378 in restructuring, integration,
and asset impairment charges in 2002, as compared to $20,949 in
the prior year, as discussed in Note 18 to the financial
statements.

Interest expense increased $705, an 11% increase,
as a result of a combination of a higher average interest rate
in the current year (5.2% for the year ended December 31,
2002, as compared to 4.6% for the same period in 2001), and
higher average borrowings in 2002 ($133 million for the
year ended December 31, 2002, as compared to
$123 million for the same period in 2001).

The gain (loss) on sale of certain printing
assets relates to the sale of certain publishing assets and
liabilities associated with its financial print segment (gain of
$15,369) in 2002, as discussed in Note 3 to the financial
statements, and to the sale of the commercial print operation in
Montreal (loss of $1,858) in 2001.

The gain on the sale of building relates to the
sale of the Companys Chicago office building (gain of
$4,889) in the current year, as discussed in Note 3 to the
financial statements.

The overall effective income tax rate was
impacted significantly because there was no benefit taken for
losses in certain foreign jurisdictions because of the
uncertainty regarding their realization. In addition, the
Companys non-deductible items grew as a percentage of
pre-tax income from 2001 to 2002.

As a result of the foregoing, income from
continuing operations for 2002 was $355 as compared to a loss of
$7,715 for the same period last year.

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Year ended December 31, 2001 compared to
Year ended December 31, 2000

Financial
Printing

Revenue decreased $197,636, or 22%, to $721,190
for the year ended December 31, 2001. The largest class of
service in this segment, transactional financial printing,
decreased nearly 40%, or $191,679, to $289,242 in 2001. Total
transactional revenues in 2001 were the lowest in six years.
This was due to the overall contraction in the capital markets
in 2001, both domestic and international. This was a continued
decline from what the Company experienced in the second half of
2000 in the domestic capital markets.

In 2001, the domestic capital market experienced
a significant reduction in the number of transactions being
successfully completed. In particular, the market for initial
public offerings severely constricted. The IPO market was down
approximately 80% and the M & A market was down
approximately 30% to 40%. While we continued to maintain our
share of this market in 2001, the reduced activity impacted our
revenues and gross margins since, historically, transactional
financial print revenues are our most profitable class of
service.

The international market was also impacted by the
downturn in the capital markets, with 2001 revenues of $102,190
compared to 2000 revenues of $176,664, a 42% decline. We believe
that our share of this competitive market has remained stable
and that we continue to be the leading provider of services in
most international markets. Several large deals were completed
in the fourth quarter of 2001. In Asia, we performed all of the
financial printing services for the privatization of
Chinas aluminum company, Chinalco, which listed its shares
in both New York and Hong Kong. We also provided the financial
printing services for one of Koreas largest financial
institutions, KDIC. In Europe, we performed all of the financial
printing services for one of 2001s top five largest equity
offerings, Converiums equity offering, a spin-off from
Zurich Financial Services, and we also performed the financial
printing services required on France Telecoms
$5 billion debt restructuring.

The resources that the Company commits to the
transactional financial market are significant and management
continued to balance these resources with market conditions.
During 2001, the Company responded to the continued lower levels
of activity in the capital markets by reducing its staffing and
other operating expenses. By the end of 2001, financial print
staffing levels were at approximately the same level as in 1996.
Restructuring charges of $5,698 were incurred as a result of
these programs. During 2001, total restructuring and asset
impairment charges related to the financial printing segment
were $6,567, compared to $2,106 in 2000.

The decrease in transactional financial printing
revenue was offset to some degree by increased revenue from
mutual fund services and corporate reporting. Revenue from these
services increased by $25,031, or 9%, compared to 2000. These
services are important because they provide a more stable volume
of work than transactional financial printing and we expect
these services to be less cyclical. Most of the work performed
for clients in these markets is driven by long-term
relationships.

Other non-transactional revenue, including
revenue from commercial printing, insurance company services,
digital printing and publishing services, decreased by $30,988,
or 21%, as a result of a decline in general economic conditions
in 2001.

Gross margin contributed by this segment
decreased by $111,389 while the margin percentage slid nearly
five percentage points to 35%. The margins in the transactional
financial printing service were negatively impacted by lower
resource utilization due to the volatility of the capital
markets. In addition, the faster growing services of mutual fund
and corporate printing contributed at a lower marginal rate.

Selling and administrative expenses decreased
$45,497, or 19%, to $199,443. The decrease was primarily the
result of lower expenses that are directly associated with sales
such as selling expenses (including commissions and bonuses) and
certain variable administrative expenses. Administrative
expenses that are not tied to sales volume decreased as a result
of our cost containment programs and the workforce reductions
announced during the second and fourth quarters of 2001. As a
percent of sales, selling and administrative

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expenses increased by approximately one
percentage point to 28%. This increase is primarily the result
of lower revenues available to absorb certain fixed selling and
administrative expenses.


As a result of the foregoing, EBITDA for this
segment in 2001 was $44,584, including $6,567 of restructuring
and asset impairment charges and a $1,858 loss on the sale of
the commercial printing operation in Montreal. This was a
decrease of $72,212, or 62%, compared to EBITDA of $116,796 in
2000, which included $2,106 of restructuring and asset
impairment charges. Refer to Note 16 of the Consolidated
Financial Statements for additional segment financial
information and reconciliation of EBITDA to pre-tax income
(loss).

Outsourcing

Revenue increased $40,174, or 21%, to $231,791
for the year ended December 31, 2001. The increase was
attributed to volume growth on existing client contracts, strong
new business performance driving incremental revenue of $24,900,
and the acquisition of DMS in April 2001. These increases were
partially offset by decreased revenue from certain existing
customers due to client downsizings and the sustained downturn
in the capital markets. Revenue from DMS during 2001 was
$10,932, therefore, organic revenue growth was approximately 15%.

Gross profit from this segment increased by
$10,042 and the gross margin percentage increased by one
percentage point from 19% to 20%. This increase in gross margin
percentage was directly related to cost cutting initiatives such
as the 2001 workforce reduction and continued focus on driving
bottom line growth through effective asset management and
automation. This was partially offset by lower resource
utilization at certain clients due to the decreased volumes
related to the downturn in the capital markets. Selling and
administrative expenses increased $5,824 and remained flat as a
percent of revenue.

During 2001, restructuring and asset impairment
charges related to the outsourcing segment were $5,412. These
charges primarily related to workforce reductions, equipment
write-offs and asset impairments.

As a result of the foregoing, EBITDA for this
segment in 2001 was $7,602, including $5,412 of restructuring
and asset impairment charges. This was a decrease of $1,193, or
14%, compared to EBITDA of $8,795 in 2000. No restructuring or
asset impairment charges were recorded in 2000. Refer to
Note 16 of the Consolidated Financial Statements for
additional segment financial information and reconciliation of
EBITDA to pre-tax income (loss).

Globalization

Revenue from this segment increased by $32,755,
or 48%, to $101,650. Approximately $20,624 of this increase was
due to the acquisition of Mendez at the end of August 2001. The
remaining increase of $12,131, representing organic growth of
18%, was from a combination of increased business from existing
customers and new customers. Some of the business from existing
customers was related to nonrecurring projects.

Gross margin increased 86%, or $17,461, to
$37,754, while gross margin percentage increased by eight
percentage points to 37%. This was achieved by streamlining
certain processes, improving our resource utilization and
focusing on our more profitable services and customer contracts
and synergies realized with the acquisition of Mendez. In
addition, the increased revenue enabled the Company to operate
at a level that absorbed more of its fixed costs.

Selling and administrative expenses increased
$9,717, of which $5,867 relates to the acquisition of Mendez. As
a percent of revenues, these expenses decreased by approximately
one percentage point to 31%, reflecting our efforts and
commitment to better manage our costs.

During 2001, restructuring, integration and asset
impairment charges related to the globalization segment were
$5,945. These charges primarily related to workforce reductions,
office closings, and other costs associated with the integration
of Mendez.

As a result of the foregoing, EBITDA for this
segment in 2001 was $180, including $5,945 of restructuring,
integration and asset impairment charges. This was an increase
of $1,800 compared to the 2000

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EBITDA loss of $1,620. Refer to Note 16 of
the Consolidated Financial Statements for additional segment
financial information and reconciliation of EBITDA to pre-tax
income (loss).


Summary

As a result of the foregoing, overall revenue
decreased by 11% to $1,054,631, a decrease of $124,707. The
decrease was attributed to the large decline in transactional
financial printing partially offset by increases in outsourcing
and globalization. There was an $83,887 decrease in gross margin
and the gross margin percentage decreased approximately four
percentage points to 32%. This decrease was attributable to the
declines in the Companys financial printing segment,
partially offset by improvements in the globalization segment.

Selling and administrative expenses decreased
$29,958, or 10%, to $264,821. The decrease was primarily due to
lower costs directly related to the decrease in sales, such as
selling expenses (including commissions and bonuses) and certain
variable administrative expenses. Administrative expenses that
are not tied to sales volume decreased as a result of workforce
reductions and reductions in discretionary spending during 2001.
As a percentage of total revenues, these expenses remained
consistent at 25%.

Depreciation expense decreased $1,232,
principally resulting from the impact of the sale of the
Montreal subsidiary and reduced capital expenditures as compared
to the last several years.

Amortization expense increased $683 related to
the Mendez and DMS acquisitions.

There were $800 of purchased in-process research
and development charges in the current year in connection with
the Mendez acquisition. This was recorded as expense at the date
of acquisition in accordance with applicable accounting
standards.

There were $20,949 in restructuring, integration,
and asset impairment charges in 2001, as compared to $2,106 in
the prior year, as previously explained. In addition to the
$17,924 of charges related to the reportable segments, the
Company also incurred an impairment loss of approximately $3,025
related to an asset held for investment.

There was an operating loss of $577 in 2001,
compared with operating income of $74,304 in 2000, a decrease of
$74,881 primarily related to reduced sales and gross profits, as
well as higher restructuring and asset impairment charges.

Interest expense decreased by $832, an 11%
decrease, resulting primarily from lower interest rates in the
current year, partially offset by higher average borrowings.

Other income (expense), net consists of interest
income, realized losses on sales of marketable securities and
other assets, foreign currency transaction gains and losses, and
litigation accruals. The other income of $1,565 in 2001 compared
to expense of $1,635 in the prior year is primarily due to an
accrual in connection with a matter in litigation in 2000.

The loss on sale of certain printing assets in
2001 relates to the sale of the commercial printing operation in
Montreal.

The effective overall income tax rate was
impacted by the pre-tax income incurred during 2000 compared to
pre-tax loss in 2001. The tax rate benefit in 2001 was also
impacted by the increase in overall permanent differences in
relation to the Companys pre-tax loss. The Company
incurred non-deductible expenses related to impairment charges
in both 2000 and 2001 and the loss on the sale of the Montreal
subsidiary during 2001, while the other permanent differences
remained constant.

As a result of the foregoing, net loss from
continuing operations was $7,715 compared to net income of
$37,270 for the same period in 2000, a decrease of $44,985.

As previously discussed, the Company discontinued
its Internet consulting and development segment, which resulted
in losses of $16,363 and $30,262 in 2001 and 2000, respectively.
The net loss of the Company was $24,078 for 2001, as compared to
net income of $7,008 in 2000.

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2003 Outlook

The following statements and certain statements
made elsewhere in this document are based upon current
expectations. These statements are forward looking and actual
results may differ materially. Current trends in the global
economy, particularly in the domestic and international capital
markets, compounded by world events in general, make it
difficult at present to project future activity (also refer to
the first two paragraphs of this Item 7).

During 2003, the Company expects improved results
over our comparable 2002 results. The results of our financial
print business will continue to be impacted by the anticipated
softness in the capital markets, both domestically and
internationally. We expect improvement at both BBS and BGS as we
integrate recent acquisitions into existing operations.

Although several circumstances, including
volatile market conditions, have limited the Companys
ability to predict future financial results, we estimate that
full year 2003 results will be in the ranges shown below. The
outlook reflects results from continuing operations, and the per
share information excludes any restructuring charges,
integration costs or one-time items. The Company anticipates
$10 million to $15 million in charges related to
previously announced cost containment initiatives and the
integration of the GlobalNet acquisition. In addition, the
Company may incur additional charges in 2003 if further cost
reduction efforts are considered necessary.

|                                            |  |                     
|------------------------------------------- |  | --------------------
|                                            |  | Full-year 2003      
|                                            |  |                     
|Revenue                                     |  | Approx. $1.1 billion
|Diluted earnings per share, in the range of |  | $0.30 to $0.60      
|Capital expenditures                        |  | Approx. $30 million 

Liquidity and Capital Resources

On December 31, 2002, the Company had a
working capital ratio of 1.46 to 1 and working capital of
$82,339. On December 31, 2001, the Company had a working
capital ratio of 1.42 to 1 and working capital of $78,142. An
increase of approximately $37 million in working capital is
due to the decrease in the current portion of long-term debt as
a result of renewing the revolving line of credit, since this
debt was classified as current at December 31, 2001 and is
classified as long-term at December 31, 2002. In addition,
approximately $16 million of the increase in working
capital is due to the acquisition of GlobalNet on
September 27, 2002. This acquisition was funded with
long-term debt. These increases in working capital were offset
by a decrease in prepaid expenses related to an income tax
receivable, as well as a decrease in accounts receivable of
approximately $20 million (excluding the effect of
acquisitions) as a result of better collections in 2002. There
was also an increase in accrued expenses related to higher
restructuring accruals in the current year.

In February 2002, the Company completed a
$75 million private placement of senior unsecured notes
with several institutional lenders. The notes have an average
life of 7.2 years with an approximate interest rate of
7.3%. The proceeds from the private placement were used to pay
down a portion of the Companys existing revolving credit
facility. The Company completed its new three-year
$175 million revolving credit facility on July 2,
2002, which had an outstanding balance of $64 million at
December 31, 2002. The new credit agreement bears interest
at LIBOR plus 105-200 basis points or an alternative base rate
(greater of Federal Funds rate plus 50 basis points or the Prime
rate) depending on certain leverage ratios.

The terms of the new notes and revolving credit
agreement provide certain limitations on additional
indebtedness, sale and leaseback transactions, asset sales and
certain other transactions. Additionally, the Company is subject
to certain financial covenants based on its results of
operations. The Company was in compliance with all loan
covenants as of December 31, 2002. The senior unsecured
notes and revolving credit agreement are guaranteed by
substantially all of the Companys subsidiaries.

Due to the continued economic downturn and impact
on the Companys business, the revolving credit agreement
and private placement notes were amended in March 2003 to modify
certain financial covenant requirements and definitions. Under
the terms of the amendment, the Company will be required to meet
revised debt-to-EBITDA and fixed charge coverage ratios from the
first quarter of 2003 through the first quarter of 2004. These
financial covenant requirements will revert back to the
previously existing covenant

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levels beginning in the second quarter of 2004.
The new covenants are less restrictive than the previously
existing covenants. Based upon its current projections, the
Company believes it will be in compliance with the revised
quarterly loan covenants throughout fiscal 2003. In the event
that actual results do not approximate forecasted results,
management believes it could execute contingency plans to
mitigate such effects. Such plans include additional cost
reductions, asset sales, or seeking additional alternative
financing. While the Company believes that it could obtain
requisite additional financing, there can be no assurance that
such financing would be available on a timely basis or on
acceptable terms.


In consideration for the amendment, the Company
has agreed to provide accounts receivable as collateral. The
collateral will be shared proportionally between the parties to
the revolving credit agreement and the senior unsecured notes.
In addition, interest rates charged under the revolving credit
agreement have increased to LIBOR plus 125-325 basis points
depending on certain leverage ratios as defined in the credit
agreement, compared to LIBOR plus 105-200 basis points under the
previously existing covenants. Interest rates charged under the
senior unsecured notes have increased by 25 basis points during
the amendment period and a subsequent period during which the
Company must meet the original covenant requirements. The
Company expects to pay an amendment fee to approving lenders of
approximately $0.9 million, which will be amortized to
interest expense over the period covered by the amendment.

If the Company failed to meet one or more of its
loan covenants, such occurrence would be considered an event of
default. In the event the Company was unable to obtain a waiver
or unable to provide an allowable remedy for such event of
default, the Companys lenders would be entitled to certain
remedies, including the ability to terminate their loan
commitments and to demand immediate repayment, including payment
in full. Were the Companys lenders to demand immediate
payment in full, the Company could not make such payment from
existing funds and would have to seek replacement financing.
While the Company believes it would be able to obtain
replacement financing, the Companys ability to secure such
replacement financing could not be guaranteed, and if necessary,
such financing could carry higher costs.

It is expected that the cash generated from
operations, working capital and the Companys borrowing
capacity will be sufficient to fund its development and
integration needs (both foreign and domestic), finance future
acquisitions, if any, and capital expenditures, provide for the
payment of dividends, and meet the debt service requirements.
The Company experiences certain seasonal factors with respect to
its borrowing needs; the heaviest period for borrowing is
normally the second quarter. The Companys existing
borrowing capacity provides for this seasonal increase.

Capital expenditures for the year ended
December 31, 2002 were $29,543. The Company plans capital
spending in a similar range for 2003 (approximately
$30 million).

Cash Flows

Our focus on cash management continues, including
managing receivables, inventory and free cash flow. Year-to-date
average days sales outstanding improved to 70 days in 2002
from 75 days in 2001. The Company had net cash provided by
operating activities of $74,788, $72,435, and $56,652 for the
years ended December 31, 2002, 2001 and 2000, respectively.
Net cash provided by operating activities in 2002 reflects an
increase in accrued expenses, as opposed to a decrease in that
line item in the prior year. This change is primarily caused by
higher accruals for restructuring charges. Offsetting this is a
smaller decrease in accounts receivable than experienced in the
prior year, and a slight increase in inventory in the current
year as opposed to a decrease in the prior year. Overall, cash
provided by operating activities from continuing operations
decreased by almost $10 million. Additionally, cash used in
discontinued operations in 2002 was almost $12 million lower
than in 2001. The increase in 2001 reflects the impact of
significant decreases in accounts receivable and inventory
during 2001, as opposed to increases in those asset classes in
2000. These changes in accounts receivable and inventory were
offset by the impact of lower net income of approximately
$31 million in 2001. The change in prepaid assets provided
an increase to cash flow from operations in 2001 of
$20 million, as there was a large prepaid balance at
December 31, 2000 consisting of a net overpayment of
estimated income taxes and equipment deposits that were awaiting
reimbursement under a synthetic lease agreement.

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There were also significant decreases in the
employee compensation and benefits and accrued expense
categories.

Net cash used in investing activities was
$92,445, $94,801, and $44,809 for the years ended
December 31, 2002, 2001 and 2000, respectively. The change
from 2001 to 2002 was primarily a result of a decreased level of
capital expenditures in 2002, as well as proceeds recognized on
the sale of certain printing assets and the Chicago building in
2002. This was offset partially by a higher amount of cash paid
for acquisitions than in 2001, connected with the GlobalNet and
DecisionQuest acquisitions. The increase in 2001 was primarily a
result of a higher amount of cash paid for acquisitions than in
2000, connected with the Mendez and DMS acquisitions. This was
offset partially by a decreased level of capital expenditures in
2001.

Net cash provided by (used in) financing
activities was $22,769, $19,833, and $(11,999), for the years
ended December 31, 2002, 2001 and 2000, respectively. The
change in 2002 primarily resulted from slightly higher net
borrowings in 2002, as compared to 2001, as well as slightly
higher proceeds from stock option exercises. The change in 2001
primarily resulted from less funds used to acquire treasury
stock (resulting in a decrease in cash used for that purpose of
$43 million in 2001). This is offset by lower net
borrowings in 2001, as compared to 2000, of $13 million.

During the year ended December 31, 2000, the
Company used approximately $43 million to repurchase shares
of its common stock, in accordance with the Board of Directors
authorization of the Companys stock repurchase program.
These funds were provided through net borrowings during 2000. In
the year ended December 31, 2001, the Company used
approximately $90 thousand to repurchase shares of its common
stock. No shares were repurchased during the year ended
December 31, 2002.

Contractual Obligations and Commercial
Commitments

As previously discussed, the Companys debt
consists primarily of the senior unsecured notes issued in the
private placement in February 2002 and the outstanding amounts
under its revolving credit facility. The Company also leases
equipment under leases that are accounted for as capital leases,
where the equipment and related lease obligation are recorded on
the Companys balance sheet.

The Company and its subsidiaries also occupy
premises and utilize equipment under operating leases that
expire at various dates through 2020. The obligations under
these operating leases are not recorded on the Companys
balance sheet in accordance with generally accepted accounting
principles. Many of these leases provide for payment of certain
expenses and contain renewal and purchase options.

One operating lease is for printing equipment in
the U.S. and Canada funded through a master agreement
administered by a commercial bank and is commonly referred to as
a synthetic lease. At the expiration of the lease in April 2003,
the Company has the right to roll the arrangement into a new
lease or purchase the equipment for a guaranteed residual value.
As of December 31, 2002, the lease payments were based on
the cost of the equipment plus LIBOR plus 150 or 200 basis
points (while the Canadian portion of the lease is based on
Canadian LIBOR plus 35 basis points). The equipment under
this lease as of December 31, 2002 has an aggregate
residual value of approximately $16.6 million, all of which
is included in the table below in the future minimum synthetic
lease payment amounts. The Company has borrowed the maximum
under the agreement, leasing equipment with an aggregate initial
cost of approximately $23 million. Since this equipment is
integral to the Companys operations, the Company will
either buy the equipment or renew the lease when the lease
expires.

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The Companys contractual obligations and
commercial commitments are summarized in the table below:

|                                   |  |                        |         |           |  |       |        |       |  |       |        |       |  |         |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|---------------------------------- |  | ---------------------- | ------- | --------- |  | ----- | ------ | ----- |  | ----- | ------ | ----- |  | ------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                   |  |                       
|                                   |  | Payments Due by Period
|                                   |  |                       
|Contractual                        |  |                        |         | Less than |  | 2     |        | 3     |  | 4     |        | 5     |  | Beyond 
|Obligations                        |  | Total                  |         | 1 year    |  | years |        | years |  | years |        | years |  | 5 years
|                                   |  |                        |         |           |  |       |        |       |  |       |        |       |  |        
|Debt                               |  | $                      | 143,137 |           |  | $     | 437    |       |  | $     | 2,291  |       |  | $       | 64,475 |  |  | $ | 604    |  |  | $ | 25,173 |  |  | $ | 50,157  | 
|Operating leases                   |  |                        | 208,630 |           |  |       | 46,701 |       |  |       | 40,378 |       |  |         | 29,206 |  |  |   | 21,340 |  |  |   | 16,470 |  |  |   | 54,535  | 
|Capital lease obligations          |  |                        | 68      |           |  |       | 60     |       |  |       | 8      |       |  |         |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Synthetic lease                    |  |                        | 17,246  |           |  |       | 17,246 |       |  |       |       |       |  |         |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Unconditional purchase obligations |  |                        | 5,947   |           |  |       | 1,200  |       |  |       | 1,800  |       |  |         | 2,947  |  |  |   |       |  |  |   |       |  |  |   |        | 
|                                   |  |                        |         |           |  |       |        |       |  |       |        |       |  |         |        |  |  |   |        |  |  |   |        |  |  |   |         | 
|Total contractual cash obligations |  | $                      | 375,028 |           |  | $     | 65,644 |       |  | $     | 44,477 |       |  | $       | 96,628 |  |  | $ | 21,944 |  |  | $ | 41,643 |  |  | $ | 104,692 | 
|                                   |  |                        |         |           |  |       |        |       |  |       |        |       |  |         |        |  |  |   |        |  |  |   |        |  |  |   |         | 

The operating lease obligations shown in the
preceding table have not been reduced by minimum non-cancelable
sublease rentals aggregating approximately $2 million. The
Company remains secondarily liable under these leases in the
event that the sublessee defaults under the sublease terms. The
Company does not believe that material payments will be required
under these agreements. The Company also has issued standby
letters of credit in the ordinary course of business totaling
$3,191. These letters of credit expire in 2003 ($2,485), 2004
($515) and 2006 ($191). The Company also has issued a guarantee
of up to $6 million Canadian dollars related to a credit
facility of its Canadian subsidiary, which would require payment
by the Company in the event of default on payment. The amount
outstanding under this credit facility at December 31, 2002
was US$1,431. The Company does not use derivatives, variable
interest entities, or any other form of off-balance sheet
financing.

The Company is involved in certain minor joint
venture arrangements that are intended to complement the
Companys core services and markets. The Company has the
discretion to provide funding on occasion for working capital or
capital expenditures. The Company makes an evaluation of
additional funding based on an assessment of the ventures
business opportunities. The Company believes that any possible
commitments arising from these arrangements will not be
significant to the Companys financial condition or results
of operations.

The Application of Critical Accounting
Policies

The Company prepares its financial statements in
conformity with accounting principles generally accepted in the
United States. The Companys significant accounting polices
are disclosed in Note 1 to the Consolidated Financial
Statements. The selection and application of these accounting
principles and methods requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial
statement disclosures. On an ongoing basis, the Company
evaluates its estimates, including those related to the
recognition of revenue under the percentage of completion method
of accounting, allowance for doubtful accounts, valuation of
goodwill and other intangible assets, income tax provision and
deferred taxes, restructuring costs, actuarial assumptions for
employee benefit plans, and contingent liabilities related to
litigation and other claims and assessments. The Company bases
its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. While
management believes that the estimates and assumptions it uses
in preparing the financial statements are appropriate, these
estimates and assumptions are subject to a number of factors and
uncertainties regarding their ultimate outcome, and therefore,
actual results could differ from these estimates.

The Company has identified its critical
accounting policies and estimates below. These are policies and
estimates that the Company believes are the most important in
portraying the Companys financial condition and results,
and that require managements most difficult, subjective or
complex judgments, often as a result of

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the need to make estimates about the effect of
matters that are inherently uncertain. Management has discussed
the development, selection and disclosure of these critical
accounting policies and estimates with the Audit Committee of
the Companys Board of Directors.


Accounting for Goodwill and Intangible
Assets Two issues arise
with respect to these assets that require significant management
estimates and judgment: a) the valuation in connection with the
initial purchase price allocation and b) the ongoing evaluation
for impairment.

In accordance with Statement of Financial
Accounting Standard No. 141 (SFAS
No. 141), Business Combinations, the
Company allocates the cost of acquired companies to the
identifiable tangible and intangible assets and liabilities
acquired, with the remaining amount being classified as
goodwill. Certain intangible assets, such as customer
relationships, are amortized to expense over time, while
in-process research and development costs, if any, are recorded
as a one-time charge at the acquisition date if it is determined
that it has no alternative future use. The Companys future
operating performance will be impacted by the future
amortization of identifiable intangible assets and potential
impairment charges related to goodwill. Accordingly, the
allocation of the purchase price to intangible assets and
goodwill has a significant impact on the Companys future
operating results. The allocation of the purchase price of the
acquired companies to intangible assets and goodwill requires
management to make significant estimates and assumptions,
including estimates of future cash flows expected to be
generated by the acquired assets and the appropriate discount
rate to value these cash flows. Should different conditions
prevail, material write-downs of net intangible assets and/or
goodwill could occur.

The Company has acquired certain identifiable
intangible assets in connection with its acquisitions of
Donnelley Enterprise Solutions Inc. in 1998, DMS and Mendez in
2001, and GlobalNet and DecisionQuest in 2002. These
identifiable intangible assets primarily consist of the value
associated with customer relationships, trade name, covenants
not to compete, software licenses and proprietary technology.
The valuation of these identifiable intangible assets is
subjective and requires a great deal of expertise and judgment.
For these reasons, the Company has used independent 3rd party
valuation firms to value these assets. The values of the
customer relationships were primarily derived using estimates of
future cash flows to be generated from the customer
relationships. This approach was used since the inherent value
of the customer relationship is its ability to generate current
and future income. The value of the software licenses were
derived using the market approach, which is based upon the value
of similar or alternative technology. This approach was used due
to the uncertainty regarding the amount of future cash flows to
be generated from the software license. The value of the trade
name was determined using an estimated market-based royalty rate
applied to projected future revenue. The value of the
proprietary technology was based on estimated replacement cost.
The value of the covenant not to compete was determined using a
discounted cash flow methodology. While different amounts would
have been reported using different methods or using different
assumptions, the Company believes that the methods selected and
the assumptions used are the most appropriate for each asset
analyzed.

As discussed in Note 7 to the Consolidated
Financial Statements, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 142
(SFAS 142), Goodwill and Other Intangible
Assets on January 1, 2002. This standard requires
annual impairment testing of goodwill based upon the estimated
fair value of the Companys reporting units. We completed
our initial transitional test for goodwill impairment as of
June 30, 2002, the result of which concluded that the
goodwill balance was not impaired. At December 31, 2002,
our goodwill balance was $226,386, which primarily related to
the globalization segment ($107,766) and the outsourcing segment
($102,785).

In testing for potential impairment of goodwill,
SFAS 142 requires the Company to: 1) allocate goodwill to the
reporting units to which the acquired goodwill relates, 2)
estimate the fair value of those reporting units to which
goodwill relates, and 3) determine the carrying value (book
value) of those reporting units. Furthermore, if the estimated
fair value is less than the carrying value for a particular
reporting unit, then we are required to estimate the fair value
of all identifiable assets and liabilities of the reporting unit
in a manner similar to a purchase price allocation for an
acquired business. Only after this process is completed is the
amount of goodwill impairment determined.

Accordingly, the process of evaluating the
potential impairment of goodwill is highly subjective and
requires significant judgment at many points during the
analysis. For impairment testing purposes, the Company has
utilized the services of independent consultants to perform
valuations of the Companys reporting units that

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contained significant balances of goodwill. The
fair value of the Companys reporting units was estimated
based on discounted expected future cash flows using a weighted
average cost of capital rate. Additionally, an assumed terminal
growth rate was used to project future cash flows beyond base
years. The estimates and assumptions regarding expected cash
flows, terminal growth rates and the discount rate require
considerable judgment and are based upon historical experience,
financial forecasts, and industry trends and conditions. These
assumptions are consistent with the plans and estimates we use
to manage the underlying business.


Based on our estimates, the Company has concluded
that there is no impairment of goodwill. However, a decline in
expected cash flows or the estimated terminal value could cause
reporting units to be valued differently. If the reporting units
do not meet projected operating results, then this analysis
could potentially result in a non-cash goodwill impairment
charge, depending on the estimated value of the Companys
reporting units. Additionally, an increase in the assumed
discount rate (weighted average cost of capital) could also
result in goodwill impairment.

Revenue
Recognition The Company
recognizes revenue for substantially all services within its
financial print and outsourcing segments when products or
services are delivered to customers or when completed. Revenue
for services provided within the Companys globalization
segment are recognized under the percentage of completion
method, which relies on estimates of total expected contract
revenues and costs. The Company follows this method since
reasonably dependable estimates of the revenue and costs
applicable to various elements of the contract can be made.
Since the financial reporting of these contracts depends on
estimates, which are assessed continually during the term of
these contracts, recognized revenues and profit are subject to
revisions as the contract progresses toward completion.
Revisions in profit estimates are reflected in the period in
which the facts that give rise to the provision become known.
The Company believes these revenue recognition methods best
represent when the Company has earned revenue.

Allowance for Doubtful
Accounts The Company
realizes that it will be unable to collect all amounts that it
bills to its customers. Therefore, it estimates the amount of
billed receivables that it will be unable to collect and
provides an allowance for doubtful accounts during each
accounting period. A considerable amount of judgment is required
in assessing the realization of these receivables. The
Companys estimates are based on, among other things, the
aging of its account receivables, its past experience collecting
receivables, information about the ability of individual
customers to pay, and current economic conditions. While such
estimates have been within our expectations and the provisions
established, a change in financial condition of specific
customers or in overall trends experienced may result in future
adjustments of our estimates of recoverability of our
receivables. As of December 31, 2002, the Company had an
allowance for doubtful accounts of $16,142.

Accounting for Income
Taxes Accounting for taxes
requires significant judgments in the development of estimates
used in income tax calculations. Such judgments include, but
would not be limited to, the likelihood the Company would
realize the benefits of net operating loss carryforwards, the
adequacy of valuation allowances, and the rates used to measure
transactions with foreign subsidiaries. As part of the process
of preparing the Companys financial statements, the
Company is required to estimate its income taxes in each of the
jurisdictions in which the Company operates. The judgments and
estimates used are subject to challenge by domestic and foreign
taxing authorities. It is possible that either domestic or
foreign taxing authorities could challenge those judgments and
estimates and draw conclusions that would cause the Company to
incur liabilities in excess of those currently recorded. The
Company uses an estimate of its annual effective tax rate at
each interim period based upon the facts and circumstances
available at that time, while the actual effective tax rate is
calculated at year-end. Changes in the geographical mix or
estimated amount of annual pre-tax income could impact the
Companys overall effective tax rate.

The Company accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income
Taxes, which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between the book and tax bases of
recorded assets and liabilities. SFAS No. 109 also requires
that deferred tax assets be reduced by a valuation allowance if
it is more likely than not that some portion or all of the
deferred tax asset will not be realized.

At December 31, 2002 and 2001, the Company
had deferred tax assets in excess of deferred tax liabilities of
$12,675 and $5,102, respectively. At December 31, 2002 and
2001, management determined that it is more

27



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likely than not that $7,671 and $3,052,
respectively, of such assets will be realized, resulting in a
valuation allowance of $5,004 and $2,050, respectively.


The Company evaluates quarterly the realizability
of its deferred tax assets by assessing its valuation allowance
and by adjusting the amount of such allowance, if necessary. The
factors used to assess the likelihood of realization are the
Companys forecast of future taxable income and available
tax planning strategies that could be implemented to realize the
net deferred tax assets. While the Company has considered future
taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in
the event the Company were to determine that it would be able to
realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.
Likewise, should the Company determine that it would not be able
to realize all or part of its net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged
to income in the period such determination was made. In
managements opinion, adequate provisions for income taxes
have been made for all years presented.

Accounting for
Pensions The Company
sponsors a defined benefit pension plan in the U.S. The Company
accounts for its defined benefit pension plan in accordance with
SFAS No. 87, Employers Accounting for
Pensions, which requires that expenses and liabilities
recognized in financial statements be actuarially calculated.
Under these accounting standards, assumptions are made regarding
the valuation of benefit obligations and the future performance
of plan assets. Delayed recognition of differences between
actual results and expected or estimated results is a guiding
principle of these standards. This delayed recognition of actual
results allows for a smoothed recognition of changes in benefit
obligations and plan performance over the working lives of the
employees who benefit under the plan. The primary assumptions
used in calculating pension expense and liability are related to
the expected rate of return on plan assets, projected salary
increases, and the discount rate at which the future obligations
are discounted to value the liability. The annual measurement
date for these assumptions is December 31.

The expected rate of return on plan assets
assumption is based on the long-term expected returns for the
investment mix of assets currently in the portfolio. Management
uses historic return trends of the asset portfolio combined with
anticipated future market conditions to estimate the rate of
return. Since 1998, the Company had been using an expected
return on plan assets assumption of 9.5%, which was consistent
with the long-term asset returns of the portfolio. During 2002,
management lowered the expected rate of return assumption to
9.0% due to the expected lower future performance of the U.S.
equity markets. Each 0.5 percentage point change in the assumed
long-term rate of return would result in a $0.25 million
change in pension expense.

The projected salary increase assumption is based
upon historical trends and comparisons of the external market.
Higher rates of increase result in higher pension expenses. As
this rate is also a long-term expected rate, it is less likely
to change on an annual basis. Management has used the rate of
4.0% for the past two years.

The discount rate assumption is tied to a
long-term high quality bond index and is therefore subject to
annual fluctuations. A lower discount rate increases the present
value of the pension obligations, which results in higher
pension expense. The discount rate was 6.5% at December 31,
2002, compared to 7.25% at December 31, 2001 and 7.75% at
December 31, 2000. The 7.25% percent at December 31,
2001 was used to calculate the 2002 pension expense. Each 0.5
percentage point change in the discount rate would result in a
$6.5 million change in the projected pension benefit
obligation and a $0.6 million change in pension expense.

Restructuring
Accrual During fiscal 2002
and 2001, the Company recorded significant restructuring charges
representing the direct costs of downsizing our business. Prior
to the fourth quarter of 2002, these costs were accrued in
accordance with EITF 94-3 Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a
Restructuring). During the fourth quarter of 2002, the
Company adopted Statement of Financial Accounting Standard
No. 146 (SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred,
whereas under EITF 94-3, the liability was recognized at the
commitment date to an exit plan.

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As a component of the 2002 restructuring charge
of $19.4 million, the Company recorded an expense related
to facility closures and lease termination costs totaling
$3.3 million. The recorded amount was based on the fair
value of contractual obligations contained in the leases (net of
estimated sublease income) discounted using a credit-adjusted
risk-free rate. This expense was recorded using our estimates of
future expected cash flows associated with these office
closings. The liability associated with the facility closures
will be adjusted for revisions related to the timing and amount
of estimated cash flows in the period they become known.

Useful Lives of Long-lived Assets The Company estimates the
useful lives of long-lived assets such as property, plant and
equipment and intangible assets based upon its estimates of how
long those assets will provide economic benefits to the Company.
The Company believes its estimates are reasonable and consistent
with other companies in the industry. The Company has not
experienced significant changes to its useful lives in recent
years, and therefore does not believe that it is likely that
materially different amounts would be reported under different
conditions or using different assumptions.

Recent Accounting Pronouncements

In July 2001, the FASB issued Statement of
Financial Accounting Standard No. 143
(SFAS 143), Accounting for Asset
Retirement Obligations. SFAS 143 requires entities to
record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the
liability is initially recorded, the entity is required to
capitalize the cost by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted
to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset.
SFAS 143 is effective for fiscal years beginning after
June 15, 2002 and will be adopted by the Company effective
fiscal 2003. The Company believes adoption of this standard will
not have a material effect on its financial statements.

In July 2002, the FASB issued Statement of
Financial Accounting Standard No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which
nullifies Emerging Issues Task Force Issue No. 94-3
(EITF 94-3). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, whereas under
EITF 94-3, the liability was recognized at the commitment
date to an exit plan. The Company adopted the provisions of
SFAS 146 effective for exit or disposal activities
initiated in the fourth quarter of 2002. The impact of adoption
of the statement was to recognize those charges relating to the
Companys restructuring plan that had met the liability
recognition criteria under SFAS 146. Certain charges that
did not meet the liability recognition criteria will be
recognized in future periods as the plan is implemented. Such
charges to be recognized in future periods are estimated to be
approximately $7 million, and are included in the $10
million to $15 million of expected restructuring charges in
connection with previously announced cost initiatives described
on page 14.

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This
interpretation sets forth expanded disclosure requirements in
the financial statements about a guarantors obligations
under certain guarantees that it has issued. It also clarifies
that, under certain circumstances, a guarantor is required to
recognize a liability for the fair value of the obligation at
the inception of the guarantee. Certain types of guarantees,
such as product warranties, guarantees accounted for as
derivatives, and guarantees related to parent-subsidiary
relationships are excluded from the liability recognition
provisions of FIN 45, however, they are subject to
disclosure requirements. The initial liability recognition
provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial
statements for interim or annual periods ending after
December 15, 2002. The Company believes that the adoption
of this interpretation will not have a material impact on its
consolidated financial position or results of operations.

In December 2002, the FASB issued Statement of
Financial Accounting Standard No. 148
(SFAS 148), Accounting for Stock-Based
Compensation  Transition and Disclosure, which
amends Statement of Financial Accounting Standard No. 123
(SFAS 123) to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based compensation.

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SFAS 148 also amends the disclosure
requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the
effect of the method on reported results. Although the Company
continues to apply APB Opinion No. 25 and related
interpretations, the Company has adopted the disclosure
requirements of SFAS 148 during the fourth quarter of 2002.







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

The Companys market risk is principally
associated with trends in the domestic and international capital
markets, particularly in the financial print segment and the
outsourcing segment. This includes trends in the initial public
offerings and mergers and acquisitions markets, both important
components of the financial printing segment. The Company also
has market risk tied to interest rate fluctuations related to
its debt obligations and fluctuations in foreign currency, as
discussed below.

Interest Rate Risk

Our exposure to market risk for changes in
interest rates relates primarily to our short-term investment
portfolio, long-term debt obligations, revolving credit
agreement and synthetic lease commitment. We do not use
derivative instruments in our short-term investment portfolio.
Our senior unsecured notes issued in February 2002 consist of
fixed rate instruments, and therefore, would not be impacted by
changes in interest rates. The notes have an average life of
7.2 years (ranging from 5-10 years), and had an
average interest rate of approximately 7% for the year ended
December 31, 2002. Amounts borrowed under the new
three-year $175 million revolving credit facility that was
signed in July 2002 bear interest at LIBOR plus
105-200 basis points or an alternative base rate (greater
of Federal Funds rate plus 50 basis points or the Prime
rate) depending on certain leverage ratios. During the year
ended December 31, 2002, the average interest rate on both
the new and old lines of credit approximated 3%. A hypothetical
change in the annual interest rate of 1% per annum would result
in a change in interest expense of approximately
$0.7 million, based on the average outstanding balances
under the revolving credit facility during the year ended
December 31, 2002. The rental payments on the
Companys synthetic lease are based upon the cost of the
equipment plus LIBOR plus 150 or 200 basis points (while
the Canadian portion of the lease is based on Canadian LIBOR
plus 35 basis points). The synthetic lease had a remaining
principal balance of $17.2 million as of December 31,
2002. Since this equipment is integral to the Companys
operations, the Company will either buy the equipment or renew
the lease when the lease expires.

Foreign Exchange Rates

The Company derives a portion of its revenues
from various foreign sources. To date, the Company has not
experienced significant gains or losses as a result of
fluctuations in the exchange rates of the related foreign
currencies. However, as the Company expands its global presence,
fluctuations may become significant. The Companys
globalization segment is impacted by foreign currency
fluctuations since its labor costs are predominantly denominated
in foreign currencies, while a significant portion of its
revenue is denominated in U.S. dollars. This is somewhat
mitigated by the fact that revenue from the Companys
international financial print operations is denominated in
foreign currencies, while some of its costs are denominated in
U.S. dollars. To date, the Company has not used foreign
currency hedging instruments to reduce its exposure to foreign
exchange fluctuations. The Company has reflected translation
income (loss) of $12,102 and $(4,086) in its statements of
comprehensive income (loss) for the years ended
December 31, 2002 and 2001. This income (loss) is primarily
attributed to the fluctuation in value between the
U.S. dollar and the euro, pound sterling and Canadian
dollar.

Equity Price Risk

We currently do not have any significant
investments in marketable equity securities. The Companys
defined benefit pension plan holds investments in both equity
and fixed income securities. The amount of the Companys
annual contribution to the plan is dependent upon, among other
things, the return on the plans assets. To the extent
there are fluctuations in equity prices, the amount of the
Companys annual contribution could be affected. For
example, a decrease in equity prices could increase the amount
of the Companys annual contributions to the plan.

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Item 8.     Financial
Statements and Supplementary Data




INDEPENDENT AUDITORS REPORT

The Board of Directors and
Stockholders

Bowne & Co., Inc.:


We have audited the accompanying consolidated
balance sheets of Bowne & Co., Inc. and subsidiaries as of
December 31, 2002, and 2001 and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Bowne & Co., Inc.
and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 7 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, in the year ended December 31,
2002. As discussed in Note 18 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities in the
fourth quarter of the year ended December 31, 2002.



| |         
| | --------
| | KPMG LLP

New York, New York

February 19, 2003


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BOWNE & CO., INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |          |  
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------- | -------- | - | ---- | ---------- | -------- | - | - | ---------- | -------- | -
|                                                                 |                                                                                                                              |                                             
|                                                                 |                                                                                                                              | Year Ended December 31,                     
|                                                                 |                                                                                                                              |                                             
|                                                                 |                                                                                                                              | 2002                                         |           | 2001     |   | 2000
|                                                                 |                                                                                                                              |                                              |           |          |   |     
|                                                                 |                                                                                                                              |                                             
|                                                                 |                                                                                                                              | (In thousands, except per share information)
|Revenue                                                          |                                                                                                                              | $                                            | 1,003,326 |          |   | $    | 1,054,631  |          |   | $ | 1,179,338  |         
|Expenses:                                                        |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 | Cost of revenue                                                                                                              |                                              |           | (673,952 | ) |      |            | (717,662 | ) |   |            | (758,482 | )
|                                                                 | Selling and administrative                                                                                                   |                                              |           | (268,955 | ) |      |            | (264,821 | ) |   |            | (294,779 | )
|                                                                 | Depreciation                                                                                                                 |                                              |           | (40,662  | ) |      |            | (41,117  | ) |   |            | (42,349  | )
|                                                                 | Amortization                                                                                                                 |                                              |           | (2,017   | ) |      |            | (8,001   | ) |   |            | (7,318   | )
|                                                                 | Restructuring charges, integration costs and
    asset impairment charges                                                    |                                              |           | (19,378  | ) |      |            | (20,949  | ) |   |            | (2,106   | )
|                                                                 | Gain (loss) on sale of certain printing assets                                                                               |                                              |           | 15,369   |   |      |            | (1,858   | ) |   |            |         |  
|                                                                 | Gain on sale of building                                                                                                     |                                              |           | 4,889    |   |      |            |         |   |   |            |         |  
|                                                                 | Purchased in-process research and development                                                                                |                                              |           |         |   |      |            | (800     | ) |   |            |         |  
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 |                                                                                                                              |                                              | (984,706  | )        |   |      | (1,055,208 | )        |   |   | (1,105,034 | )       
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Operating income (loss)                                          |                                                                                                                              |                                              | 18,620    |          |   |      | (577       | )        |   |   | 74,304     |         
|                                                                 | Interest expense                                                                                                             |                                              |           | (7,127   | ) |      |            | (6,422   | ) |   |            | (7,254   | )
|                                                                 | Other (expense) income, net                                                                                                  |                                              |           | (1,993   | ) |      |            | 1,565    |   |   |            | (1,635   | )
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Income (loss) from continuing operations
    before income taxes |                                                                                                                              |                                              | 9,500     |          |   |      | (5,434     | )        |   |   | 65,415     |         
|                                                                 | Income tax expense                                                                                                           |                                              |           | (9,145   | ) |      |            | (2,281   | ) |   |            | (28,145  | )
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Income (loss) from continuing operations                         |                                                                                                                              |                                              | 355       |          |   |      | (7,715     | )        |   |   | 37,270     |         
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Discontinued operations:                                         |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 | Loss from discontinued operations (less
    applicable tax benefit of $9,060 and $12,120 in 2001 and 2000,
    respectively) |                                              |           |         |   |      |            | (16,363  | ) |   |            | (30,262  | )
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Net income (loss)                                                |                                                                                                                              | $                                            | 355       |          |   | $    | (24,078    | )        |   | $ | 7,008      |         
|                                                                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|Earnings (loss) per share from continuing
    operations:        |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 | Basic                                                                                                                        |                                              | $         | .01      |   |      | $          | (.23     | ) |   | $          | 1.08     |  
|                                                                 | Diluted                                                                                                                      |                                              | $         | .01      |   |      | $          | (.23     | ) |   | $          | 1.05     |  
|Loss per share from discontinued
    operations:                 |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 | Basic                                                                                                                        |                                              | $         |         |   |      | $          | (.49     | ) |   | $          | (.88     | )
|                                                                 | Diluted                                                                                                                      |                                              | $         |         |   |      | $          | (.49     | ) |   | $          | (.88     | )
|Total earnings (loss) per
    share:                             |                                                                                                                              |                                              |           |          |   |      |            |          |   |   |            |         
|                                                                 | Basic                                                                                                                        |                                              | $         | .01      |   |      | $          | (.73     | ) |   | $          | .20      |  
|                                                                 | Diluted                                                                                                                      |                                              | $         | .01      |   |      | $          | (.73     | ) |   | $          | .20      |  

See Notes to Accompanying Consolidated Financial
Statements

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BOWNE & CO., INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |         |     |         | 
|--------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --- | ------- | ------- | ------- | --- | ------- | 
|                                                                                                                |                                                                                                    |                                                                                 
|                                                                                                                |                                                                                                    | December 31,                                                                    
|                                                                                                                |                                                                                                    |                                                                                 
|                                                                                                                |                                                                                                    | 2002                                                                             |                                            | 2001   
|                                                                                                                |                                                                                                    |                                                                                  |                                            |        
|                                                                                                                |                                                                                                    |                                                                                 
|                                                                                                                |                                                                                                    | (In thousands, except                                                           
|                                                                                                                |                                                                                                    | share information)                                                              
|Assets                                                                                                          |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Current assets:                                                                                                 |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                | Cash and cash equivalents                                                                          |                                                                                  | $                                          | 32,881  |     |         | $       | 27,769  |    
|                                                                                                                | Marketable securities                                                                              |                                                                                  |                                            | 1,814   |     |         |         | 3,407   |    
|                                                                                                                | Accounts receivable, less allowance for doubtful
    accounts of $16,142 (2002) and $14,808 (2001) |                                                                                  |                                            | 176,984 |     |         |         | 174,598 |    
|                                                                                                                | Inventories                                                                                        |                                                                                  |                                            | 19,555  |     |         |         | 19,453  |    
|                                                                                                                | Prepaid expenses and other current assets                                                          |                                                                                  |                                            | 30,599  |     |         |         | 39,471  |    
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total current assets                       |         |     | 261,833 |         |         |     | 264,698 | 
|Property, plant and equipment at cost, less
    accumulated depreciation of $265,583 (2002) and $255,670 (2001) |                                                                                                    |                                                                                  | 151,557                                    |         |     |         | 163,838 |        
|Other noncurrent assets:                                                                                        |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                | Goodwill, less accumulated amortization of
    $31,466 (2002) and $30,337 (2001)                   |                                                                                  |                                            | 226,386 |     |         |         | 172,321 |    
|                                                                                                                | Intangible assets, less accumulated amortization
    of $5,034 (2002) and $3,050 (2001)            |                                                                                  |                                            | 41,573  |     |         |         | 25,254  |    
|                                                                                                                | Deferred income taxes                                                                              |                                                                                  |                                            | 3,759   |     |         |         | 3,052   |    
|                                                                                                                | Other                                                                                              |                                                                                  |                                            | 19,294  |     |         |         | 8,171   |    
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total assets                               |         | $   | 704,402 |         |         | $   | 637,334 | 
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Liabilities and Stockholders
    Equity                                                                        |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Current liabilities:                                                                                            |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                | Current portion of long-term debt and other
    short-term borrowings                              |                                                                                  | $                                          | 497     |     |         | $       | 38,079  |    
|                                                                                                                | Accounts payable                                                                                   |                                                                                  |                                            | 44,370  |     |         |         | 40,252  |    
|                                                                                                                | Employee compensation and benefits                                                                 |                                                                                  |                                            | 50,045  |     |         |         | 47,011  |    
|                                                                                                                | Accrued expenses and other obligations                                                             |                                                                                  |                                            | 84,582  |     |         |         | 61,214  |    
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total current liabilities                  |         |     | 179,494 |         |         |     | 186,556 | 
|Other liabilities:                                                                                              |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                | Long-term debt  net of current portion                                                            |                                                                                  |                                            | 142,708 |     |         |         | 76,941  |    
|                                                                                                                | Deferred employee compensation and other                                                           |                                                                                  |                                            | 45,880  |     |         |         | 43,808  |    
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total liabilities                          |         |     | 368,082 |         |         |     | 307,305 | 
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Commitments and contingencies                                                                                   |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Stockholders equity:                                                                                           |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                | Preferred stock:                                                                                   |                                                                                  |                                            |         |     |         |         |         |    
|                                                                                                                |                                                                                                    | Authorized 2,000,000 shares, par value $.01                                      |                                            |         |     |         |         |         |     |        
|                                                                                                                |                                                                                                    | Issuable in series  none issued                                                 |                                            |         |    |         |         |         |    |        
|                                                                                                                | Common stock:                                                                                      |                                                                                  |                                            |         |     |         |         |         |    
|                                                                                                                |                                                                                                    | Authorized 60,000,000 shares, par value $.01                                     |                                            |         |     |         |         |         |     |        
|                                                                                                                |                                                                                                    | Issued and outstanding 40,129,833 shares
    (2002) and 39,855,734 shares (2001) |                                            |         | 401 |         |         |         | 398 |        
|                                                                                                                | Additional paid-in capital                                                                         |                                                                                  |                                            | 53,881  |     |         |         | 50,879  |    
|                                                                                                                | Retained earnings                                                                                  |                                                                                  |                                            | 339,913 |     |         |         | 346,920 |    
|                                                                                                                | Treasury stock, at cost, 6,567,214 shares
    (2002) and 6,683,653 shares (2001)                   |                                                                                  |                                            | (57,920 | )   |         |         | (58,908 | )  
|                                                                                                                | Accumulated other comprehensive income (loss), net                                                 |                                                                                  |                                            | 45      |     |         |         | (9,260  | )  
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total stockholders equity                 |         |     | 336,320 |         |         |     | 330,029 | 
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                |                                                                                                    |                                                                                  | Total liabilities and stockholders equity |         | $   | 704,402 |         |         | $   | 637,334 | 
|                                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        

See Notes to Accompanying Consolidated Financial
Statements

33



---



##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |         |  
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------- | -------- | ------- | - | ---- | -------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | Year Ended December 31,
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | 2002                    |          | 2001    |   | 2000
|                                                                                                                                 |                                                   |                         |          |         |   |     
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | (In thousands)         
|Cash flows from operating
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net income (loss)                                                                                                                |                                                   | $                       | 355      |         |   | $    | (24,078  | )       |   | $ | 7,008    |        
|Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:                                     |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|                                                                                                                                 | Depreciation                                      |                         |          | 40,662  |   |      |          | 41,117  |   |   |          | 42,349  |  
|                                                                                                                                 | Amortization                                      |                         |          | 2,017   |   |      |          | 8,001   |   |   |          | 7,318   |  
|                                                                                                                                 | Asset impairment charges                          |                         |          | 2,876   |   |      |          | 7,456   |   |   |          |        |  
|                                                                                                                                 | Purchased in-process research and development     |                         |          |        |   |      |          | 800     |   |   |          |        |  
|                                                                                                                                 | Provision for doubtful accounts                   |                         |          | 7,828   |   |      |          | 12,081  |   |   |          | 9,999   |  
|                                                                                                                                 | (Gain) loss on sale of certain printing assets    |                         |          | (15,369 | ) |      |          | 1,858   |   |   |          |        |  
|                                                                                                                                 | Gain on sale of building                          |                         |          | (4,889  | ) |      |          |        |   |   |          |        |  
|                                                                                                                                 | Loss on disposal of fixed assets                  |                         |          | 1,144   |   |      |          | 2,235   |   |   |          | 661     |  
|                                                                                                                                 | Gain on sales of securities and other investments |                         |          |        |   |      |          |        |   |   |          | (104    | )
|                                                                                                                                 | Provision for deferred employee compensation      |                         |          | 11,485  |   |      |          | 6,464   |   |   |          | 6,643   |  
|                                                                                                                                 | Loss from discontinued operations, net of tax     |                         |          |        |   |      |          | 16,363  |   |   |          | 30,262  |  
|                                                                                                                                 | Deferred income taxes                             |                         |          | (707    | ) |      |          | 3,409   |   |   |          | (2,041  | )
|                                                                                                                                 | Other                                             |                         |          | (6,727  | ) |      |          | (5,696  | ) |   |          | 176     |  
|Changes in other assets and liabilities, net of
    acquisitions, discontinued operations and certain non-cash
    transactions: |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|                                                                                                                                 | Accounts receivable                               |                         |          | 20,455  |   |      |          | 44,143  |   |   |          | (7,225  | )
|                                                                                                                                 | Inventories                                       |                         |          | (496    | ) |      |          | 13,233  |   |   |          | (2,578  | )
|                                                                                                                                 | Prepaid expenses and other current assets         |                         |          | 6,105   |   |      |          | 8,172   |   |   |          | (11,885 | )
|                                                                                                                                 | Accounts payable                                  |                         |          | (2,956  | ) |      |          | (10,574 | ) |   |          | (8,513  | )
|                                                                                                                                 | Employee compensation and benefits                |                         |          | (6,279  | ) |      |          | (23,074 | ) |   |          | (2,253  | )
|                                                                                                                                 | Accrued expenses and other obligations            |                         |          | 21,669  |   |      |          | (15,169 | ) |   |          | 8,172   |  
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash provided by operating
    activities  continuing operations                                                            |                                                   |                         | 77,173   |         |   |      | 86,741   |         |   |   | 77,989   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash used in discontinued operations                                                                                             |                                                   |                         | (2,385   | )       |   |      | (14,306  | )       |   |   | (21,337  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash provided by operating activities                                                                                        |                                                   |                         | 74,788   |         |   |      | 72,435   |         |   |   | 56,652   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash flows from investing
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Purchase of property, plant and equipment                                                                                        |                                                   |                         | (29,543  | )       |   |      | (39,478  | )       |   |   | (44,114  | )      
|Proceeds from the sale of fixed assets                                                                                           |                                                   |                         | 564      |         |   |      | 664      |         |   |   | 1,127    |        
|Acquisition of businesses, net of cash acquired                                                                                  |                                                   |                         | (86,761  | )       |   |      | (59,863  | )       |   |   | (5,937   | )      
|Proceeds from sale of certain assets, including
    $2,471 of notes received in 2001                                             |                                                   |                         | 15,000   |         |   |      | 4,876    |         |   |   | 5,000    |        
|Purchase of marketable securities and other
    investments                                                                      |                                                   |                         |         |         |   |      | (1,000   | )       |   |   | (1,000   | )      
|Proceeds from sale of building                                                                                                   |                                                   |                         | 8,295    |         |   |      |         |         |   |   |         |        
|Proceeds from sales of marketable securities and
    other investments                                                           |                                                   |                         |         |         |   |      |         |         |   |   | 115      |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash used in investing activities                                                                                            |                                                   |                         | (92,445  | )       |   |      | (94,801  | )       |   |   | (44,809  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash flows from financing
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Proceeds from borrowings                                                                                                         |                                                   |                         | 368,244  |         |   |      | 299,781  |         |   |   | 223,166  |        
|Payment of debt                                                                                                                  |                                                   |                         | (340,951 | )       |   |      | (274,361 | )       |   |   | (185,185 | )      
|Proceeds from stock options exercised                                                                                            |                                                   |                         | 2,838    |         |   |      | 1,778    |         |   |   | 414      |        
|Payment of dividends                                                                                                             |                                                   |                         | (7,362   | )       |   |      | (7,275   | )       |   |   | (7,620   | )      
|Purchase of treasury stock                                                                                                       |                                                   |                         |         |         |   |      | (90      | )       |   |   | (42,774  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash provided by (used in) financing
    activities                                                                          |                                                   |                         | 22,769   |         |   |      | 19,833   |         |   |   | (11,999  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net increase (decrease) in cash and cash
    equivalents                                                                         |                                                   |                         | 5,112    |         |   |      | (2,533   | )       |   |   | (156     | )      
|Cash and Cash Equivalents  Beginning
    of year                                                                                |                                                   |                         | 27,769   |         |   |      | 30,302   |         |   |   | 30,458   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash and Cash Equivalents  End of
    year                                                                                      |                                                   | $                       | 32,881   |         |   | $    | 27,769   |         |   | $ | 30,302   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        

See Notes to Accompanying Consolidated Financial
Statements

34



---



##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |        |  
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------- | --- | ----------- |  | -------- | ------ | ------------- |  | -------- | ------- | ----- |  | - | ------ | ------ | - | - | ------- | - |  | - | ------- | ------ | -
|                                                                                                                            |                                                                        |                                             
|                                                                                                                            |                                                                        | Year Ended December 31, 2002, 2001, and 2000
|                                                                                                                            |                                                                        |                                             
|                                                                                                                            |                                                                        |                                              |     | Accumulated |  |         
|                                                                                                                            |                                                                        |                                              |     | Additional  |  |          |        | Other         |  |         
|                                                                                                                            |                                                                        | Common                                       |     | Paid-In     |  | Retained |        | Comprehensive |  | Treasury |         |      
|                                                                                                                            |                                                                        | Stock                                        |     | Capital     |  | Earnings |        | Income (Loss) |  | Stock    |         | Total
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |      
|                                                                                                                            |                                                                        |                                             
|                                                                                                                            |                                                                        | (In thousands, except per share information)
|Balance at January 1, 2000                                                                                                  |                                                                        | $                                            | 396 |             |  | $        | 45,561 |               |  | $        | 378,885 |       |  | $ | (35    | )      |   | $ | (16,347 | ) |  | $ | 408,460 |       
|Comprehensive income (loss):                                                                                                |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Net income                                                                                                                  |                                                                        |                                              |     |             |  |          |        |               |  |          | 7,008   |       |  |   |        |        |   |   |         |   |  |   | 7,008   |       
|Foreign currency translation adjustment                                                                                     |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   | (4,311 | )      |   |   |         |   |  |   | (4,311  | )     
|Unrealized losses on securities:                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|                                                                                                                            | Unrealized holding losses arising during the
    period                |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | (5,751 | ) |   |         |   |  |   |         | (5,751 | )
|                                                                                                                            | Less: reclassification adjustment for gains
    included in net income |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | (104   | ) |   |         |   |  |   |         | (104   | )
|                                                                                                                            | Income tax benefit related to unrealized holding
    losses            |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | 2,811  |   |   |         |   |  |   |         | 2,811  |  
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Comprehensive loss                                                                                                          |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | (347    | )     
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Cash dividends ($.22 per share)                                                                                             |                                                                        |                                              |     |             |  |          |        |               |  |          | (7,620  | )     |  |   |        |        |   |   |         |   |  |   | (7,620  | )     
|Acquisition of treasury stock                                                                                               |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   | (42,774 | ) |  |   | (42,774 | )     
|Noncash stock compensation                                                                                                  |                                                                        |                                              |     |             |  |          | 2,610  |               |  |          |         |       |  |   |        |        |   |   | 223     |   |  |   | 2,833   |       
|Exercise of stock options                                                                                                   |                                                                        |                                              | 1   |             |  |          | 413    |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | 414     |       
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Balance at December 31, 2000                                                                                                |                                                                        | $                                            | 397 |             |  | $        | 48,584 |               |  | $        | 378,273 |       |  | $ | (7,390 | )      |   | $ | (58,898 | ) |  | $ | 360,966 |       
|Comprehensive income (loss):                                                                                                |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Net loss                                                                                                                    |                                                                        |                                              |     |             |  |          |        |               |  |          | (24,078 | )     |  |   |        |        |   |   |         |   |  |   | (24,078 | )     
|Foreign currency translation adjustment                                                                                     |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   | (4,086 | )      |   |   |         |   |  |   | (4,086  | )     
|Reclassification adjustment for the recognized
    foreign currency translation loss relating to the sale of
    subsidiary |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   | 1,262  |        |   |   |         |   |  |   | 1,262   |       
|Unrealized gains on securities:                                                                                             |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|                                                                                                                            | Unrealized holding gains arising during the period                     |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | 1,495  |   |   |         |   |  |   |         | 1,495  |  
|                                                                                                                            | Income tax expense related to unrealized holding
    gains             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | (541   | ) |   |         |   |  |   |         | (541   | )
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Comprehensive loss                                                                                                          |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | (25,948 | )     
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Cash dividends ($.22 per share)                                                                                             |                                                                        |                                              |     |             |  |          |        |               |  |          | (7,275  | )     |  |   |        |        |   |   |         |   |  |   | (7,275  | )     
|Acquisition of treasury stock                                                                                               |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   | (90     | ) |  |   | (90     | )     
|Noncash stock compensation                                                                                                  |                                                                        |                                              |     |             |  |          | 518    |               |  |          |         |       |  |   |        |        |   |   | 80      |   |  |   | 598     |       
|Exercise of stock options                                                                                                   |                                                                        |                                              | 1   |             |  |          | 1,777  |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | 1,778   |       
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Balance at December 31, 2001                                                                                                |                                                                        | $                                            | 398 |             |  | $        | 50,879 |               |  | $        | 346,920 |       |  | $ | (9,260 | )      |   | $ | (58,908 | ) |  | $ | 330,029 |       
|Comprehensive income (loss):                                                                                                |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Net income                                                                                                                  |                                                                        |                                              |     |             |  |          |        |               |  |          | 355     |       |  |   |        |        |   |   |         |   |  |   | 355     |       
|Foreign currency translation adjustment                                                                                     |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   | 12,102 |        |   |   |         |   |  |   | 12,102  |       
|Minimum pension liability adjustment (net of tax
    effect)                                                                |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   | (1,994 | )      |   |   |         |   |  |   | (1,994  | )     
|Unrealized losses on securities:                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|                                                                                                                            | Unrealized holding losses arising during the
    period                |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | (1,338 | ) |   |         |   |  |   |         | (1,338 | )
|                                                                                                                            | Income tax benefit related to unrealized holding
    losses            |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | 535    |   |   |         |   |  |   |         | 535    |  
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Comprehensive income                                                                                                        |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | 9,660   |       
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Cash dividends ($.22 per share)                                                                                             |                                                                        |                                              |     |             |  |          |        |               |  |          | (7,362  | )     |  |   |        |        |   |   |         |   |  |   | (7,362  | )     
|Noncash stock compensation                                                                                                  |                                                                        |                                              |     |             |  |          | 642    |               |  |          |         |       |  |   |        |        |   |   | 513     |   |  |   | 1,155   |       
|Exercise of stock options                                                                                                   |                                                                        |                                              | 3   |             |  |          | 2,360  |               |  |          |         |       |  |   |        |        |   |   | 475     |   |  |   | 2,838   |       
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Balance at December 31, 2002                                                                                                |                                                                        | $                                            | 401 |             |  | $        | 53,881 |               |  | $        | 339,913 |       |  | $ | 45     |        |   | $ | (57,920 | ) |  | $ | 336,320 |       
|                                                                                                                            |                                                                        |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       

See Notes to Accompanying Consolidated Financial
Statements

35



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

BOWNE & CO., INC. AND
SUBSIDIARIES

(In thousands, except per share information
and where noted)







Note 1  Summary of Significant
Accounting Policies


A summary of the significant accounting policies
the Company followed in the preparation of the accompanying
financial statements is set forth below:

Principles
of Consolidation

The consolidated financial statements include the
accounts of the Company and its subsidiaries. All intercompany
accounts and transactions are eliminated in consolidation.

Revenue
Recognition

The Company recognizes revenue for substantially
all services within its financial print and outsourcing segments
when products or services are delivered to customers or when
completed. Revenue for services provided within the
Companys globalization segment are recognized under the
percentage of completion method, which relies on estimates of
total expected contract revenues and costs. The Company follows
this method since reasonably dependable estimates of the revenue
and costs applicable to various elements of the contract can be
made.

Inventories

Inventories are valued at the lower of cost or
market. Cost is determined by using purchase cost (first-in,
first-out method) for materials and standard costs for labor,
which approximate actual costs, for work-in- process.

Property,
Plant and Equipment

Property, plant and equipment are carried at
cost. Maintenance and repairs are expensed as incurred.
Depreciation for financial statement purposes is provided on the
straight-line method over the estimated useful lives of the
assets. The following table summarizes the components of
property, plant and equipment:

|                                 |                               |              |         |          |         |   |         |          |         | 
|-------------------------------- | ----------------------------- | ------------ | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                 |                               |             
|                                 |                               | December 31,
|                                 |                               |             
|                                 |                               | 2002         |         | 2001    
|                                 |                               |              |         |         
|Land and buildings               |                               | $            | 72,460  |          |         | $ | 84,050  |         
|Machinery and plant equipment    |                               |              | 76,905  |          |         |   | 82,370  |         
|Computer equipment and software  |                               |              | 167,219 |          |         |   | 151,617 |         
|Furniture, fixtures and vehicles |                               |              | 41,373  |          |         |   | 42,959  |         
|Leasehold improvements           |                               |              | 59,183  |          |         |   | 58,512  |         
|                                 |                               |              |         |          |         |   |         |         
|                                 |                               |              | 417,140 |          |         |   | 419,508 |         
|                                 | Less accumulated depreciation |              |         | (265,583 | )       |   |         | (255,670 | )      
|                                 |                               |              |         |          |         |   |         |         
|                                 |                               | Net          |         | $        | 151,557 |   |         | $        | 163,838 | 
|                                 |                               |              |         |          |         |   |         |         

Estimated lives used in the calculation of
depreciation for financial statement purposes are:

|                                |  |                                        
|------------------------------- |  | ---------------------------------------
|Buildings                       |  | 10-40 years                            
|Machinery and plant equipment   |  | 3-12 1/2 years                         
|Computer equipment and software |  | 2-5 years                              
|Furniture and fixtures          |  | 3-12 1/2 years                         
|Leasehold improvements          |  | Shorter of useful life or term of lease

36



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The Company follows American Institute of
Certified Public Accountants (AICPA) Statement of
Position (SOP) No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for
Internal Use. SOP No. 98-1 requires certain costs in
connection with developing or obtaining internally used software
to be capitalized. Capitalized software totaled approximately
$6 million in 2002, $7 million in 2001 and
$13 million in 2000 related to software development costs
pertaining to the following: improvements in the financial
printing business typesetting, work-sharing, estimating,
pricing, production and billing systems, the development of a
workflow system for its localization business, the installation
of a financial reporting system and a customer relationship
management software system, the development of customer-facing
applications including an electronic document distribution and
exchange system, a self-filing Web-based solution for SEC
Section 16 documents and financial document building
applications.

Intangible
Assets

Prior to July 1, 2001, intangible assets
acquired in business combinations accounted for by the purchase
method of accounting were capitalized and amortized over their
expected useful life as a non-cash charge. Acquisitions after
June 30, 2001 were accounted for under SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. Those
standards require that certain identifiable intangible assets be
amortized over their expected useful lives. Under the new
standards, the portion of the purchase price allocated to
goodwill and indefinite-lived intangible assets is not amortized
but is subject to impairment testing at least annually.

Amounts allocated to identifiable intangible
assets are amortized on a straight-line basis over their
estimated useful lives as follows:

|                           |  |           
|-------------------------- |  | ----------
|Customer relationships     |  | 5-15 years
|Software license agreement |  | 5 years   
|Covenants not-to-compete   |  | 5 years   
|Proprietary technology     |  | 3 years   

The Company also has a non-amortizable intangible
asset of $7.2 million as of December 31, 2002 related
to a minimum pension liability on its defined benefit pension
plan and SERP plan.

Stock-Based
Compensation

At December 31, 2002, the Company has
several stock-based employee compensation plans, which are
described more fully in Note 9. The Company accounts for
those plans using the intrinsic method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income
(loss) and earnings (loss) per share if the Company had applied
the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.

37



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                                       |             |                         |   |        |   |      |   |         |   |  |   |       | 
|-------------------------------------- | ----------- | ----------------------- | - | ------ | - | ---- | - | ------- | - |  | - | ----- | 
|                                       |             |                        
|                                       |             | Year Ended December 31,
|                                       |             |                        
|                                       |             | 2002                    |   | 2001   |   | 2000
|                                       |             |                         |   |        |   |     
|Net income (loss):                     |             |                         |   |        |   |      |   |         |   |  |   |      
|                                       | As Reported |                         | $ | 355    |   |      | $ | (24,078 | ) |  | $ | 7,008 | 
|                                       | Pro Forma   |                         | $ | (3,960 | ) |      | $ | (28,061 | ) |  | $ | 5,193 | 
|As Reported Earnings (Loss) Per Share: |             |                         |   |        |   |      |   |         |   |  |   |      
|                                       | Basic       |                         | $ | .01    |   |      | $ | (.73    | ) |  | $ | .20   | 
|                                       | Diluted     |                         | $ | .01    |   |      | $ | (.73    | ) |  | $ | .20   | 
|Pro Forma (Loss) Earnings Per Share:   |             |                         |   |        |   |      |   |         |   |  |   |      
|                                       | Basic       |                         | $ | (.12   | ) |      | $ | (.85    | ) |  | $ | .15   | 
|                                       | Diluted     |                         | $ | (.12   | ) |      | $ | (.85    | ) |  | $ | .15   | 

These pro forma amounts may not be representative
of future results since the estimated fair value of stock
options is amortized to expense over the vesting period, and
additional options may be granted in future years. The fair
value for these options was estimated at the date of grant using
the Black-Scholes model with the following weighted-average
assumptions:

|                                |  |         |  |         |  |        
|------------------------------- |  | ------- |  | ------- |  | -------
|                                |  | 2002    |  | 2001    |  | 2000   
|                                |  | Grants  |  | Grants  |  | Grants 
|                                |  |         |  |         |  |        
|Expected dividend yield         |  | 2.0%    |  | 1.8%    |  | 2.4%   
|Expected stock price volatility |  | 41.0%   |  | 45.1%   |  | 48.9%  
|Risk-free interest rate         |  | 2.2%    |  | 3.7%    |  | 5.3%   
|Expected life of options        |  | 3 years |  | 3 years |  | 5 years
|Weighted average fair value     |  | $2.68   |  | $3.95   |  | $3.70  

Income
Taxes

The Company uses the asset and liability method
to account for income taxes. Under this method, deferred income
taxes reflect tax carryforwards and the net tax effects of
temporary differences between the carrying amount of assets and
liabilities for financial statement and income tax purposes, as
determined under enacted tax laws and rates.

United States income tax has not been provided on
the unremitted earnings of the Companys foreign operations
since the Company intends to continue to reinvest its
undistributed foreign earnings to expand its foreign operations.
In addition, applicable foreign taxes have been provided for and
credits for foreign income taxes will be available to
significantly reduce any U.S. tax liability if foreign
earnings are remitted. At December 31, 2002, the cumulative
amount of undistributed foreign earnings was approximately
$47 million.

Earnings
(Loss) Per Share

Shares used in the calculation of basic earnings
per share are based on the weighted-average number of shares
outstanding, and for diluted earnings per share after adjustment
for the assumed conversion of all potentially dilutive
securities. Basic and diluted loss per share is calculated by
dividing the net loss by the weighted-average number of shares
outstanding during each period. The incremental shares from
assumed conversion of all potentially dilutive securities are
not included in the calculation of diluted loss per share since
their effect would have been anti-dilutive. The weighted average
diluted shares outstanding for the years ended December 31,
2002, 2001 and 2000 excludes the dilutive effect of
approximately 2,586,346, 2,490,679, and 2,954,168 options,
respectively, since such options have an exercise price in
excess of the average market value of the Companys common
stock during the respective period.

38



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The following table sets forth the basic and
diluted average share amounts:

|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                                        |  |                        
|                                                                        |  | Year Ended December 31,
|                                                                        |  |                        
|                                                                        |  | 2002                    |            | 2001 |  | 2000
|                                                                        |  |                         |            |      |  |     
|Average shares outstanding  basic
    shares                           |  |                         | 33,472,462 |      |  |      | 33,081,005 |  |  |  | 34,577,126 | 
|Potential dilutive effect of stock options and
    deferred stock units |  |                         | 1,204,378  |      |  |      | 1,075,450  |  |  |  | 771,256    | 
|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 
|Average shares outstanding  diluted
    shares                         |  |                         | 34,676,840 |      |  |      | 34,156,455 |  |  |  | 35,348,382 | 
|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 

Foreign
Currency Translation

Financial statements of international
subsidiaries are translated into U.S. dollars using the
exchange rate at each balance sheet date for assets and
liabilities and a weighted-average exchange rate for each period
for revenues, expenses, gains and losses. Where the local
currency is the functional currency, translation adjustments are
recorded as a separate component of stockholders equity
and included in determining comprehensive income (loss). Where
the U.S. dollar is the functional currency, translation
adjustments are recorded in income.

Fair
Value of Financial Instruments

The Company defines the fair value of a financial
instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The
carrying value of cash and cash equivalents, accounts receivable
and accounts payable approximates the fair value because of the
short maturity of those instruments. The carrying amount of the
liability under the revolving credit agreement (see
Note 11) approximates the fair value since this facility
has a variable interest rate similar to those that are currently
available to the Company. The fair value of the Companys
private placement notes is approximately $107.9 million,
based upon the borrowing rates currently available to the
Company for bank loans with similar terms and average
maturities. This compares to a carrying value of
$77.3 million at December 31, 2002.

Use
of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the period. Actual results can differ from those
estimates.

Comprehensive
Income

The Company applies FASB Statement No. 130,
Reporting Comprehensive Income. This statement
establishes standards for the reporting and display of
comprehensive income, requiring its components to be reported in
a financial statement that is displayed with the same prominence
as other financial statements.

Segment
Information

The Company applies FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related
Information, which requires the Company to report
information about its operating segments according to the
management approach for determining reportable segments. This
approach is based on the way management organizes segments
within a company for making operating decisions and assessing
performance. FAS No. 131 also establishes standards for
supplemental disclosure about products and services,
geographical areas and major customers. Segment results have
been reported for the years presented and are described in
Note 16.

39



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

Reclassifications

Certain prior year amounts have been reclassified
to conform to the 2002 presentation.

Recent
Accounting Pronouncements

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143
(SFAS 143), Accounting for Asset
Retirement Obligations. SFAS 143 requires entities to
record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. When the
liability is initially recorded, the entity is required to
capitalize the cost by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted
to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset.
SFAS 143 is effective for fiscal years beginning after
June 15, 2002 and will be adopted by the Company effective
fiscal 2003. The Company believes adoption of this standard will
not have a material effect on its financial statements.

In July 2002, the FASB issued Statement of
Financial Accounting Standard No. 146
(SFAS 146), Accounting for Costs
Associated with Exit or Disposal Activities, which
nullifies Emerging Issues Task Force Issue No. 94-3
(EITF 94-3). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, whereas under EITF
94-3, the liability was recognized at the commitment date to an
exit plan. The Company adopted the provisions of SFAS 146
effective for exit or disposal activities initiated in the
fourth quarter of 2002. The impact of adoption of the statement
was to recognize those charges relating to the Companys
restructuring plan that had met the liability recognition
criteria under SFAS 146. Certain charges that did not meet
the liability recognition criteria will be recognized in future
periods as the plan is implemented. Such charges to be
recognized in future periods are estimated to be approximately
$7 million.

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This
interpretation sets forth expanded disclosure requirements in
the financial statements about a guarantors obligations
under certain guarantees that it has issued. It also clarifies
that, under certain circumstances, a guarantor is required to
recognize a liability for the fair value of the obligation at
the inception of the guarantee. Certain types of guarantees,
such as product warranties, guarantees accounted for as
derivatives, and guarantees related to parent-subsidiary
relationships are excluded from the liability recognition
provisions of FIN 45, however, they are subject to
disclosure requirements. The initial liability recognition
provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial
statements for interim or annual periods ending after
December 15, 2002. The Company believes that the adoption
of this interpretation will not have a material impact on its
consolidated financial position or results of operations.

In December 2002, the FASB issued Statement of
Financial Accounting Standard No. 148
(SFAS 148), Accounting for Stock-Based
Compensation  Transition and Disclosure, which
amends Statement of Financial Accounting Standard No. 123
(SFAS 123) to provide alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based compensation. SFAS 148 also
amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method on reported
results. Although the Company continues to apply APB Opinion
No. 25 and related interpretations, the Company has adopted
the disclosure requirements of SFAS 148 during the fourth
quarter of 2002.




Note 2  Acquisitions

All of the acquisitions described below have been
accounted for using the purchase method of accounting, with the
excess of the purchase price over the estimated fair value of
the identifiable net assets

40



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

recorded as goodwill. The results of each
operation have been included in the Companys consolidated
results of operations since the date of acquisition. The cost of
the acquisitions was financed primarily through borrowings under
the Companys revolving credit agreement.

2001
Acquisitions

Mendez

In August 2001, the Company acquired Mendez and
its related assets from Lernout & Hauspie Speech
Products N.V. for $44.8 million in cash. Mendez operates in
20 countries and provides localization, translation technology
and technical translation services and is included as part of
the globalization segment.

The aggregate purchase price of
$48.7 million, which included approximately
$3.9 million of acquisition costs, was allocated to assets
acquired and liabilities assumed based upon estimated fair value
at the date of acquisition. The excess of the purchase price
over the estimated fair value of net tangible assets, totaling
approximately $32.2 million, was allocated between goodwill
and other identifiable intangible assets based upon estimated
fair values. Based upon the results of a third party valuation,
$3.7 million was allocated to the value of customer
relationships and $0.6 million was allocated to the value
of a license agreement related to machine translation software.
The amount allocated to customer relationships is being
amortized over its estimated life of ten years, and the amount
allocated to the software license agreement is being amortized
over its estimated useful life of five years. The portion
allocated to goodwill is not being amortized. The amount of
goodwill that was deductible for tax purposes was approximately
$5.2 million.

A portion of the purchase price
($0.8 million) was allocated to in-process research and
development projects that were written off at the date of
acquisition in accordance with applicable pronouncements. The
write-off was included in the consolidated results of operations
for the year ended December 31, 2001.

In addition, the Company accrued
$5.1 million of costs associated with the integration of
Mendez operations. These costs included estimated
severance costs ($3.9 million), lease termination costs
($1.0 million), and other integration costs
($0.2 million) associated with eliminating Mendez
facilities and terminating certain Mendez employees.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition.

|                                                                                                       |                           |   |         |         |  
|------------------------------------------------------------------------------------------------------ | ------------------------- | - | ------- | ------- | -
|Cash and cash equivalents                                                                              |                           | $ | 9,566   |        
|Accounts receivable, net of allowance for
    doubtful accounts                                        |                           |   | 18,800  |        
|Other current assets                                                                                   |                           |   | 6,199   |        
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total current assets      |   |         | 34,565  |  
|Property, plant and equipment at cost, less
    accumulated depreciation, and other non-current assets |                           |   | 6,894   |        
|Goodwill                                                                                               |                           |   | 27,949  |        
|Intangible assets                                                                                      |                           |   | 4,300   |        
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total assets acquired     |   | $       | 73,708  |  
|                                                                                                       |                           |   |         |        
|Current liabilities                                                                                    |                           |   | (21,462 | )      
|Long term liabilities                                                                                  |                           |   | (3,499  | )      
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total liabilities assumed |   |         | (24,961 | )
|                                                                                                       |                           |   |         |        
|Net assets acquired                                                                                    |                           | $ | 48,747  |        
|                                                                                                       |                           |   |         |        

Document
Management Services, Inc.

In April 2001, the Company acquired DMS, an
outsourcing company that provides services to the professional
services market, for approximately $17.5 million in cash.
The purchase agreement provides for the

41



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

payment of additional consideration upon the
achievement of certain milestones based upon earnings and
customer renewals, which amounts will be included as additional
goodwill in the period earned. The excess purchase price over
the identifiable net tangible assets, which totaled
$18.3 million, is reflected as part of goodwill and other
intangible assets. Included in intangible assets is
approximately $5.9 million related to customer contracts
and related customer relationships, which is being amortized
over 15 years. The remaining $12.4 million is recorded
as goodwill with a 30-year life and was amortized through
December 31, 2001, when amortization ceased in accordance
with SFAS 142. DMS is included in the outsourcing segment.

2002
Acquisitions

Berlitz
GlobalNet

On September 27, 2002, BGS Companies,
Inc., a subsidiary of the Company, acquired all of the issued
and outstanding stock of Berlitz GlobalNet, Inc.
(GlobalNet) from Berlitz International, Inc. and
Berlitz Investment Corporation for $75 million in cash.
GlobalNet provides globalization and localization services,
software testing, translation and interpretation services and is
included as part of the globalization segment. The Company
expects that the acquisition of GlobalNet will strengthen
BGSs position in the globalization and localization
industry and enhance BGSs results by enabling BGS to
combine complementary services, improve efficiencies, and
diversify its customer base.

The net cash outlay of $57.5 million, which
includes approximately $1.8 million of acquisition costs
and is net of $19.3 million of cash in the business, has
been allocated to assets acquired and liabilities assumed based
upon estimated fair value at the date of acquisition. The excess
of the purchase price over the estimated fair value of net
tangible assets, totaling approximately $42.0 million, has
been allocated between goodwill and other identifiable
intangible assets based upon estimated fair values. Of this
amount, $9.5 million has been allocated to the value of
customer contracts and customer relationships and
$0.4 million has been allocated to the value of proprietary
technology. The amount allocated to customer relationships will
be amortized over its estimated life of 5-10 years, and the
amount allocated to the proprietary technology will be amortized
over its estimated useful life of 3 years. The portion
allocated to goodwill will not be amortized. The amount of
goodwill that is expected to be deductible for tax purposes is
approximately $17.0 million.

The Company accrued $4.0 million of costs
associated with the acquisition of GlobalNets operations.
The integration is expected to eliminate redundant functions and
excess facilities in geographical regions where the Company has
globalization operations in the same location as GlobalNet.
These costs include estimated severance costs
($1.8 million) and lease termination costs
($0.8 million) and other costs ($1.4 million)
associated with eliminating GlobalNet facilities and terminating
certain GlobalNet employees.

The following unaudited pro forma consolidated
results of operations for the Company as a whole are presented
as if the acquisition of GlobalNet had been made at the
beginning of the periods presented.

42



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                                           |         |                         |           |      |   |   |           |       |  
|------------------------------------------ | ------- | ----------------------- | --------- | ---- | - | - | --------- | ----- | -
|                                           |         |                        
|                                           |         | Year Ended December 31,
|                                           |         |                        
|                                           |         | 2002                    |           | 2001
|                                           |         |                         |           |     
|                                           |         |                        
|                                           |         | (In thousands except   
|                                           |         | per share amounts)     
|                                           |         | (Unaudited)            
|Revenue                                    |         | $                       | 1,078,723 |      |   | $ | 1,162,040 |      
|Loss from continuing operations            |         |                         | (1,051    | )    |   |   | (30,378   | )    
|Net loss                                   |         |                         | (1,051    | )    |   |   | (46,741   | )    
|Loss per share from continuing operations: |         |                         |           |      |   |   |           |      
|                                           | Basic   |                         | $         | (.03 | ) |   | $         | (.92  | )
|                                           | Diluted |                         |           | (.03 | ) |   |           | (.92  | )
|Total loss per share:                      |         |                         |           |      |   |   |           |      
|                                           | Basic   |                         | $         | (.03 | ) |   | $         | (1.41 | )
|                                           | Diluted |                         |           | (.03 | ) |   |           | (1.41 | )

The pro forma amounts include interest expense on
acquisition debt and amortization of identifiable intangible
assets and do not include any amortization of goodwill
associated with the GlobalNet acquisition, as required under
SFAS No. 141. In addition, the pro forma amounts exclude
royalty expenses relating to the use of the Berlitz trade name
since such expenses will not be incurred prospectively. The pro
forma amounts were tax-effected using the Companys
effective tax rate. In addition, the pro forma amounts do not
reflect any benefits from economies or synergies that might be
achieved from integrating operations. The pro forma results for
the year ended December 31, 2001 include a pre-tax charge of
$16,900 recorded by GlobalNet related to an impairment of its
intangible assets based upon the amount paid in the acquisition.
The pro forma information is unaudited and is not necessarily
indicative of the results of operations that would have occurred
had the purchase been made at the beginning of the periods
presented or the future results of the combined operations.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of acquisition.

|                                                                                                       |                           |   |         |         |  
|------------------------------------------------------------------------------------------------------ | ------------------------- | - | ------- | ------- | -
|Cash and cash equivalents                                                                              |                           | $ | 19,334  |        
|Accounts receivable, net of allowance for
    doubtful accounts                                        |                           |   | 25,429  |        
|Other current assets                                                                                   |                           |   | 2,488   |        
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total current assets      |   |         | 47,251  |  
|Property, plant and equipment at cost, less
    accumulated depreciation, and other non-current assets |                           |   | 5,114   |        
|Goodwill                                                                                               |                           |   | 32,074  |        
|Intangible assets                                                                                      |                           |   | 9,880   |        
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total assets acquired     |   | $       | 94,319  |  
|                                                                                                       |                           |   |         |        
|Current liabilities                                                                                    |                           |   | (19,124 | )      
|Long term liabilities                                                                                  |                           |   | (195    | )      
|                                                                                                       |                           |   |         |        
|                                                                                                       | Total liabilities assumed |   |         | (19,319 | )
|                                                                                                       |                           |   |         |        
|Net assets acquired                                                                                    |                           | $ | 75,000  |        
|                                                                                                       |                           |   |         |        

DecisionQuest,
Inc.

In December 2002, the Company acquired
DecisionQuest, a provider of litigation resources, including
trial research, strategic communications and strategic
marketing, for approximately $31 million in cash. The
purchase agreement provides for the payment of additional
consideration upon the achievement of certain

43



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

milestones based upon earnings over a one-year
period, which amounts will be included as additional goodwill in
the period earned. The excess purchase price over the
identifiable net tangible assets, which totaled
$17.5 million, is reflected as part of goodwill and other
intangible assets. Included in intangible assets is
$3.3 million related to customer contracts and related
customer relationships, which will be amortized over
11 years, and various covenants not to compete with several
members of management valued at $1.8 million, which will be
amortized over their remaining useful life of 5 years.
There is also $1.9 million related to the trade name, which
will not be amortized, as it has an indefinite life. The
remaining $10.5 million is recorded as goodwill and will
not be amortized in accordance with SFAS 142. All of the
goodwill is expected to be deductible for tax purposes.
DQs tangible assets include an investment in a 50% owned
joint venture which is valued at $9.9 million, as well as a
note receivable from that joint venture of $2.0 million.
The purchase price allocation is preliminary, and further
refinements are possible as the Company completes its valuation
process. The final purchase price allocation is not expected to
have a material effect on the Companys financial
statements. DQ is included in the outsourcing segment.




Note 3  Dispositions of
Assets

During the first quarter of 2000, the Company
sold the net assets of one of its divisions in the Internet
segment for approximately $5 million. The proceeds
approximated the net book value of the assets, comprised
primarily of goodwill and other intangible assets.

During June 2001, the Company sold its commercial
printing operations in Montreal, Quebec for approximately
$4.9 million, of which $2.4 million was received in
cash. The remainder was financed by the Company with an interest
bearing note with principal due in installments beginning on the
fourth anniversary of the closing date of the sale. During 2000,
this operation had sales of approximately $24.4 million
with net assets of approximately $5.1 million at closing.
This transaction resulted in a loss of $1.9 million which
primarily resulted from the recognition of the accumulated
foreign currency translation loss that had been reflected as
part of accumulated other comprehensive loss on the balance
sheet.

In June 2002, Bownes financial printing
operations moved to a new leased facility in Chicago. The
Company completed the sale of its former Chicago facility in
September 2002 for approximately $8.3 million. The net
carrying amount of the facility was approximately
$3.4 million, and as such, this transaction resulted in a
gain of approximately $4.9 million for the year ended
December 31, 2002.

In September 2002, the Company sold certain
publishing assets and liabilities associated with its financial
printing segment for approximately $15 million, of which
$14 million was received in cash. The remainder is being
held in escrow until March 2003 for the purpose of providing a
source of payment for potential indemnity claims under the asset
purchase agreement. The carrying value of liabilities exceeded
the carrying value of assets by approximately $0.4 million,
therefore the sale resulted in a gain of approximately
$15.4 million for the year ended December 31, 2002.




Note 4  Cash and Cash
Equivalents

Cash equivalents of $2,760 and $1,635 at
December 31, 2002 and 2001, respectively, are carried at
cost, which approximates market, and includes certificates of
deposit and money market accounts, all of which have maturities
of three months or less when purchased.




Note 5  Marketable
Securities

The Company classifies its investments in
marketable equity securities as available-for-sale.
Available-for-sale securities are carried at fair value, with
the unrealized gains and losses, net of tax, reported as a
separate component of stockholders equity. The fair value
of marketable securities exceeded cost by $864 and $2,202, at
December 31, 2002 and 2001, respectively. Cost was
determined on the basis of specific

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

identification. Most of the decrease in
unrealized gain came as a result of the Companys
investment in EDGAR On-Line, whose market value at
December 31, 2002 was lower than at December 31, 2001.




Note 6  Inventories

Inventories consist of the following:

|                |  |              |        |      |  |   |        | 
|--------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                |  |             
|                |  | December 31,
|                |  |             
|                |  | 2002         |        | 2001
|                |  |              |        |     
|Raw materials   |  | $            | 6,255  |      |  | $ | 6,489  | 
|Work-in-process |  |              | 13,300 |      |  |   | 12,964 | 
|                |  |              |        |      |  |   |        | 
|                |  | $            | 19,555 |      |  | $ | 19,453 | 
|                |  |              |        |      |  |   |        | 




Note 7  Goodwill and
Intangible Assets

In June 2001, the FASB issued Statement
No. 141, Business Combinations
(SFAS 141), and Statement No. 142,
Goodwill and Other Intangible Assets
(SFAS 142). SFAS 141 required the purchase
method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 141 also provided
new criteria to determine whether an acquired intangible asset
should be recognized separately from goodwill.

Under the provisions of SFAS 142, upon
adoption, amortization of existing goodwill ceases and the
remaining book value is to be tested for impairment at least
annually at the reporting unit level using a new two-step
impairment test. The general provisions of SFAS 142 were
effective for the Company as of January 1, 2002. However,
certain provisions were effective for all business combinations
consummated after June 30, 2001. The Company applied the
accounting and disclosure provisions of SFAS 141 and the
applicable provisions of SFAS 142 to its acquisition of
Mendez S.A. (Mendez) during the third quarter
of 2001, and to both BGSs acquisition of GlobalNet and
BBSs acquisition of DecisionQuest in 2002.

In connection with SFAS 142s
transitional goodwill impairment evaluation, the Statement
required the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of
adoption, January 1, 2002. To accomplish this, the Company
determined the fair value of each reporting unit and compared it
to the carrying amount of the reporting unit at that date. No
impairment charges resulted from this evaluation since the fair
value of each reporting unit exceeded the carrying amount.

As of the date of adoption, the Company had
unamortized goodwill in the amount of $172,321 and unamortized
identifiable intangible assets in the amount of $18,150.
Goodwill not subject to amortization (net of accumulated
amortization through December 31, 2001) is $226,386 at
December 31, 2002. Goodwill increased $54,065 in 2002,
primarily as a result of the acquisition of GlobalNet in
September 2002 ($31,217) and DecisionQuest in December 2002
($10,508), and also as a result of the change in foreign
currency rates used to translate balances into U.S. dollars
at year end.

45



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The changes in the carrying amount of goodwill
for the year ended December 31, 2002, are as follows:

|                                                  |  |           |        |             |  |               |         |       |  |   |         |  |  |   |         | 
|------------------------------------------------- |  | --------- | ------ | ----------- |  | ------------- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                                                  |  | Financial |        |             |  |               |         |      
|                                                  |  | Printing  |        | Outsourcing |  | Globalization |         | Total
|                                                  |  |           |        |             |  |               |         |      
|Balance at January 1, 2002                        |  | $         | 13,113 |             |  | $             | 92,275  |       |  | $ | 66,933  |  |  | $ | 172,321 | 
|Goodwill acquired during the year                 |  |           | 2,615  |             |  |               | 10,508  |       |  |   | 32,074  |  |  |   | 45,197  | 
|Adjustments to previously recorded purchase price |  |           |       |             |  |               | 2       |       |  |   | 1,325   |  |  |   | 1,327   | 
|Foreign currency translation adjustment           |  |           | 107    |             |  |               |        |       |  |   | 7,434   |  |  |   | 7,541   | 
|                                                  |  |           |        |             |  |               |         |       |  |   |         |  |  |   |         | 
|Balance at December 31, 2002                      |  | $         | 15,835 |             |  | $             | 102,785 |       |  | $ | 107,766 |  |  | $ | 226,386 | 
|                                                  |  |           |        |             |  |               |         |       |  |   |         |  |  |   |         | 

The gross amounts and accumulated amortization of
identifiable intangible assets is as follows:

|                                 |                                              |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |       | 
|-------------------------------- | -------------------------------------------- | ----------------- | ------ | ----------------- |  | ------------ | ----- | ------------ |  | - | ------ | ------ |  | - | ----- | ----- | 
|                                 |                                              |                   |        |                  
|                                 |                                              | December 31, 2002 |        | December 31, 2001
|                                 |                                              |                   |        |                  
|                                 |                                              |                   |        | Accumulated       |  |              |       | Accumulated 
|                                 |                                              | Gross Amount      |        | Amortization      |  | Gross Amount |       | Amortization
|                                 |                                              |                   |        |                   |  |              |       |             
|Amortizable intangible assets:   |                                              |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 | Customer lists                               |                   | $      | 34,068            |  |              | $     | 4,792        |  |   | $      | 20,100 |  |   | $     | 3,022 | 
|                                 | Software licenses and proprietary technology |                   |        | 1,617             |  |              |       | 242          |  |   |        | 1,100  |  |   |       | 28    | 
|                                 | Covenants not-to-compete                     |                   |        | 1,800             |  |              |       |             |  |   |        |       |  |   |       |      | 
|Unamortizable intangible assets: |                                              |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 | Trade Name                                   |                   |        | 1,900             |  |              |       |             |  |   |        |       |  |   |       |      | 
|                                 |                                              |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 |                                              | $                 | 39,385 |                   |  | $            | 5,034 |              |  | $ | 21,200 |        |  | $ | 3,050 |      
|                                 |                                              |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      

In addition, the Company has an intangible asset
with a balance of $7.2 million and $7.1 million at
December 31, 2002 and 2001, respectively, related to its
additional minimum pension liability. This intangible asset is
not subject to amortization.

Amortization expense related to identifiable
intangible assets was $2,017, $1,146 and $750 for the years
ended December 31, 2002, 2001, and 2000, respectively.
Estimated annual amortization expense for the years ended
December 31, 2003 through December 31, 2007, including
the effect of the GlobalNet and DecisionQuest acquisitions, is
shown below:

|     |  |   |       | 
|---- |  | - | ----- | 
|2003 |  | $ | 3,580 | 
|2004 |  | $ | 3,580 | 
|2005 |  | $ | 3,548 | 
|2006 |  | $ | 3,398 | 
|2007 |  | $ | 3,178 | 

The following adjusted financial information
reflects the impact that SFAS 142 would have had on net
income (loss) and diluted earnings (loss) per share for the
years ended December 31, 2001 and 2000, respectively if
adopted in 2000:

|                                           |  |                   |         |                   |  |        |      |           |  |   |        |  |  |   |     | 
|------------------------------------------ |  | ----------------- | ------- | ----------------- |  | ------ | ---- | --------- |  | - | ------ |  |  | - | --- | 
|                                           |  |                   |         |                  
|                                           |  | Year Ended        |         | Year Ended       
|                                           |  | December 31, 2001 |         | December 31, 2000
|                                           |  |                   |         |                  
|                                           |  | Net Income        |         | Earnings (Loss)   |  | Net    |      | Earnings 
|                                           |  | (Loss)            |         | Per Share         |  | Income |      | Per Share
|                                           |  |                   |         |                   |  |        |      |          
|Amounts as reported                        |  | $                 | (24,078 | )                 |  | $      | (.73 | )         |  | $ | 7,008  |  |  | $ | .20 | 
|Goodwill amortization, net of income taxes |  |                   | 6,119   |                   |  |        | .18  |           |  |   | 5,735  |  |  |   | .17 | 
|                                           |  |                   |         |                   |  |        |      |           |  |   |        |  |  |   |     | 
|Adjusted amounts                           |  | $                 | (17,959 | )                 |  | $      | (.55 | )         |  | $ | 12,743 |  |  | $ | .37 | 
|                                           |  |                   |         |                   |  |        |      |           |  |   |        |  |  |   |     | 

46



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)






Note 8  Employee Benefit
Plans

Pension
Plans

The Company sponsors a defined benefit pension
plan which covers most of its United States employees not
covered by union agreements. Benefits are based upon salary and
years of service under the projected unit benefit method. The
Companys policy is to contribute an amount necessary to
meet the ERISA minimum funding requirements. This plan has been
closed to new participants effective January 1, 2003. In
addition, effective January 1, 2003, current participants
in the plan will have benefits computed at a reduced accrual
rate for credited service after January 1, 2003, except for
certain employees who will continue to accrue benefits under the
existing formula if they satisfy certain age and years of
service requirements. The Company also has an unfunded
supplemental retirement program for certain management
employees. Employees covered by union agreements are included in
separate multi-employer pension plans to which the Company makes
contributions. Plan benefit and net asset data for these
multi-employer pension plans are not available. Also, certain
non-union international employees are covered by other
retirement plans.

Pension costs, including the Supplementary
Employee Retirement Plan (SERP), are summarized as
follows:

|                                                   |  |                         |        |      |  |      |        |   |  |   |        |  
|-------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                   |  |                        
|                                                   |  | Year Ended December 31,
|                                                   |  |                        
|                                                   |  | 2002                    |        | 2001 |  | 2000
|                                                   |  |                         |        |      |  |     
|Service cost                                       |  | $                       | 7,636  |      |  | $    | 6,912  |   |  | $ | 6,478  |  
|Interest cost                                      |  |                         | 6,864  |      |  |      | 5,878  |   |  |   | 5,712  |  
|Expected return on plan assets                     |  |                         | (5,202 | )    |  |      | (6,200 | ) |  |   | (6,497 | )
|Amortization of transition asset                   |  |                         | (220   | )    |  |      | (220   | ) |  |   | (220   | )
|Amortization of prior service cost                 |  |                         | 1,121  |      |  |      | 1,032  |   |  |   | 1,032  |  
|Actuarial loss (gain)                              |  |                         | 347    |      |  |      | (1,199 | ) |  |   | (1,395 | )
|Curtailment gain                                   |  |                         |       |      |  |      | (1,132 | ) |  |   |       |  
|                                                   |  |                         |        |      |  |      |        |   |  |   |        |  
|Net periodic pension cost of defined benefit plans |  |                         | 10,546 |      |  |      | 5,071  |   |  |   | 5,110  |  
|Union plans                                        |  |                         | 304    |      |  |      | 408    |   |  |   | 580    |  
|Other retirement plans                             |  |                         | 828    |      |  |      | 745    |   |  |   | 1,167  |  
|                                                   |  |                         |        |      |  |      |        |   |  |   |        |  
|Total pension and SERP cost                        |  | $                       | 11,678 |      |  | $    | 6,224  |   |  | $ | 6,857  |  
|                                                   |  |                         |        |      |  |      |        |   |  |   |        |  

47



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The status of the Companys funded defined
benefit pension plan, excluding the SERP, is as follows:

|                                                  |  |              |         |      |  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                  |  |             
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2002         |         | 2001
|                                                  |  |              |         |     
|Projected benefit obligation at beginning of year |  | $            | 74,194  |      |  | $ | 59,913  |  
|Service cost                                      |  |              | 7,113   |      |  |   | 6,420   |  
|Interest cost                                     |  |              | 5,299   |      |  |   | 4,455   |  
|Actuarial loss                                    |  |              | 9,839   |      |  |   | 6,859   |  
|Curtailment gain                                  |  |              |        |      |  |   | (1,172  | )
|Benefits paid                                     |  |              | (5,786  | )    |  |   | (2,281  | )
|                                                  |  |              |         |      |  |   |         |  
|Projected benefit obligation at end of year       |  |              | 90,659  |      |  |   | 74,194  |  
|                                                  |  |              |         |      |  |   |         |  
|Fair value of plan assets at beginning of year    |  |              | 59,350  |      |  |   | 68,176  |  
|Actual return on plan assets                      |  |              | (7,607  | )    |  |   | (6,545  | )
|Employer contributions                            |  |              | 3,743   |      |  |   |        |  
|Benefits paid                                     |  |              | (5,786  | )    |  |   | (2,281  | )
|                                                  |  |              |         |      |  |   |         |  
|Fair value of plan assets at end of year          |  |              | 49,700  |      |  |   | 59,350  |  
|                                                  |  |              |         |      |  |   |         |  
|Funded status                                     |  |              | (40,959 | )    |  |   | (14,844 | )
|Unrecognized net transition asset                 |  |              | (2,200  | )    |  |   | (2,522  | )
|Unrecognized prior service cost                   |  |              | 962     |      |  |   | 364     |  
|Unrecognized net actuarial loss (gain)            |  |              | 20,640  |      |  |   | (1,310  | )
|                                                  |  |              |         |      |  |   |         |  
|Net accrued pension cost                          |  | $            | (21,557 | )    |  | $ | (18,312 | )
|                                                  |  |              |         |      |  |   |         |  

Amounts recognized in the balance sheet consist
of:

|                                               |  |              |        |      |  |    |        |  
|---------------------------------------------- |  | ------------ | ------ | ---- |  | -- | ------ | -
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2002         |        | 2001
|                                               |  |              |        |     
|Defined Benefit Pension Plan:                  |  |              |        |      |  |    |        |  
|Accrued benefit liability                      |  | $(           | 23,219 | )    |  | $( | 18,312 | )
|Intangible asset for minimum pension liability |  |              | 962    |      |  |    |       |  
|Accumulated other comprehensive loss           |  |              | 434    |      |  |    |       |  
|Deferred income tax asset                      |  |              | 266    |      |  |    |       |  
|                                               |  |              |        |      |  |    |        |  
|Net amount recognized                          |  | $(           | 21,557 | )    |  | $( | 18,312 | )
|                                               |  |              |        |      |  |    |        |  
|SERP:                                          |  |              |        |      |  |    |        |  
|Accrued benefit liability                      |  | $(           | 20,514 | )    |  | $( | 17,462 | )
|Intangible asset for minimum pension liability |  |              | 6,260  |      |  |    | 7,104  |  
|Accumulated other comprehensive loss           |  |              | 1,560  |      |  |    |       |  
|Deferred income tax asset                      |  |              | 957    |      |  |    |       |  
|                                               |  |              |        |      |  |    |        |  
|Net amount recognized                          |  | $(           | 11,737 | )    |  | $( | 10,358 | )
|                                               |  |              |        |      |  |    |        |  

The amounts of accrued benefit liabilities are
included in current and long-term liabilities for employee
compensation and benefits. At December 31, 2002, the
Company recorded an additional minimum pension liability of
$10,439 related to its defined benefit plan and SERP plan, which
represents the excess of unfunded accumulated benefit
obligations over previously recorded pension cost liabilities.
The Company also recorded a corresponding intangible asset of
$7,222. The net charge to other comprehensive loss in
stockholders equity

48



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

was $1,994, which is net of a $1,223 deferred tax
asset. The increase in unfunded accumulated benefit obligations
was primarily due to a decline in the market value of plan
assets, as well as a reduction in the assumed discount rate.
During 2001, the Company had a curtailment loss of approximately
$1.1 million resulting from the reduction in force during
the fourth quarter. The SERP plan contains covenants which
prohibit retired participants from engaging in competition with
the Company.

The discount rate used to calculate the projected
benefit obligations was 6.50%, 7.25% and 7.75% for the years
ended December 31, 2002, 2001 and 2000, respectively. The
rate used to project future salary increases was 4% for the
years ended December 31, 2002 and 2001, respectively, and
4.5% for the year ended December 31, 2000. The expected
long-term rate of return on plan assets was 9.0% for the year
ended December 31, 2002 and 9.5% for the years ended
December 31, 2001 and 2000, respectively. The assets of the
funded plan consist primarily of equity and fixed income
securities.

Defined
Contribution Plans

Through December 31, 2002, the Company and
its domestic financial printing subsidiaries were participating
in a qualified profit sharing plan covering most employees of
those subsidiaries who are not covered by union agreements.
Amounts charged to income for the Profit Sharing Plan were $363,
$2,781 and $6,511 for the years ended December 31, 2002,
2001 and 2000, respectively. Effective December 31, 2002,
this Plan has been closed to employee contributions, and
employees previously covered by this plan can participate in the
qualified 401(k) Plan discussed below.

The remaining domestic subsidiaries had been
participating in a qualified 401(k) Plan that is available to
substantially all their non-union employees. Through
December 31, 2002, the Company matched 50% of a
participating employees pre-tax contribution up to a
maximum of 6% of the participants compensation. Effective
January 1, 2003, substantially all of the Companys
eligible non-union employees can participate in the 401(k) Plan,
and the Company will match 100% of the first 3% of the
participants compensation plus 50% of the next 2% of
compensation. Amounts charged to income for the 401(k) Plan,
representing the Companys matching contributions, were
$966, $837, and $556 for the years ended December 31, 2002,
2001 and 2000, respectively.

Under the Employees Stock Purchase Plan,
the Company and participating subsidiaries match 50% of amounts
contributed (after-tax) by employees up to twelve hundred
dollars per employee per year. All contributions are invested in
the common stock of the Company. The plan acquired 241,192,
379,121 and 464,800 shares in the years ended
December 31, 2002, 2001 and 2000 respectively, of the
Companys common stock on the open market. At
December 31, 2002 and 2001, the Stock Purchase Plan held
1,947,743 shares and 1,964,541 shares of the Companys
common stock, respectively. Charges to income amounted to $388,
$964 and $1,388 for the years ended December 31, 2002,
2001, and 2000, respectively. The shares held by the plan are
considered outstanding in computing the Companys basic
earnings per share, and dividends paid to the plan are charged
to retained earnings. Effective December 31, 2002, this
Plan has been closed to non-union employee contributions.

Health
Plan

The Company maintains a voluntary employee
benefit health and welfare plan (Plan) covering substantially
all of its non-union employees. The Company funds disbursements
as incurred. At December 31, 2002 and 2001, accrued expense
for Plan participants incurred but not reported claims was
$4,625 and $4,150, respectively. Amounts charged to income for
the Plan were $25,939, $29,107 and $27,996 for the years ended
December 31, 2002, 2001, and 2000, respectively.

49



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)






Note 9  Stock Incentive
Plans

The Company has five stock incentive plans: a
1981 Plan, a 1992 Plan, a 1997 Plan, a 1999 Plan, and a 2000
Plan. All except the 2000 Plan have been approved by
shareholders.

The 1981 Plan, which provided for the granting of
options to purchase 2,800,000 shares of the Companys
common stock, expired December 15, 1991 except as to
options then outstanding. The Companys 1992 and 1997 Stock
Option Plans both provide for the granting of options to
purchase 1,700,000 shares to officers and key employees at a
price not less than the fair market value on the date each
option is granted. The 1992 Plan expired December 19, 2001
except as to options then outstanding. The Companys 1999
Incentive Compensation Plan provides for the granting of options
to purchase 3,450,000 shares to officers, key employees,
non-employee directors, and others who provide substantial
services to the Company, also at a price not less than the fair
market value on the date each option is granted. Of these
3,450,000 shares reserved under the 1999 Plan, 300,000 may be
issued as awards other than options and stock appreciation
rights (SARs). The Companys 2000 Incentive
Compensation Plan provides for the granting of options to
purchase 3,000,000 shares to officers, key employees,
non-employee directors, and others who provide substantial
services to the Company, also at a price not less than the fair
market value on the date each option is granted. Of these
3,000,000 shares reserved under the 2000 Plan, 300,000 may be
issued as awards other than options and SARs.

All plans except the 2000 Plan permit grants of
either Incentive Stock Options or Nonqualified Options. Options
become exercisable as determined at the date of grant by a
committee of the Board of Directors. Options granted prior to
December of 2001 expire ten years after the date of grant, while
options granted since December 2001 have a term of seven years.
The 1997 Plan permits the issuance of SARs, limited stock
appreciation rights (LSARs) and awards that are
valued in whole or in part on the fair value of the shares.
SARs, LSARs and awards may be paid in shares, cash or
combinations thereof. The 1999 Plan allows for those awards
previously mentioned under the 1997 Plan, as well as restricted
stock, deferred stock, stock granted as a bonus, dividend
equivalent, performance award or annual incentive award. The
2000 Plan permits the issuance of Nonqualified Options, SARs,
LSARs, restricted stock, deferred stock, stock granted as a
bonus, dividend equivalent, other stock-based award or
performance award. The Compensation Committee of the Board
governs most of the parameters of the 1999 and 2000 Plans
including exercise dates, expiration dates, and other awards.

The following table summarizes the number of
securities to be issued upon exercise of outstanding options and
conversion of deferred stock units into shares of stock, and the
number of securities remaining available for future issuance
under the Companys plans:

|                                    |                      |                      |  |                     |           |                      |  |       |  |  |  |           |           | 
|----------------------------------- | -------------------- | -------------------- |  | ------------------- | --------- | -------------------- |  | ----- |  |  |  | --------- | --------- | 
|                                    |                      | Number of securities |  | Weighted-average    |           | Number of securities
|                                    |                      | to be issued upon    |  | exercise price of   |           | remaining available 
|                                    |                      | exercise/conversion  |  | outstanding options |           | for future issuance 
|                                    |                      |                      |  |                     |           |                     
|Plans approved by shareholders:     |                      |                      |  |                     |           |                      |  |       |  |  |  |          
|                                    | Stock options        |                      |  | 3,319,200           |           |                      |  | 12.64 |  |  |  | 2,228,300 |          
|                                   
|Plans not approved by shareholders: |                      |                      |  |                     |           |                      |  |       |  |  |  |          
|                                    | Stock options        |                      |  | 2,436,851           |           |                      |  | 11.78 |  |  |  | 308,706   |          
|                                    | Deferred stock units |                      |  | 793,505             |           |                      |  | (a)   |  |  |  | 623,218   |          
|                                    |                      |                      |  |                     |           |                      |  |       |  |  |  |          
|                                    |                      | Total                |  |                     | 6,549,556 |                      |  |       |  |  |  |           | 3,160,224 | 
|                                    |                      |                      |  |                     |           |                      |  |       |  |  |  |          




(a) Not applicable

50



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

Details of stock options are as follows:

|                             |                          |           |  |           |  |  |   |       | 
|---------------------------- | ------------------------ | --------- |  | --------- |  |  | - | ----- | 
|                             |                          |           |  | Weighted 
|                             |                          |           |  | Average  
|                             |                          | Number of |  | Option   
|                             |                          | Shares    |  | Price    
|                             |                          |           |  |          
|Year Ended December 31, 2000 |                          |           |  |           |  |  |   |      
|                             | Granted                  |           |  | 1,107,450 |  |  | $ | 8.93  | 
|                             | Exercised                |           |  | 49,650    |  |  |   | 8.35  | 
|                             | Cancelled                |           |  | 463,600   |  |  |   | 14.66 | 
|                             | Outstanding, end of year |           |  | 4,560,850 |  |  |   | 12.35 | 
|                             | Exercisable, end of year |           |  | 2,161,081 |  |  |   | 13.22 | 
|Year Ended December 31, 2001 |                          |           |  |           |  |  |   |      
|                             | Granted                  |           |  | 1,797,000 |  |  | $ | 12.40 | 
|                             | Exercised                |           |  | 207,600   |  |  |   | 8.56  | 
|                             | Cancelled                |           |  | 647,174   |  |  |   | 13.06 | 
|                             | Outstanding, end of year |           |  | 5,503,076 |  |  |   | 12.42 | 
|                             | Exercisable, end of year |           |  | 2,683,833 |  |  |   | 12.91 | 
|Year Ended December 31, 2002 |                          |           |  |           |  |  |   |      
|                             | Granted                  |           |  | 881,250   |  |  | $ | 10.97 | 
|                             | Exercised                |           |  | 313,351   |  |  |   | 9.44  | 
|                             | Cancelled                |           |  | 314,924   |  |  |   | 13.58 | 
|                             | Outstanding, end of year |           |  | 5,756,051 |  |  |   | 12.27 | 
|                             | Exercisable, end of year |           |  | 3,875,379 |  |  |   | 12.48 | 

The following table summarizes weighted average
option exercise price information:

|                |  |                     |           |                     |  |          |         |                   |  |          |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ------------------- |  | -------- | ------- | ----------------- |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |           |                    
|                |  | Options Outstanding |           | Options Exercisable
|                |  |                     |           |                    
|                |  |                     |           | Weighted            |  | Weighted |         |                   |  | Weighted
|Range of        |  | Number              |           | Average             |  | Average  |         | Number            |  | Average 
|Exercise        |  | Outstanding         |           | Remaining           |  | Exercise |         | Exercisable       |  | Exercise
|Prices          |  | December 31, 2002   |           | Life                |  | Price    |         | December 31, 2002 |  | Price   
|                |  |                     |           |                     |  |          |         |                   |  |         
|$ 8.03  $10.36 |  |                     | 1,269,350 |                     |  |          | 7 years |                   |  | $        | 9.10  |  |  |  | 1,248,850 |  |  | $ | 9.08  | 
|10.37   11.16  |  |                     | 1,009,100 |                     |  |          | 7 years |                   |  |          | 10.68 |  |  |  | 191,850   |  |  |   | 11.07 | 
|11.17   12.28  |  |                     | 944,451   |                     |  |          | 7 years |                   |  |          | 12.21 |  |  |  | 704,254   |  |  |   | 12.21 | 
|12.29   14.12  |  |                     | 1,552,700 |                     |  |          | 6 years |                   |  |          | 12.93 |  |  |  | 794,975   |  |  |   | 12.92 | 
|14.13   22.50  |  |                     | 980,450   |                     |  |          | 6 years |                   |  |          | 17.06 |  |  |  | 935,450   |  |  |   | 17.15 | 
|                |  |                     |           |                     |  |          |         |                   |  |          |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 5,756,051 |                     |  |          | 6 years |                   |  | $        | 12.27 |  |  |  | 3,875,379 |  |  | $ | 12.48 | 
|                |  |                     |           |                     |  |          |         |                   |  |          |       |  |  |  |           |  |  |   |       | 

Subsidiaries
Option Plans

During 1999, the Company adopted the 1999 Stock
Option Plan for BGS Companies, Inc. (BGS Plan), a
wholly-owned subsidiary of the Company. During 2001, the Company
adopted the 2001 Key Executives Stock Incentive Plan for
BGS Companies, Inc. Both Plans provide for the granting of
nonqualified stock options, incentive stock options and
restricted stock units of BGS Companies, Inc. stock to employees
of the Company and its affiliates and advisors. The 1999 Plan
authorized the granting of three million options, which are to
be granted at not less than the fair market value as of the date
of grant and are for periods not to exceed ten years. The 2001
Plan authorized the granting of 3.2 million options, which
are to be granted at not less than the fair market value as of
the date of grant and are for periods not to exceed seven years.
Under the 2001 Plan, no options become exercisable until an
initial public offering of BGS Companies, Inc.

51



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The 1999 BGS Plan granted 1,684,400 stock
options at an average exercise price of $2.54 during 1999. No
additional grants were made since 1999 from this Plan. The 2001
Plan granted 2,800,000 stock options at an exercise price of
$2.00 during 2001, and 2,217,000 stock options at an average
exercise price of $2.14 during 2002. In addition,
3,436,150 stock options were forfeited during 2002. The
options outstanding under the Plans are 2,783,775 and 4,098,850
at December 31, 2002 and December 31, 2001,
respectively. The options generally vest over a four-year
period; however, under the 1999 Plan, no options were
exercisable until the earlier of an initial public offering of
BGS Companies Inc. or January 26, 2002. After January 26,
2002, certain vested options under the 1999 Plan became eligible
to be put back to the Company and the Company had
the right to buy such options from the holders at an amount no
greater than the amount by which the then fair market value
exceeds the exercise price of the option. During 2002, the
Company bought 95,925 options from the holders for approximately
$50, which amount had been recognized as compensation expense in
2001. No compensation expense was recognized in either 2002 or
2000.

Deferred
Stock Awards

In October 1996, the Company initiated a program
for certain key executives, and in 1997 for directors, that
provided for the conversion of a portion of their cash bonuses
or directors fees into deferred stock units. These units
are convertible into the Companys common stock on a
one-for-one basis, generally at the time of retirement or
earlier under certain specific circumstances, and are included
as shares outstanding in computing the Companys earnings
per share. At December 31, 2002 and 2001, the amounts
included in stockholders equity for these units were
$8.1 million and $7.9 million, respectively. At
December 31, 2002 and 2001, there were 628,763 and 604,044
units outstanding, respectively.

Additionally, the Company has a Deferred Sales
Compensation Plan for certain salespeople. This Plan allows the
salesperson to defer payment of salaries and commissions to a
future date. The amounts deferred, plus any matching
contribution made by the Company, will be paid in either cash or
the Companys common stock upon retirement, termination or
in certain hardship situations. Amounts accrued which the
employees participating in the Plan have elected to be paid in
stock amounted to $2,081 and $1,906 at December 31, 2002
and 2001, respectively. These deferred stock awards may be paid
out in cash under certain circumstances. Accordingly, the
amounts are recorded as a liability in deferred employee
compensation and benefits in the Companys consolidated
balance sheets. In the event of a change of control or if the
Companys net worth, as defined, falls below
$100 million, then the payment of certain vested amounts
due under the Plan may be accelerated. At December 31, 2002
and 2001, there were 164,742 and 146,327 deferred stock awards
outstanding, respectively, under this Plan. These awards are
included as shares outstanding in computing the Companys
earnings per share.

52



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)






Note 10  Income
Taxes

The provision (benefit) for income taxes is
summarized as follows:

|          |                 |                         |        |        |   |      |         |         |   |   |        |        |  
|--------- | --------------- | ----------------------- | ------ | ------ | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|          |                 |                        
|          |                 | Year Ended December 31,
|          |                 |                        
|          |                 | 2002                    |        | 2001   |   | 2000
|          |                 |                         |        |        |   |     
|Current:  |                 |                         |        |        |   |      |         |         |   |   |        |       
|          | U.S. federal    |                         | $      | 6,200  |   |      | $       | (10,005 | ) |   | $      | 9,704  |  
|          | Foreign         |                         |        | 1,000  |   |      |         | 510     |   |   |        | 7,476  |  
|          | State and local |                         |        | 2,823  |   |      |         | (693    | ) |   |        | 886    |  
|          |                 |                         |        |        |   |      |         |         |   |   |        |       
|          |                 |                         | 10,023 |        |   |      | (10,188 | )       |   |   | 18,066 |       
|          |                 |                         |        |        |   |      |         |         |   |   |        |       
|Deferred: |                 |                         |        |        |   |      |         |         |   |   |        |       
|          | U.S. federal    |                         |        | 3,945  |   |      |         | 5,125   |   |   |        | (1,982 | )
|          | Foreign         |                         |        | (3,483 | ) |      |         | (1,949  | ) |   |        |       |  
|          | State and local |                         |        | (1,340 | ) |      |         | 233     |   |   |        | (59    | )
|          |                 |                         |        |        |   |      |         |         |   |   |        |       
|          |                 |                         | (878   | )      |   |      | 3,409   |         |   |   | (2,041 | )     
|          |                 |                         |        |        |   |      |         |         |   |   |        |       
|          |                 | $                       | 9,145  |        |   | $    | (6,779  | )       |   | $ | 16,025 |       
|          |                 |                         |        |        |   |      |         |         |   |   |        |       

The provision (benefit) for income taxes is
allocated as follows:

|                        |  |                         |       |      |  |      |        |   |  |   |         |  
|----------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------- | -
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2002                    |       | 2001 |  | 2000
|                        |  |                         |       |      |  |     
|Continuing operations   |  | $                       | 9,145 |      |  | $    | 2,281  |   |  | $ | 28,145  |  
|Discontinued operations |  |                         |      |      |  |      | (9,060 | ) |  |   | (12,120 | )
|                        |  |                         |       |      |  |      |        |   |  |   |         |  
|                        |  | $                       | 9,145 |      |  | $    | (6,779 | ) |  | $ | 16,025  |  
|                        |  |                         |       |      |  |      |        |   |  |   |         |  

United States and foreign components of income
(loss) before income taxes are as follows:

|                                 |  |                         |         |      |  |      |         |   |  |   |        | 
|-------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|                                 |  |                        
|                                 |  | Year Ended December 31,
|                                 |  |                        
|                                 |  | 2002                    |         | 2001 |  | 2000
|                                 |  |                         |         |      |  |     
|United States                    |  | $                       | 27,178  |      |  | $    | (26,373 | ) |  | $ | 11,743 | 
|Foreign                          |  |                         | (17,678 | )    |  |      | (4,484  | ) |  |   | 11,290 | 
|                                 |  |                         |         |      |  |      |         |   |  |   |        | 
|Total income (loss) before taxes |  | $                       | 9,500   |      |  | $    | (30,857 | ) |  | $ | 23,033 | 
|                                 |  |                         |         |      |  |      |         |   |  |   |        | 

Income taxes paid during the years ended
December 31, 2002, 2001 and 2000 were $2,682, $6,248 and
$24,148, respectively.

53



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

The provision for income taxes differed from the
U.S. federal statutory rate for the following reasons:

|                                          |                                |                         |       |      |   |      |       |      |   |  |      |      | 
|----------------------------------------- | ------------------------------ | ----------------------- | ----- | ---- | - | ---- | ----- | ---- | - |  | ---- | ---- | 
|                                          |                                |                        
|                                          |                                | Year Ended December 31,
|                                          |                                |                        
|                                          |                                | 2002                    |       | 2001 |   | 2000
|                                          |                                |                         |       |      |   |     
|Statutory tax (benefit) rate              |                                |                         | 35.0% |      |   |      | (35.0 | )%   |   |  | 35.0 | %   
|Increase in tax (benefit) resulting from: |                                |                         |       |      |   |      |       |      |   |  |      |     
|                                          | State and local taxes          |                         |       | 10.1 |   |      |       | (1.1 | ) |  |      | 2.3  | 
|                                          | Foreign taxes                  |                         |       | (3.7 | ) |      |       | (3.6 | ) |  |      | 2.1  | 
|Nondeductible items:                      |                                |                         |       |      |   |      |       |      |   |  |      |     
|                                          | Change in valuation allowance  |                         |       | 31.1 |   |      |       | 4.1  |   |  |      |     | 
|                                          | Goodwill and other intangibles |                         |       |     |   |      |       | 8.3  |   |  |      | 10.1 | 
|                                          | Asset impairment charge        |                         |       |     |   |      |       |     |   |  |      | 13.7 | 
|                                          | Other nondeductible items      |                         |       | 23.8 |   |      |       | 5.3  |   |  |      | 6.4  | 
|                                          |                                |                         |       |      |   |      |       |      |   |  |      |     
|Effective income tax (benefit) rate       |                                |                         | 96.3% |      |   |      | (22.0 | )%   |   |  | 69.6 | %   
|                                          |                                |                         |       |      |   |      |       |      |   |  |      |     

The increase in the effective income tax rate
from 2001 to 2002 was due to no benefit taken for losses in
certain foreign jurisdictions because of the uncertainty
regarding their realization. In addition, the Companys
non-deductible items grew as a percentage of pre-tax income from
2001 to 2002.

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes, as well as the expected benefits
of utilization of net operating loss carryforwards. In assessing
the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the
deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible or the net
operating losses can be utilized. Management considers the
scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. A valuation
allowance has been provided for a portion of deferred tax assets
relating to certain foreign net operating losses due to
uncertainty surrounding the utilization of these deferred tax
assets. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the
remaining deferred tax assets are realizable, management
believes it is more likely than not the Company will realize the
benefits of these net deferred tax assets. Significant
components of the Companys deferred tax assets and
liabilities at December 31, 2002 and 2001 are as follows:

|                                 |  |      |         |      |  |  |         |  
|-------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                 |  | 2002 |         | 2001
|                                 |  |      |         |     
|Deferred tax assets:             |  |      |         |      |  |  |         |  
|Operating loss carryforwards     |  |      | 9,173   |      |  |  | 2,726   |  
|Deferred compensation & benefits |  |      | 22,330  |      |  |  | 16,428  |  
|Depreciation and other           |  |      | 2,547   |      |  |  | 1,097   |  
|                                 |  |      |         |      |  |  |         |  
|Gross deferred tax assets        |  |      | 34,050  |      |  |  | 20,251  |  
|                                 |  |      |         |      |  |  |         |  
|Deferred tax liabilities:        |  |      |         |      |  |  |         |  
|Capitalized software costs       |  |      | (12,605 | )    |  |  | (10,311 | )
|Intangible assets                |  |      | (6,172  | )    |  |  | (4,838  | )
|Synthetic leases and other       |  |      | (2,598  | )    |  |  |        |  
|                                 |  |      |         |      |  |  |         |  
|Gross deferred tax liabilities   |  |      | (21,375 | )    |  |  | (15,149 | )
|                                 |  |      |         |      |  |  |         |  

54



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                                              |  |      |        |      |  |  |        |  
|--------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                              |  | 2002 |        | 2001
|                                              |  |      |        |     
|Deferred tax asset valuation allowance        |  |      | (5,004 | )    |  |  | (2,050 | )
|                                              |  |      |        |      |  |  |        |  
|Net deferred tax asset                        |  |      | 7,671  |      |  |  | 3,052  |  
|Less current portion  deferred tax
    asset |  |      | (3,912 | )    |  |  |       |  
|                                              |  |      |        |      |  |  |        |  
|Non-current deferred tax asset (liability)    |  |      | 3,759  |      |  |  | 3,052  |  
|                                              |  |      |        |      |  |  |        |  

The Company has, as of December 31, 2002,
approximately $177 million of state and local net operating
losses estimated to expire in years beginning in 2007, state
credits of approximately $1.37 million and approximately
$52 million of foreign net operating losses, some of which
do not expire, and none of which are estimated to expire before
2004. Included in other liabilities and prepaid expenses and
other current assets is approximately $3.1 million of taxes
payable and $14.9 million of taxes receivable at
December 31, 2002 and 2001, respectively, relating
primarily to current liabilities, net operating loss carrybacks
and overpayment of estimated taxes.

The change in the valuation allowance is due to
foreign net operating losses, which may not be utilized in
future years, and to the realization of a capital loss.






Note 11  Debt


On July 2, 2002, the Company completed its
new $175 million unsecured three-year revolving credit
facility. The new credit agreement bears interest at LIBOR plus
105-200 basis points or an alternative base rate (greater of
Federal Funds rate plus 50 basis points or the Prime rate)
depending on certain leverage ratios. Prior to July 2,
2002, the Company had borrowings under its $300 million
unsecured five-year revolving credit agreement, with a weighted
average interest rate of approximately 2%. The weighted average
interest rate for that credit agreement was based on LIBOR plus
25 basis points depending on certain leverage ratios plus ten
basis points on the unused portion. During 2002, the average
interest rate on both the new line of credit, and the one which
expired in July, 2002 approximated 3%. The purpose of the
revolving credit agreement is for general corporate purposes,
including acquisitions. Amounts outstanding under this agreement
are classified entirely as long-term debt of $64,000 at
December 31, 2002, and as both current and long-term debt
($37,000 and $75,000, respectively) at December 31, 2001.
In addition, the Company had $68 of capital leases and $4,138 of
notes payable at December 31, 2002.

On February 6, 2002, the Company completed a
$75 million private placement of senior unsecured notes
with several institutional lenders. The private placement
consisted of $25 million 6.9% senior notes due
January 30, 2007, $28 million 7.31% senior notes due
January 30, 2012, and $22 million 7.85% senior notes
due January 30, 2012. The proceeds from the private
placement were used to pay down a portion of the Companys
former revolving credit facility at that time. This amount is
classified as long-term debt on the balance sheet as of
December 31, 2002 and 2001. Interest is payable every six
months. At its option, the Company may pre-pay all or part of
the senior unsecured notes at an amount equal to the principal
amount plus accrued interest plus a make-whole payment
determined in accordance with the note agreement. The terms of
the new notes and revolving credit agreement provide certain
limitations on additional indebtedness, sale and leaseback
transactions, asset sales and certain other transactions.
Additionally, the Company is subject to certain financial
covenants based on its results of operations. The Company was in
compliance with all loan covenants as of December 31, 2002.
The senior unsecured notes and revolving credit agreement are
guaranteed by substantially all of the Companys
subsidiaries.

Due to the continued economic downturn and impact
on the Companys business, the revolving credit agreement
and private placement notes were amended in March 2003 to modify
certain financial covenant requirements and definitions. Under
the terms of the amendment, the Company will be required to meet
revised debt-to-EBITDA and fixed charge coverage ratios from the
first quarter of 2003 through the first quarter of 2004. These
financial covenant requirements will revert back to the
previously existing covenant

55



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

levels beginning in the second quarter of 2004.
The new covenants are less restrictive than the previously
existing covenants. Based upon its current projections, the
Company believes it will be in compliance with the revised
quarterly loan covenants throughout fiscal 2003. In the event
that actual results do not approximate forecasted results,
management believes it could execute contingency plans to
mitigate such effects. Such plans include additional cost
reductions, asset sales, or seeking additional alternative
financing. While the Company believes that it could obtain
requisite additional financing, there can be no assurance that
such financing would be available on a timely basis or on
acceptable terms.

In consideration for the amendment, the Company
has agreed to provide accounts receivable as collateral. The
collateral will be shared proportionately between the parties to
the revolving credit agreement and the senior unsecured notes.
In addition, interest rates charged under the revolving credit
agreement have increased to LIBOR plus 125-325 basis points
depending on certain leverage ratios as defined in the credit
agreement, compared to LIBOR plus 105-200 basis points under the
previously existing covenants. Interest rates charged under the
senior unsecured notes have increased by 25 basis points during
the amendment period and a subsequent period during which the
Company must meet the original covenant requirements. The
Company expects to pay an amendment fee to approving lenders of
approximately $0.9 million, which will be amortized to
interest expense over the period covered by the amendment.

If the Company failed to meet one or more of its
loan covenants, such occurrence would be considered an event of
default. In the event the Company was unable to obtain a waiver
or unable to provide an allowable remedy for such event of
default, the Companys lenders would be entitled to certain
remedies, including the ability to terminate their loan
commitments and to demand immediate repayment, including payment
in full. Were the Companys lenders to demand immediate
payment in full, the Company could not make such payment from
existing funds and would have to seek replacement financing.
While the Company believes it would be able to obtain
replacement financing, the Companys ability to secure such
replacement financing could not be guaranteed, and if necessary,
such financing could carry higher costs.

The Companys Canadian subsidiary has a $10
million Canadian dollar credit facility that had an outstanding
balance of $2,250 Canadian dollars (US$1,431) at
December 31, 2002. The Company has issued a guarantee of up
to $6 million Canadian dollars related to this credit facility,
which would require payment by the Company in the event of
default on payment.

Aggregate annual installments of both notes
payable and long-term debt (other than the revolving credit
agreement) due for the next five years and thereafter are $497,
$2,299, $475, $604, $25,173, and $50,157, respectively.

Interest paid was $4,672, $6,541, and $7,816 for
the years ended December 31, 2002, 2001 and 2000,
respectively.






Note 12  Deferred Employee
Compensation and Other


Liabilities for deferred employee compensation
and other consist of the following:

|                                                   |  |              |        |      |  |   |        | 
|-------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                                   |  |             
|                                                   |  | December 31,
|                                                   |  |             
|                                                   |  | 2002         |        | 2001
|                                                   |  |              |        |     
|Pension and other retirement costs, long-term      |  | $            | 16,467 |      |  | $ | 18,312 | 
|Supplemental retirement, long-term                 |  |              | 18,484 |      |  |   | 15,900 | 
|Deferred compensation and other long-term benefits |  |              | 9,929  |      |  |   | 9,596  | 
|Other                                              |  |              | 1,000  |      |  |   |       | 
|                                                   |  |              |        |      |  |   |        | 
|                                                   |  | $            | 45,880 |      |  | $ | 43,808 | 
|                                                   |  |              |        |      |  |   |        | 

56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)






Note 13  Comprehensive Income
(Loss)


The components of accumulated other comprehensive
income (loss) are summarized as follows:

|                                                                      |  |              |        |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                      |  |             
|                                                                      |  | December 31,
|                                                                      |  |             
|                                                                      |  | 2002         |        | 2001 |  | 2000
|                                                                      |  |              |        |      |  |     
|Foreign currency translation adjustment                               |  | $            | 1,520  |      |  | $    | (10,582 | ) |  | $ | (7,758 | )
|Minimum pension liability adjustment (net of tax
    effect)          |  |              | (1,994 | )    |  |      |        |   |  |   |       |  
|Unrealized gains on marketable securities (net of
    tax
    effect) |  |              | 519    |      |  |      | 1,322   |   |  |   | 368    |  
|                                                                      |  |              |        |      |  |      |         |   |  |   |        |  
|                                                                      |  | $            | 45     |      |  | $    | (9,260  | ) |  | $ | (7,390 | )
|                                                                      |  |              |        |      |  |      |         |   |  |   |        |  




Note 14  Commitments and
Contingencies 



| |                  
| | -----------------
| | Lease commitments

The Company and its subsidiaries occupy premises
and utilize equipment under leases which are classified as
operating leases and expire at various dates to 2020. Many of
the leases provide for payment of certain expenses and contain
renewal and purchase options.

One operating lease is for printing equipment in
the U.S. and Canada funded through a master agreement
administered by a commercial bank. At the expiration of the
lease (April 2003), the Company has the right to roll the
arrangement into a new lease or purchase the equipment for a
guaranteed residual value. As of December 31, 2002, the
rental payments were based on the cost of the equipment plus
LIBOR plus 150 or 200 basis points (while the Canadian portion
of the lease calculates interest based on Canadian LIBOR plus 35
basis points). The equipment under this lease as of
December 31, 2002 has an aggregate residual value of
approximately $16.6 million. As of December 31, 2001,
the Company had borrowed the maximum under the agreement,
leasing equipment with an aggregate initial cost of
approximately $23 million. Since this equipment is integral
to the Companys operations, the Company will either buy
the equipment or renew the lease when the lease expires.

Rent expense relating to premises and equipment
amounted to $60,240, $50,184, and $40,336 for the years ended
December 31, 2002, 2001 and 2000, respectively. Included in
these amounts is rent expense associated with equipment located
at customer sites, which amounted to $16,554, $16,879 and
$15,048 for the years ended December 31, 2002, 2001 and
2000, respectively. Also included in these figures is rent
expense from short term leases. The minimum annual commitments
under noncancelable leases and other operating arrangements as
of December 31, 2002, are summarized as follows:

|          |       |   |        |         | 
|--------- | ----- | - | ------ | ------- | 
|2003      |       | $ | 46,701 |        
|2004      |       |   | 40,378 |        
|2005      |       |   | 29,206 |        
|2006      |       |   | 21,340 |        
|2007      |       |   | 16,470 |        
|2008-2020 |       |   | 54,535 |        
|          |       |   |        |        
|          | Total |   | $      | 208,630 | 
|          |       |   |        |        

Future rental commitments for leases have not
been reduced by minimum non-cancelable sublease rentals
aggregating approximately $2 million. The Company remains
secondarily liable under these leases in the event that the
sublessee defaults under the sublease terms. The Company does
not believe that material payments will be required under these
agreements.

57



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

Joint
Venture Arrangements

The Company is involved in certain minor joint
venture arrangements that are intended to complement the
Companys core services and markets. The Company has the
discretion to provide funding on occasion for working capital or
capital expenditures. The Company makes an evaluation of
additional funding based on an assessment of the ventures
business opportunities. The Company believes that any possible
commitments arising from these arrangements will not be
significant to the Companys financial condition or results
of operations. To date, our share of the results of operations
of these joint venture arrangements has not been significant.



| |              
| | -------------
| | Contingencies

The Company is involved in certain litigation in
the ordinary course of business and believes that the various
asserted claims and litigation would not materially affect its
financial position, operating results or cash flows.






Note 15  Stockholders
Equity


The Company has a Stockholder Rights Plan that
grants each stockholder a right to purchase 1/1000th of a share
of the Preferred Stock for each share of common stock owned when
certain events occur. This plan is triggered when certain events
occur that involve the acquisition, tender offer or exchange of
20% or more of the Common Stock by a person or group of persons,
without the approval of the Companys Board of Directors.
Prior to the event, the Rights will be linked to the underlying
shares of the Common Stock and may not be transferred by
themselves.

In January of 2000 the Board of Directors
authorized the expenditure of up to $40 million to
repurchase shares of the Companys common stock,
representing approximately 10% of the total shares outstanding
at that time. Subject to applicable securities law, such
purchases occur at times and in amounts that the Company deems
appropriate. The shares will be available for general corporate
purposes including acquisitions, the employee stock purchase
plan and stock incentive plans. In August of 2000 the Board of
Directors authorized an extension of the Companys stock
repurchase program to acquire up to an additional
$20 million of outstanding common stock. During 2001, the
Company purchased 10,000 shares, at an average price of $9.04.
During 2000, the Company had purchased approximately
4 million shares, at an average price of $10.63. No shares
were repurchased during 2002.






Note 16  Segment
Information


The Company is a global provider of high-value
document management services. The Company is the worlds
largest financial printer and a market leader in outsourcing
services for law firms and investment banks, and in providing
outsourced globalization and localization services. Bowne
empowers clients information by combining superior
customer service with advanced technologies to manage, repurpose
and distribute that information to any audience, through any
medium, in any language, anywhere in the world.

The Companys continuing operations are
classified into three reportable business segments: financial
printing, outsourcing and globalization. The services of each
segment are marketed throughout the world. The major services
provided by each segment are as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial
    Printing transactional
    financial printing, corporate reporting, mutual fund printing,
    commercial printing and digital printing, and electronic
    delivery of personalized communications.                                                                                                                                                                                                                                                                                                    
|
| | Outsourcing
    outsourcing services such as document processing and management,
    information technology, and litigation support services,
    primarily for the legal and financial communities. This segment
    is commonly referred to as Bowne Business Solutions (BBS). The
    results for the outsourcing segment include the operating
    results of DMS from its date of acquisition, April 6, 2001,
    and the operating results of DecisionQuest from its date of
    acquisition, December 4, 2002.
|
| | Globalization
    outsourced globalization solutions, including technical writing
    and content creation, terminology and content management, and
    localization and translation services. This segment is commonly
    referred to as Bowne Global Solutions. The results for the
    globalization segment include the                                                                                                                                                                                         

58



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | operating results of Mendez from its date of
    acquisition, August 29, 2001, and the operating results of
    GlobalNet from its date of acquisition, September 27, 2002.

A fourth segment (Internet consulting and
development) which previously provided integrated Internet
applications primarily for the financial services sector was
discontinued effective with the second quarter of 2001.
Accordingly, that segment information is no longer being
presented.

Information regarding the operations of each
business segment is set forth below. Performance is evaluated
based on several factors, of which the primary financial measure
is business segment earnings before interest, income taxes,
depreciation and amortization expense (EBITDA). The
Company also uses earnings before interest, income taxes, and
amortization expense (EBITA) as a measure of
performance; therefore, this information is also presented. The
Company manages income taxes on a global basis. Segment
performance is evaluated exclusive of the disposal of certain
assets, purchased in-process research and development charges,
restructuring, integration and asset impairment charges, other
expenses, and other income.

59



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                 |  |                        
|                                                                 |  | Year Ended December 31,
|                                                                 |  |                        
|                                                                 |  | 2002                    |           | 2001 |  | 2000
|                                                                 |  |                         |           |      |  |     
|Revenue from external customers:                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                               |  | $                       | 638,269   |      |  | $    | 721,190   |   |  | $ | 918,826   |  
|Outsourcing                                                      |  |                         | 233,886   |      |  |      | 231,791   |   |  |   | 191,617   |  
|Globalization                                                    |  |                         | 131,171   |      |  |      | 101,650   |   |  |   | 68,895    |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                 |  | $                       | 1,003,326 |      |  | $    | 1,054,631 |   |  | $ | 1,179,338 |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|EBITDA:                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                               |  | $                       | 53,712    |      |  | $    | 53,009    |   |  | $ | 118,902   |  
|Outsourcing                                                      |  |                         | 13,135    |      |  |      | 13,014    |   |  |   | 8,795     |  
|Globalization                                                    |  |                         | (6,428    | )    |  |      | 6,125     |   |  |   | (1,620    | )
|Other (see note 1 below)                                         |  |                         | (1,113    | )    |  |      | (22,042   | ) |  |   | (3,741    | )
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                 |  | $                       | 59,306    |      |  | $    | 50,106    |   |  | $ | 122,336   |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|Depreciation expense:                                            |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                               |  | $                       | 29,238    |      |  | $    | 31,488    |   |  | $ | 32,593    |  
|Outsourcing                                                      |  |                         | 5,136     |      |  |      | 5,549     |   |  |   | 6,276     |  
|Globalization                                                    |  |                         | 6,288     |      |  |      | 4,080     |   |  |   | 3,480     |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                 |  | $                       | 40,662    |      |  | $    | 41,117    |   |  | $ | 42,349    |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|EBITA:                                                           |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                               |  | $                       | 24,474    |      |  | $    | 21,521    |   |  | $ | 86,309    |  
|Outsourcing                                                      |  |                         | 7,999     |      |  |      | 7,465     |   |  |   | 2,519     |  
|Globalization                                                    |  |                         | (12,716   | )    |  |      | 2,045     |   |  |   | (5,100    | )
|Other (see note 1 below)                                         |  |                         | (1,113    | )    |  |      | (22,042   | ) |  |   | (3,741    | )
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                 |  |                         | 18,644    |      |  |      | 8,989     |   |  |   | 79,987    |  
|Amortization expense                                             |  |                         | (2,017    | )    |  |      | (8,001    | ) |  |   | (7,318    | )
|Interest expense                                                 |  |                         | (7,127    | )    |  |      | (6,422    | ) |  |   | (7,254    | )
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|Income (loss) from continuing operations before
    income taxes |  | $                       | 9,500     |      |  | $    | (5,434    | ) |  | $ | 65,415    |  
|Loss from discontinued operations before income
    taxes        |  | $                       |          |      |  | $    | (25,423   | ) |  | $ | (42,382   | )
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|Pre-tax income (loss)                                            |  | $                       | 9,500     |      |  | $    | (30,857   | ) |  | $ | 23,033    |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|Restructuring, integration and asset
    impairment charges:     |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                               |  | $                       | 7,034     |      |  | $    | 6,567     |   |  | $ | 2,106     |  
|Outsourcing                                                      |  |                         | 1,720     |      |  |      | 5,412     |   |  |   |          |  
|Globalization                                                    |  |                         | 10,624    |      |  |      | 5,945     |   |  |   |          |  
|Other                                                            |  |                         |          |      |  |      | 3,025     |   |  |   |          |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                 |  | $                       | 19,378    |      |  | $    | 20,949    |   |  | $ | 2,106     |  
|                                                                 |  |                         |           |      |  |      |           |   |  |   |           |  






| |                                                                                                                                                                                                                                                                                                                                                  | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | Note 1  In addition to
    restructuring, integration and asset impairment charges detailed
    above, other in 2002 also includes gains on the sale of certain
    publishing assets ($15,369) and the Chicago building ($4,889).
    In 2001, other includes the loss on the sale of the Montreal
    commercial printing operation ($1,858). | 

60



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|----------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2002                    |         | 2001 |  | 2000
|                        |  |                         |         |      |  |     
|Assets:                 |  |                         |         |      |  |      |         |  |  |   |         | 
|Financial printing      |  | $                       | 282,336 |      |  | $    | 343,048 |  |  | $ | 420,274 | 
|Outsourcing             |  |                         | 200,175 |      |  |      | 164,317 |  |  |   | 147,629 | 
|Globalization           |  |                         | 221,891 |      |  |      | 129,969 |  |  |   | 72,958  | 
|Discontinued operations |  |                         |        |      |  |      |        |  |  |   | 19,354  | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|                        |  | $                       | 704,402 |      |  | $    | 637,334 |  |  | $ | 660,215 | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|Capital spending:       |  |                         |         |      |  |      |         |  |  |   |         | 
|Financial printing      |  | $                       | 20,239  |      |  | $    | 30,011  |  |  | $ | 33,780  | 
|Outsourcing             |  |                         | 4,474   |      |  |      | 5,818   |  |  |   | 4,649   | 
|Globalization           |  |                         | 4,830   |      |  |      | 2,985   |  |  |   | 2,983   | 
|Discontinued operations |  |                         |        |      |  |      | 664     |  |  |   | 2,702   | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|                        |  | $                       | 29,543  |      |  | $    | 39,478  |  |  | $ | 44,114  | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 

Geographic information about the Companys
revenue, which is principally based on the location of the
selling organization, and long-lived assets, is presented below:

|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2002                    |           | 2001 |  | 2000
|                                |  |                         |           |      |  |     
|Revenue by source:              |  |                         |           |      |  |      |           |  |  |   |           | 
|United States                   |  | $                       | 812,762   |      |  | $    | 882,507   |  |  | $ | 950,309   | 
|Canada                          |  |                         | 43,258    |      |  |      | 50,127    |  |  |   | 67,762    | 
|Other foreign, primarily Europe |  |                         | 147,306   |      |  |      | 121,997   |  |  |   | 161,267   | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|                                |  | $                       | 1,003,326 |      |  | $    | 1,054,631 |  |  | $ | 1,179,338 | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|Long-lived assets, net:         |  |                         |           |      |  |      |           |  |  |   |           | 
|United States                   |  | $                       | 297,671   |      |  | $    | 286,400   |  |  | $ | 289,080   | 
|Canada                          |  |                         | 6,634     |      |  |      | 6,658     |  |  |   | 10,065    | 
|Other foreign, primarily Europe |  |                         | 138,264   |      |  |      | 79,578    |  |  |   | 46,562    | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|                                |  | $                       | 442,569   |      |  | $    | 372,636   |  |  | $ | 345,707   | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 




Note 17  Discontinued
Operations

In April 2001, management determined that it
would no longer invest in its Internet consulting and
development segment (Immersant) and announced its
decision to exit the operation. Effective with the second
quarter of 2001, this segment is reflected as a discontinued
operation. All prior period results have been restated
accordingly, including the reallocation of fixed overhead
charges to other business segments.

The discontinued operations had net liabilities
(including accrued restructuring and discontinuance costs) of
$2,745 and $5,324 at December 31, 2002 and 2001,
respectively.

The balance in accrued restructuring and
discontinuance costs represents the estimated remaining costs to
exit this operation, as well as the remaining previously
recorded restructuring costs. Prior to the second quarter of
2001, this accrual had been reflected as part of the
Companys overall restructuring accrual. The activity in
accrued restructuring and discontinuance costs through
December 31, 2002, including additions and payments made on
that accrual, is summarized below.

61



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  
|---------------------------- |  | ------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ---- | - |  | - | ------ | -
|                             |  | Severance and |        |           |  |       |        |      
|                             |  | Personnel-    |        | Occupancy |  |       |        |      
|                             |  | Related Costs |        | Costs     |  | Other |        | Total
|                             |  |               |        |           |  |       |        |      
|Balance at December 31, 2000 |  | $             | 1,160  |           |  | $     | 762    |       |  | $ | 106  |   |  | $ | 2,028  |  
|2001 Expense                 |  |               | 1,291  |           |  |       | 5,097  |       |  |   | 323  |   |  |   | 6,711  |  
|Paid in 2001                 |  |               | (2,451 | )         |  |       | (1,823 | )     |  |   | (289 | ) |  |   | (4,563 | )
|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2001 |  | $             |       |           |  | $     | 4,036  |       |  | $ | 140  |   |  | $ | 4,176  |  
|Paid in 2002                 |  |               |       |           |  |       | (1,650 | )     |  |   | (75  | ) |  |   | (1,725 | )
|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2002 |  | $             |       |           |  | $     | 2,386  |       |  | $ | 65   |   |  | $ | 2,451  |  
|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  




Note 18  Restructuring,
Integration and Asset Impairment Charges

Prior to the fourth quarter of 2002,
restructuring activities were accounted for under
EITF 94-3, which required that a liability associated with
restructuring activities be recognized in the period that
management commits to a restructuring plan. During the fourth
quarter of 2002, the Company adopted SFAS 146, which
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
Certain charges that did not meet the liability recognition
criteria under SFAS 146 will be recognized in future
periods as the plan is implemented. Such charges to be
recognized in future periods are estimated to be approximately
$7 million. In addition, the Company expects to recognize
an additional $3 million to $8 million in
restructuring charges in 2003 for planned restructuring
activities that had not been committed as of December 31,
2002. The remaining restructuring charges to be incurred in 2003
are expected to be divided roughly equally between the financial
printing segment and the globalization segment. The planned
restructuring activities primarily relate to additional office
closings, headcount reductions, and the integration of
GlobalNets operations into BGS. The Companys
restructuring activities are summarized below.

During the second quarter of 2001, the Company
recorded restructuring charges in connection with cost
reductions impacting all three of its segments. The cost
reduction program included the closing of an office in the
globalization segment, downsizing several locations in the
outsourcing segment, and a reduction in workforce of
approximately 10% of the Companys financial print
operations. In October 2001, the Company reduced the workforce
of its domestic and international financial printing operations
by an additional 10%, or approximately 350 employees. The
Company recorded $10,789 in restructuring charges related to
these activities during the year ended December 31, 2001.

In connection with the Companys acquisition
of Mendez in August 2001, the Company incurred certain costs to
integrate the operations of Mendez, including costs to shut down
certain BGS facilities and terminate certain BGS employees.
These costs, which totaled $2,704, were included as part of
restructuring and integration expenses in the consolidated
statements of operations during the year ended December 31,
2001.

In September 2002, the Company recorded
restructuring charges of $2,305 in connection with an additional
reduction in workforce of approximately 2.5% of the
Companys total workforce, or approximately
200 employees, primarily in the financial printing segment.
In December 2002, the Company recorded restructuring charges of
$3,586 in connection with an additional reduction in workforce
of approximately 3% of the Companys total workforce, or
approximately 240 employees, primarily in the financial
printing segment. There were also several office closings in the
financial printing segment, leading to $1,048 in restructuring
expense related to occupancy costs. The year ended
December 31, 2002 also included $2,224 in non-cash asset
impairment charges related to the financial print and
outsourcing segments.

In connection with the Companys acquisition
of GlobalNet in September of 2002, the Company incurred certain
costs to integrate the operations of GlobalNet, including costs
to shut down certain BGS facilities and terminate certain BGS
employees. These costs were approximately $10.2 million,
including approximately $0.7

62



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

million of non-cash asset impairment charges, and
were included as part of restructuring and integration expenses
in the consolidated statements of operations during the quarter
ended December 31, 2002.

The following information summarizes the costs
incurred with respect to restructuring activities initiated
during the fourth quarter of 2002:

|                   |  |               |       |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|------------------ |  | ------------- | ----- | --------- |  | ----------- | ----- | ----- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                   |  | Severance and |       |           |  |             |       |       |  |      
|                   |  | Personnel-    |       | Occupancy |  | Asset       |       |       |  |      
|                   |  | Related Costs |       | Costs     |  | Impairments |       | Other |  | Total
|                   |  |               |       |           |  |             |       |       |  |      
|Financial Printing |  | $             | 3,428 |           |  | $           | 1,048 |       |  | $     | 924   |  |  |   |      |  |  | $ | 5,400  | 
|Outsourcing        |  |               | 158   |           |  |             |      |       |  |       |      |  |  |   |      |  |  |   | 158    | 
|Globalization      |  |               | 4,796 |           |  |             | 2,323 |       |  |       | 652   |  |  | $ | 2,444 |  |  |   | 10,215 | 
|                   |  |               |       |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|Total              |  | $             | 8,382 |           |  | $           | 3,371 |       |  | $     | 1,576 |  |  | $ | 2,444 |  |  | $ | 15,773 | 
|                   |  |               |       |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 

The activity related to restructuring accruals
through December 31, 2002, including additions and payments
made, are summarized below.

|                             |  |               |        |           |  |       |        |       |  |   |        |   |  |   |         |  
|---------------------------- |  | ------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                             |  | Severance and |        |           |  |       |        |      
|                             |  | Personnel-    |        | Occupancy |  |       |        |      
|                             |  | Related Costs |        | Costs     |  | Other |        | Total
|                             |  |               |        |           |  |       |        |      
|Balance at December 31, 2000 |  | $             | 851    |           |  | $     |       |       |  | $ | 14     |   |  | $ | 865     |  
|2001 Expense                 |  |               | 10,565 |           |  |       | 1,741  |       |  |   | 1,187  |   |  |   | 13,493  |  
|Paid in 2001                 |  |               | (7,172 | )         |  |       | (1,213 | )     |  |   | (597   | ) |  |   | (8,982  | )
|                             |  |               |        |           |  |       |        |       |  |   |        |   |  |   |         |  
|Balance at December 31, 2001 |  | $             | 4,244  |           |  | $     | 528    |       |  | $ | 604    |   |  | $ | 5,376   |  
|2002 Expense                 |  |               | 10,659 |           |  |       | 3,309  |       |  |   | 2,534  |   |  |   | 16,502  |  
|Paid in 2002                 |  |               | (7,432 | )         |  |       | (399   | )     |  |   | (2,305 | ) |  |   | (10,136 | )
|                             |  |               |        |           |  |       |        |       |  |   |        |   |  |   |         |  
|Balance at December 31, 2002 |  | $             | 7,471  |           |  | $     | 3,438  |       |  | $ | 833    |   |  | $ | 11,742  |  
|                             |  |               |        |           |  |       |        |       |  |   |        |   |  |   |         |  

Occupancy costs in 2001 represent facility exit
costs associated with the closing of an office in the
globalization segment and the downsizing of several locations in
the outsourcing segment. 2002 occupancy costs represent the
closing of various financial printing offices, as well as many
BGS locations closing as a result of the integration with
GlobalNet. The remaining accrued severance and personnel-related
costs are expected to be paid during 2003.

The Company also accrued $5,100 of costs
associated with the acquisition of Mendez operations
during the year ended December 31, 2001, which were
accounted for as part of the cost of the acquisition. These
costs included costs to shut down certain Mendez facilities and
terminate certain Mendez employees.

The payments made on that accrual are summarized
below.

|                                |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  
|------------------------------- |  | ------------- | ------ | --------- |  | ----- | ----- | ----- |  | - | ---- | - |  | - | ------ | -
|                                |  | Severance and |        |           |  |       |       |      
|                                |  | Personnel-    |        | Occupancy |  |       |       |      
|                                |  | Related Costs |        | Costs     |  | Other |       | Total
|                                |  |               |        |           |  |       |       |      
|Opening balance                 |  | $             | 3,865  |           |  | $     | 1,013 |       |  | $ | 222  |   |  | $ | 5,100  |  
|Paid in 2001                    |  |               | (1,281 | )         |  |       | (369  | )     |  |   | (192 | ) |  |   | (1,842 | )
|                                |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2001    |  |               | 2,584  |           |  |       | 644   |       |  |   | 30   |   |  |   | 3,258  |  
|Paid in 2002                    |  |               | (1,228 | )         |  |       | (594  | )     |  |   | (30  | ) |  |   | (1,852 | )
|Effect of foreign currency 2002 |  |               | 236    |           |  |       | 58    |       |  |   |     |   |  |   | 294    |  
|                                |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2002    |  | $             | 1,592  |           |  | $     | 108   |       |  | $ | 0    |   |  | $ | 1,700  |  
|                                |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  

63



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)

In connection with the Companys acquisition
of GlobalNet in September 2002, the Company accrued $2,497 of
costs associated with the integration of GlobalNets
operations, which were accounted for as part of the cost of the
acquisition. These costs include estimated severance costs and
lease termination costs associated with eliminating GlobalNet
facilities and terminating certain GlobalNet employees.

The payments made on that accrual are summarized
below.

|                             |  |               |        |           |  |       |     |   |  |   |        |  
|---------------------------- |  | ------------- | ------ | --------- |  | ----- | --- | - |  | - | ------ | -
|                             |  | Severance and |        |           |  |      
|                             |  | Personnel-    |        | Occupancy |  |      
|                             |  | Related Costs |        | Costs     |  | Total
|                             |  |               |        |           |  |      
|Opening balance              |  | $             | 1,789  |           |  | $     | 708 |   |  | $ | 2,497  |  
|Paid in 2002                 |  |               | (1,141 | )         |  |       | (99 | ) |  |   | (1,240 | )
|                             |  |               |        |           |  |       |     |   |  |   |        |  
|Balance at December 31, 2002 |  | $             | 648    |           |  | $     | 609 |   |  | $ | 1,257  |  
|                             |  |               |        |           |  |       |     |   |  |   |        |  

64



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BOWNE & CO., INC. AND
SUBSIDIARIES

SUMMARY OF QUARTERLY DATA

(In thousands, except per share
information)


|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |        |  
|---------------------------------------------------------------- | ------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | --------- | ------- | ------ | - | - | ------- | ------ | - | - | --------- | ------ | -
|                                                                 |         | First   |         | Second  |   | Third   |         | Fourth  |   |          
|                                                                 |         | Quarter |         | Quarter |   | Quarter |         | Quarter |   | Full Year
|                                                                 |         |         |         |         |   |         |         |         |   |          
|Year Ended December 31, 2002                                     |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Revenue                                                          |         | $       | 239,684 |         |   | $       | 313,267 |         |   | $         | 214,156 |        |   | $ | 236,219 |        |   | $ | 1,003,326 |       
|Gross margin                                                     |         |         | 82,870  |         |   |         | 111,762 |         |   |           | 63,115  |        |   |   | 71,627  |        |   |   | 329,374   |       
|Income (loss) before income taxes                                |         |         | 6,654   |         |   |         | 18,932  |         |   |           | 8,199   |        |   |   | (24,285 | )      |   |   | 9,500     |       
|Income tax (expense) benefit                                     |         |         | (3,106  | )       |   |         | (7,871  | )       |   |           | (3,550  | )      |   |   | 5,382   |        |   |   | (9,145    | )     
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Net income (loss)                                                |         |         | 3,548   |         |   |         | 11,061  |         |   |           | 4,649   |        |   |   | (18,903 | )      |   |   | 355       |       
|Net income (loss) per share:                                     |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         | $       | .11     |   |         | $       | .33     |   |           | $       | .14    |   |   | $       | (.56   | ) |   | $         | .01    |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         | $       | .10     |   |         | $       | .31     |   |           | $       | .13    |   |   | $       | (.56   | ) |   | $         | .01    |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Average shares outstanding:                                      |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         |         | 33,309  |   |         |         | 33,493  |   |           |         | 33,531 |   |   |         | 33,556 |   |   |           | 33,472 |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         |         | 34,661  |   |         |         | 35,196  |   |           |         | 34,654 |   |   |         | 34,470 |   |   |           | 34,677 |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Year Ended December 31, 2001                                     |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Revenue                                                          |         | $       | 285,199 |         |   | $       | 295,895 |         |   | $         | 242,055 |        |   | $ | 231,482 |        |   | $ | 1,054,631 |       
|Gross margin                                                     |         |         | 92,353  |         |   |         | 100,323 |         |   |           | 68,521  |        |   |   | 75,772  |        |   |   | 336,969   |       
|Income (loss) from continuing operations before
    income taxes |         |         | 8,755   |         |   |         | 1,232   |         |   |           | (3,464  | )      |   |   | (11,957 | )      |   |   | (5,434    | )     
|Income tax (expense) benefit                                     |         |         | (4,017  | )       |   |         | (1,300  | )       |   |           | (239    | )      |   |   | 3,275   |        |   |   | (2,281    | )     
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Income (loss) from continuing operations                         |         |         | 4,738   |         |   |         | (68     | )       |   |           | (3,703  | )      |   |   | (8,682  | )      |   |   | (7,715    | )     
|Loss on discontinued operations, net of tax
    benefit          |         |         | (10,029 | )       |   |         | (6,334  | )       |   |           |        |        |   |   |        |        |   |   | (16,363   | )     
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Net loss                                                         |         | $       | (5,291  | )       |   | $       | (6,402  | )       |   | $         | (3,703  | )      |   | $ | (8,682  | )      |   | $ | (24,078   | )     
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Net income (loss) per share from continuing
    operations:      |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         | $       | .14     |   |         | $       |        |   |           | $       | (.11   | ) |   | $       | (.26   | ) |   | $         | (.23   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         | $       | .14     |   |         | $       |        |   |           | $       | (.11   | ) |   | $       | (.26   | ) |   | $         | (.23   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Net loss per share from discontinued operations:                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         | $       | (.30    | ) |         | $       | (.19    | ) |           | $       |       |   |   | $       |       |   |   | $         | (.49   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         | $       | (.30    | ) |         | $       | (.19    | ) |           | $       |       |   |   | $       |       |   |   | $         | (.49   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Total net loss per share:                                        |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         | $       | (.16    | ) |         | $       | (.19    | ) |           | $       | (.11   | ) |   | $       | (.26   | ) |   | $         | (.73   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         | $       | (.16    | ) |         | $       | (.19    | ) |           | $       | (.11   | ) |   | $       | (.26   | ) |   | $         | (.73   | )
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|Average shares outstanding:                                      |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Basic   |         |         | 33,012  |   |         |         | 33,064  |   |           |         | 33,113 |   |   |         | 33,135 |   |   |           | 33,081 |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       
|                                                                 | Diluted |         |         | 33,940  |   |         |         | 34,094  |   |           |         | 34,223 |   |   |         | 34,279 |   |   |           | 34,156 |  
|                                                                 |         |         |         |         |   |         |         |         |   |           |         |        |   |   |         |        |   |   |           |       

Net income (loss) per share amounts for each
quarter are required to be computed independently, and may not
equal the amount computed for the full year.






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

None.

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##### Table of Contents






PART III






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

The information required by this Item 10
regarding the Companys directors is incorporated herein by
reference from the information provided under the heading
Election of Directors of the Companys
definitive Proxy Statement anticipated to be dated April 9,
2003.

The information required by this Item 10
with respect to the Companys executive officers appears as
Supplemental Item in Part I of this Annual Report under the
caption Executive Officers of the Registrant.

The information required by this Item 10
with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, is incorporated
herein by reference from the information provided under the
heading Section 16(a) Beneficial Ownership Reporting
Compliance of the Companys Proxy Statement
anticipated to be dated April 9, 2003.






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

Reference is made to the information set forth
under the caption Executive Compensation appearing
in the Companys definitive Proxy Statement anticipated to
be dated April 9, 2003, which information is incorporated
herein by reference.






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

Reference is made to the information contained
under the captions Principal Stockholders and
Executive Compensation in the Companys
definitive Proxy Statement anticipated to be dated April 9,
2003, which information is incorporated herein by reference.
Reference is also made to the information pertaining to the
Companys equity compensation plans contained in
Note 9 to the Consolidated Financial Statements included in
Item 8 herein.






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

Not applicable.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

The Company maintains a system of controls and
procedures designed to provide reasonable assurance as to the
reliability of the financial statements and other disclosures
included in this report, as well as to safeguard assets from
unauthorized use or disposition. The Companys management,
including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation
of the Companys disclosure controls and procedures within
90 days prior to the filing date of this report, pursuant
to Exchange Act Rule 13a-14. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are
effective in ensuring that all material information required to
be filed in this annual report has been made known to them in a
timely fashion. There have been no significant changes in
internal controls, or in other factors that could significantly
affect internal controls, subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their
evaluation.

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##### Table of Contents






PART IV




Item 15. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

(a) Documents filed as part of this
Report:



| |                          
| | -------------------------
| | (1) Financial Statements:

|                                                                                                       |  |                |       | 
|------------------------------------------------------------------------------------------------------ |  | -------------- | ----- | 
|                                                                                                       |  | Page Number   
|                                                                                                       |  | In This Report
|                                                                                                       |  |               
|Independent Auditors Report                                                                           |  |                | 31    | 
|Consolidated Statements of Operations 
    Years Ended December 31, 2002, 2001 and 2000.              |  |                | 32    | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                      |  |                | 33    | 
|Consolidated Statements of Cash Flows 
    Years Ended December 31, 2002, 2001 and 2000.              |  |                | 34    | 
|Consolidated Statements of Stockholders
    Equity  Year Ended December 31, 2002, 2001 and
    2000. |  |                | 35    | 
|Notes to Consolidated Financial Statements                                                             |  |                | 36-64 | 



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | (2) Financial Statement Schedule 
    Years Ended December 31, 2002, 2001 and 2000

|                                                    |  |  |     | 
|--------------------------------------------------- |  |  | --- | 
|Schedule II  Valuation and
    Qualifying Accounts |  |  | S-1 | 

All other schedules are omitted because they are
not applicable.



| |              
| | -------------
| | (3) Exhibits:

| |      |  |  |   |  |                                                                                                                                                                                                                                                                                       
| | ---- |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1  |  |  |  |  | Certificate of Incorporation (incorporated by
    reference to Exhibit 3 to the Companys current report
    on Form 8-K dated June 23, 1998)                                                                                                                                         
| | 3.2  |  |  |  |  | Certificate of Designations (incorporated by
    reference to Exhibit 2 to the Companys current report
    on Form 8-K dated June 23, 1998)                                                                                                                                          
| | 3.5  |  |  |  |  | By-Laws (incorporated by reference to
    Exhibit 4 to the Companys current report on
    Form 8-K dated June 23, 1998)                                                                                                                                                              
| | 4.1  |  |  |  |  | Rights Agreement dated June 19, 1998
    (incorporated by reference to Exhibit 5 to the
    Companys current report on Form 8-K dated
    June 23, 1998)                                                                                                                             
| | 10.1 |  |  |  |  | Amended and Restated 1981 Stock Option Plan
    (incorporated by reference to the Companys definitive
    Proxy Statement dated January 30, 1985)                                                                                                                                    
| | 10.2 |  |  |  |  | Amendment to 1981 Stock Option Plan (incorporated
    by reference to the Companys Post-Effective Amendment
    No. 1 on Form S-8 relating to the Companys Stock
    Option Plan dated April 16, 1987)                                                                              
| | 10.3 |  |  |  |  | Amendment to 1981 Stock Option Plan (incorporated
    by reference to the Companys Post-Effective Amendment
    No. 2 on Form S-8 relating to the Companys Stock
    Option Plan dated October 19, 1988)                                                                            
| | 10.4 |  |  |  |  | 1992 Stock Option Plan (filed herewith)                                                                                                                                                                                                                                               
| | 10.5 |  |  |  |  | 1997 Stock Incentive Plan (incorporated by
    reference to Exhibit A to the Companys definitive
    Proxy Statement dated February 6, 1997)                                                                                                                                         
| | 10.6 |  |  |  |  | 1999 Incentive Compensation Plan (incorporated by
    reference to Exhibit A to the Companys definitive
    proxy statement dated April 7, 1999)                                                                                                                                     
| | 10.7 |  |  |  |  | Supplemental Executive Retirement Plan effective
    as of January 1, 1999 (incorporated by reference to
    Exhibit 10.7 to the Companys annual report on
    Form 10-K for the year ended December 31, 1999)                                                                       
| | 10.8 |  |  |  |  | Form of Termination Protection Agreement for
    selected key Employees providing for a possible change in
    ownership or control of the Company (incorporated by reference
    to Exhibit 10.8 to the Companys annual report on
    Form 10-K for the year ended October 31, 1995)

67



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##### Table of Contents



| |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                  
| | ----- |  |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.9  |  |  |  |  | Revised Termination Protection Agreement as of
    August 23, 1995 (incorporated by reference to
    Exhibit 10.9 to the Companys annual report on
    Form 10-K for the year ended December 31, 2000)                                                                                                          
| | 10.10 |  |  |  |  | Letter agreement dated January 29, 1996
    between the Company and Robert M. Johnson relating to restricted
    stock and certain compensation and benefits matters
    (incorporated by reference to Exhibit 10.10 to the
    Companys annual report on Form 10-K/ A for the year
    ended December 31, 1997)
| | 10.11 |  |  |  |  | Amendment dated September 1, 1998 to the
    letter agreement in Exhibit 10.9 above (incorporated by
    reference to Exhibit 10.13 in the Companys annual report
    on Form 10-K for the year ended December 31, 1998)                                                                                        
| | 10.12 |  |  |  |  | 2000 Stock Incentive Plan (incorporated by
    reference to the Companys Form S-8 relating to the
    Companys Stock Incentive Plan dated July 10, 2001)                                                                                                                                                       
| | 10.13 |  |  |  |  | Note Purchase Agreement dated January 30,
    2002, related to $75 million Senior Unsecured Notes
    (incorporated by reference to Exhibit 10.15 in the
    Companys annual report on Form 10-K for the year
    ended December 31, 2001)                                                                      
| | 10.14 |  |  |  |  | First Amendment, dated as of July 2, 2002,
    to Note Purchase Agreements dated as of January 30, 2002,
    related to $75 million Senior Unsecured Notes (filed
    herewith)                                                                                                                                  
| | 10.15 |  |  |  |  | Intercreditor Agreement, dated as of July 2,
    2002, related to First Amendment to Note Purchase Agreements
    (filed herewith)                                                                                                                                                                               
| | 10.16 |  |  |  |  | Credit Agreement dated July 2, 2002, related
    to $175 million revolving credit facility (incorporated by
    reference to Exhibit 10.16 in the Companys quarterly
    report on Form 10-Q for the period ended June 30, 2002)                                                                                
| | 10.17 |  |  |  |  | Stock Purchase Agreement by and among BGS
    Companies, Inc. and Berlitz International, Inc. and Berlitz
    Investment Corporation dated August 7, 2002 (incorporated
    by reference to Exhibit 10.17 in the Companys
    quarterly report on Form 10-Q for the period ended
    September 30, 2002)        
| | 21    |  |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                      
| | 23.1  |  |  |  |  | Consent of KPMG LLP, Independent Auditors                                                                                                                                                                                                                                                                        
| | 23.2  |  |  |  |  | Auditors Report on Schedule, KPMG LLP                                                                                                                                                                                                                                                                           
| | 99.1  |  |  |  |  | Certification pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to section 906 of the
    Sarbanes-Oxley Act of 2002, signed by Robert M. Johnson,
    Chairman of the Board and Chief Executive Officer                                                                                                
| | 99.2  |  |  |  |  | Certification pursuant to 18 U.S.C.
    Section 1350 as adopted pursuant to section 906 of the
    Sarbanes-Oxley Act of 2002, signed by C. Cody Colquitt,
    Senior Vice President and Chief Financial Officer                                                                                                 

(b) Reports on Form 8-K/A



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Report dated December 11, 2002, relating to
    the acquisition of Berlitz GlobalNet, Inc. from Berlitz
    International, Inc.

68



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##### Table of Contents






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.



| |                  
| | -----------------
| | BOWNE & CO., INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ ROBERT M. JOHNSON

| |                              
| | -----------------------------
| |                              
| | Robert M. Johnson            
| | Chairman of the Board and    
| | Chief Executive Officer      
| | (Principal Executive Officer)

Dated: March 31, 2003

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 and in the
capacities and on the dates indicated.

|                                               |  |                                                                                     |  |               
|---------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                               |  | Date          
|                                               |  |                                                                                     |  |               
|/s/ ROBERT M. JOHNSON(Robert M. Johnson)       |  | Chairman of the Board and Chief Executive Officer
    and President (and Director)  |  | March 31, 2003
|                                              
|/s/ CARL J. CROSETTO(Carl J. Crosetto)         |  | President (and Director)                                                            |  | March 31, 2003
|                                              
|/s/ C. CODY COLQUITT(C. Cody Colquitt)         |  | Senior Vice President and Chief Financial Officer
    (Principal Financial Officer) |  | March 31, 2003
|                                              
|/s/ RICHARD BAMBACH, JR.(Richard Bambach, Jr.) |  | Vice President and Corporate Controller
    (Principal Accounting Officer)          |  | March 31, 2003
|                                              
|/s/ DOUGLAS B. FOX(Douglas B. Fox)             |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ GLORIA M. PORTELA(Gloria M. Portela)       |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ H. MARSHALL SCHWARZ(H. Marshall Schwarz)   |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ WENDELL M. SMITH(Wendell M. Smith)         |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ LISA A. STANLEY(Lisa A. Stanley)           |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ VINCENT TESE(Vincent Tese)                 |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ HARRY WALLAESA(Harry Wallaesa)             |  | Director                                                                            |  | March 31, 2003
|                                              
|/s/ RICHARD R. WEST(Richard R. West)           |  | Director                                                                            |  | March 31, 2003

69



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##### Table of Contents






CERTIFICATIONS PURSUANT TO

SECTION 302 OF


THE SARBANES-OXLEY ACT OF 2002


CERTIFICATION

I, Robert M. Johnson, certify that:

1. I have reviewed this annual report on
Form 10-K of Bowne & Co., Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                          
| | -------------------------
| | /s/ROBERT M. JOHNSON     
| |                          
| | Robert M. Johnson        
| | Chairman of the Board and
| | Chief Executive Officer  

Date: March 31, 2003

70



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##### Table of Contents



CERTIFICATION

I, C. Cody Colquitt, certify that:

1. I have reviewed this annual report on
Form 10-K of Bowne & Co., Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                          
| | -------------------------
| | /s/C. CODY COLQUITT      
| |                          
| | C. Cody Colquitt         
| | Senior Vice President and
| | Chief Financial Officer  

Date: March 31, 2003

71



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##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

|                                 |                              |                |   |            |  |             |   |            |  |  |   |        |  |  |   |        | 
|-------------------------------- | ---------------------------- | -------------- | - | ---------- |  | ----------- | - | ---------- |  |  | - | ------ |  |  | - | ------ | 
|Column A                         |                              | Column B       |   | Column C   |  | Column D    |   | Column E  
|                                 |                              |                |   |            |  |             |   |           
|                                 |                              |                |   | Additions  |  |             |   |           
|                                 |                              | Balance at     |   | Charged to |  | Deductions/ |   | Balance at
|                                 |                              | Beginning of   |   | Costs and  |  | (Additions) |   | End of    
|Description                      |                              | Period         |   | Expenses   |  | (a)         |   | Period    
|                                 |                              |                |   |            |  |             |   |           
|                                 |                              |               
|                                 |                              | (In thousands)
|Allowance for doubtful accounts: |                              |                |   |            |  |             |   |            |  |  |   |        |  |  |   |       
|                                 | Year Ended December 31, 2002 |                | $ | 14,808     |  |             | $ | 7,828      |  |  | $ | 6,494  |  |  | $ | 16,142 | 
|                                 | Year Ended December 31, 2001 |                | $ | 15,206     |  |             | $ | 12,257     |  |  | $ | 12,655 |  |  | $ | 14,808 | 
|                                 | Year Ended December 31, 2000 |                | $ | 13,547     |  |             | $ | 10,634     |  |  | $ | 8,975  |  |  | $ | 15,206 | 



---



|    |                                                           
|--- | ----------------------------------------------------------
|(a) | Uncollectible accounts written off, net of
    recoveries.

S-1