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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D. C. 20549




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Form 10-K

|  |  |                                                                                                                                                   
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|þ |  | Annual report pursuant to Section 13 or
    15(d) of the Securities Exchange Act of 1934
    for the fiscal year ended December 31, 2003, 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 þ
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 þ
No o

The aggregate market value of the Common Stock
issued and outstanding and held by nonaffiliates of the
Registrant as of February 27, 2004, based upon the closing
price for the Common Stock on the New York Stock Exchange
on June 30, 2003, was $426,607,243. 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 34,449,830 shares of Common
Stock outstanding as of February 27, 2004.

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 12, 2004 |  |  | Part III, Items  10-12 | 



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TABLE OF CONTENTS



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|                                                  |  |                                                                                                        |  |      |    | 
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|Form 10-K                                         |  |                                                                                                        |  |     
|Item No.                                          |  | Name of Item                                                                                           |  | Page
|                                                  |  |                                                                                                        |  |     
|Part I                                            |  |                                                                                                        |  |      |    | 
|Item 1.                                           |  | Business                                                                                               |  |      | 1  | 
|Item 2.                                           |  | Properties                                                                                             |  |      | 10 | 
|Item 3.                                           |  | Legal Proceedings                                                                                      |  |      | 11 | 
|Item 4.                                           |  | Submission of Matters to a
    Vote of Security Holders                                                |  |      | 11 | 
|                                                  |  | Supplemental Item. Executive
    Officers of the Registrant                                            |  |      | 11 | 
|Part II                                           |  |                                                                                                        |  |      |    | 
|                                                 
|Item 5.                                           |  | Market for Registrants
    Common Equity and Related Stockholder Matters                              |  |      | 12 | 
|Item 6.                                           |  | Selected Financial Data                                                                                |  |      | 14 | 
|Item 7.                                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  |      | 15 | 
|Item 7A.                                          |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |  |      | 38 | 
|Item 8.                                           |  | Financial Statements and
    Supplementary Data                                                        |  |      | 40 | 
|Item 9.                                           |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |      | 79 | 
|Item 9A.                                          |  | Controls and Procedures                                                                                |  |      | 79 | 
|                                                 
|Part III                                          |  |                                                                                                        |  |      |    | 
|                                                 
|Item 10.                                          |  | Directors and Executive
    Officers of the Registrant                                                 |  |      | 80 | 
|Item 11.                                          |  | Executive Compensation                                                                                 |  |      | 80 | 
|Item 12.                                          |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |      | 80 | 
|Item 13.                                          |  | Certain Relationships and
    Related Transactions                                                     |  |      | 80 | 
|Item 14.                                          |  | Principal Accounting Fees
    and Services                                                             |  |      | 80 | 
|                                                 
|Part IV                                           |  |                                                                                                        |  |      |    | 
|                                                 
|Item 15.                                          |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                   |  |      | 81 | 
|                                                  |  | Signatures                                                                                             |  |      | 84 | 
|                                                  |  | Certifications                                                                                         |  |      |    | 
|EX-10.12: 2000 STOCK INCENTIVE PLAN              
|EX-10.13: LONG-TERM PERFORMANCE PLAN             
|EX-10.14: DEFERRED AWARD PLAN                    
|EX-21: SUBSIDIARIES OF THE COMPANY               
|EX-23.1: CONSENT OF KPMG LLP                     
|EX-23.2: AUDITORS' REPORT ON SCHEDULE, KPMG LLP  
|EX-24: POWERS OF ATTORNEY                        
|EX-31.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|EX-31.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER
|EX-32.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
|EX-32.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER





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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 has grown from a financial printing company to an
integrated document and information management company. The
Company is the worlds largest financial printer, a market
leader in outsourcing document management services for law firms
and investment banks and a market leader in providing
globalization, localization and translation services. The
Company built its diversified business in the following three
segments:

Financial
Print Historically
Bownes principal segment, it encompasses:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Bowne Financial Print, the Companys
    traditional financial printing services and the worlds
    largest financial printer, offers a comprehensive array of
    transactional and compliance-related services to create, manage,
    translate and distribute documents. Bowne provides these
    services to its clients in connection with capital market and
    corporate transactions, such as equity and debt issuances and
    mergers and acquisitions, which the Company calls
    transactional financial printing. Bowne also
    provides these services to public corporations and mutual fund
    clients in connection with the fulfillment of their compliance
    obligations to produce and deliver periodic and other reports
    under applicable laws and regulations, as well as in connection
    with general commercial and other printing needs.
|
| |  | Bowne Enterprise Solutions (BES), the
    Companys newest financial printing business, provides a
    communications solution that gives its clients an efficient and
    cost-effective system for producing and delivering personalized
    and customized communications to their customers. From desktop
    editing to digital on-demand printing, Bowne offers the
    capability for just-in-time delivery of
    communications that can be both individually personalized by the
    client and professionally produced and distributed.                                                                                                                                                                                                                                                                                                                          

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Overall, the financial print segment generated
    revenue of $590.9 million in 2003 and $638.3 million
    in 2002, representing approximately 55% and 64% of total
    revenue, respectively. The Companys financial print
    segment generated segment profit of $61.9 million and
    $66.6 million in 2003 and 2002, respectively. The
    Companys segment profit is measured as gross margin
    (revenue less cost of revenue) less selling and administrative
    expenses. The largest class of service in this segment,
    transactional financial printing, accounted for
    $244.7 million, or 23% of total 2003 Company revenue.                                                                                                                                                                                              
| | Outsourcing  This segment
    consists of Bowne Business Solutions (BBS), which
    provides on-site document management services for law firms,
    financial institutions and large companies that choose to
    outsource these functions. The outsourced services that BBS
    offers cover the spectrum from basic document reproduction and
    distribution services, to medium skilled services such as word
    processing and desktop publishing, to highly technical and
    specialized services such as litigation consulting. The
    outsourcing segment generated revenue of $254.7 million in
    2003 and $233.9 million in 2002, representing approximately
    24% and 23% of total revenue, respectively. Outsourcing
    generated segment profit of $14.0 million and
    $15.6 million in 2003 and 2002, respectively.
| | Globalization  This segment
    consists of Bowne Global Solutions (BGS), which
    provides globalization, interpretation, translation,
    localization and technical writing services to adapt the
    Companys clients products and communications for use
    in targeted countries in a manner that is both translated to the
    specific dialect for the target region and culturally
    appropriate. The globalization segment generated revenue of
    $219.2 million in 2003 and $131.2 million in 2002,
    representing approximately 21% and 13% of total revenue,
    respectively. Globalization generated a segment profit of
    $13.1 million for 2003 and a segment loss of
    $4.4 million in 2002.                                                                                                                  

During the first quarter of 2003, the Company
changed the way it reports and evaluates segment information.
The Company now reports certain administrative, legal, finance,
and other support services which are not directly attributable
to the segments in the category Corporate/ Other.
These costs had previously been allocated to the individual
operating segments. The Companys previous years
segment information has

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been restated to conform to the current
years presentation. Further information regarding segment
revenues, operating results, identifiable assets and capital
spending attributable to the Companys operations for the
calendar years 2003, 2002 and 2001, as well as a reconciliation
of segment profit to pre-tax income (loss), are shown in
Note 17 of the Notes to Consolidated Financial Statements.


Industry Overview

Through Bownes diversified business units,
the Company competes in a number of related industries, namely
financial printing, personalized communications, document
management outsourcing and globalization services.

The printing industry is highly fragmented, with
hundreds of independent printers that provide a full range of
traditional printing services. However, specific to
transactional and compliance financial printing, there are three
primary companies, including Bowne, and a few regional financial
printers that participate in the market. Transactional financial
printing volume tends to be cyclical with the markets for new
debt and equity issuances and public mergers and acquisitions
activity. Compliance financial printing volume is less sensitive
to market changes and represents a recurring periodic activity,
with some seasonality linked to significant filing deadlines
imposed by law on public reporting companies and mutual funds.

The complete and integrated communications
solution Bowne provides to its clients to help them deliver
personalized and customized communications to their customers is
a subset of an emerging customer relationship management
industry. This industry is populated by a number of active
participants with different focus and core capabilities that
range from creative branding and message design services, to
technical software design, to printing. The Company competes in
this industry through its BES unit, which it operates as part of
its financial print segment. The Companys BES unit is
focused on providing integrated document creation, production,
distribution and management solutions that address the growing
personalized communications needs of the financial services
industry, in particular the retirement services, asset
management and distributor segments. Financial services firms
are increasingly looking to digital, variable-data-driven
solutions that will provide them with a broad range of
competitive and operational benefits. For example, a financial
services firms ability to create relevant, engaging, and
targeted communications to both customers and prospective
customers can help increase customer retention and sales, as
well as protect brand integrity. The technologies Bowne
leverages to provide clients with automated, web-based creation,
printing and distribution capabilities also create efficiencies
that will help Bownes clients lower document-related costs.

The document management outsourcing industry has
numerous competitors in the United States that compete for
clients among medium-sized to large corporations, law firms,
investment banks, consulting firms and similar enterprises that
have significant document management needs. Bowne is currently a
leader in providing outsourcing services to the legal industry
and the investment banking industry. Furthermore, the Company is
targeting pharmaceutical companies, consulting and professional
services firms as well as general counsel offices of Fortune 500
companies, all of whom have high volume complex document needs.
The services that are outsourced generally fall into the three
following categories:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | traditional reproduction and transmission
    services, such as reprographics, faxing, messenger services, and
    similar services, which tend to be high volume, on-site work;                                                                                                                                                                                                                           
|
| |  | value-added systems management and content
    creation services such as information technology, word
    processing, desktop publishing, litigation support,
    imaging & coding, and similar skilled services, which
    tend to be medium-volume work that can be performed either
    on-site or at the providers location and command higher
    margins than traditional reproduction services; and
|
| |  | outsourcing opportunities for niche expertise,
    such as electronic document discovery and data rooms,
    multi-media services, trial consulting, and other
    highly-specialized technical capabilities.                                                                                                                                                                                              

The globalization services industry traditionally
has been managed by in-house departments of multinational
companies that use a large cottage industry of small translation
and localization contractors located in different countries
around the world, which offer their services to adapt foreign
materials for use in that country. While the in-house operations
and independent single-language translators traditionally have
worked

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together, over the past few years two trends have
begun to change the globalization industry. First, although
thousands of independent freelance translators remain, the
highly fragmented industry has started to consolidate, with
three major participants today, including BGS. An advantage to
employing a consolidated provider of globalization services is
that the scale of the larger players allows them to manage large
globalization projects across multiple countries and offer
integrated services. Second, multinational companies are
increasingly outsourcing their globalization needs, although the
Company estimates that a majority of all globalization
management is still performed in-house. The advantage to
increased outsourcing is the ability of clients to reduce their
fixed costs in these non-core activities.


The Company

Financial Print

Bowne Financial Print has long ranked as the
worlds largest financial printer in a field populated by
three primary companies, including Bowne, and a few regional
financial printers. The Companys transactional financial
printing includes registration statements, prospectuses,
bankruptcy solicitation materials, special proxy statements,
offering circulars, tender offer materials and other documents
related to corporate financings, acquisitions and mergers. The
Companys compliance financial printing includes annual and
interim reports, regular proxy materials and other periodic
reports that public companies are required to file with the SEC
or other regulatory bodies around the world. Bowne Financial
Print is also the leading filing agent for EDGAR, the SECs
electronic filing system. The Company provides both full-service
and self-service filing, the latter through a new Internet-based
filing product, BowneFile16TM, launched in early
2003. A component of compliance printing includes mutual fund
printing. Mutual fund printing includes regulatory and
shareholder communications such as annual or interim reports,
prospectuses, information statements and marketing-related
documents. Bowne Financial Print also 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 services for highly confidential
legal and financial documents in connection with its financial
print operations. Over the past few years, Bowne has expanded
its financial print capabilities within all phases of the
document life-cycle, including electronic receipt of client
documents, composition, content management, conversion,
translation, assembly, packaging, output, delivery, and
archiving.

The Companys international financial
printing business provides similar services as those delivered
by its domestic operations. International print capabilities are
delivered primarily by the Company or in some areas, through a
number of strategic relationships.

Historically, transactional financial print has
been the largest contributor to the Companys total
revenue. However, because this line of business is cyclical with
the financial markets, over the past three years Bowne has
experienced a marked downturn in this line of business, with its
total 2003 transactional financial print revenue 49% lower than
when the financial markets peaked in 2000. In response, the
Company began implementing a new operating model that seeks to
reduce fixed costs and increases the flexibility of its
financial print segment in response to market fluctuations. The
Company has reorganized its regional operations and closed or
consolidated nine of its U.S. offices and facilities. While
the Company still maintains its own printing capabilities,
having retooled its facilities in 1999 and 2000, Bowne also
outsources some printing needs to independent printers,
especially during times of peak demand. This outsourcing allows
the Company to preserve flexibility while reducing its staffing,
maintenance and operating expense of underutilized facilities,
and is in line with industry practice. In addition, since
November 2000, Bowne has reduced its financial print workforce
by approximately 32%. The Company also has successfully
established an arrangement with a company in India that allows
it to outsource some of its EDGAR conversions and related
functions on very cost-effective terms, especially at times of
peak demand. Between the fourth quarter of 2000 and
December 31, 2003, the Company implemented or initiated
approximately $150 to $155 million in annualized reductions
to its cost base, a majority of which have been reductions made
in Bownes financial print segment. Importantly, in the
preceding years the Company had invested significantly in new
technologies that it now leverages to perform the same volume of
high-quality service for its clients despite the reductions in
its workforce. This has allowed the Company to permanently
reduce its fixed and direct labor costs. As a

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result of the flexibility Bowne has achieved in
the last few years, the Company expects that its cost savings
will be long term and that it will not need to fully replace
personnel or otherwise incur such costs. Accordingly, the
Company believes that when the transactional financial print
business returns to greater volumes it will be able to serve
much of the increased demand with only minimal increases in
fixed and direct labor costs.


The Company believes that its technology
investments have produced one of the most flexible and efficient
typesetting, printing and distribution systems in the industry,
for example:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Recent advances in technology have permitted
    Bowne to centralize its typesetting operations into six
    Centers of Excellence, to reduce its typesetting
    workforce and to outsource offshore the more routine and less
    critical typesetting work at a lower cost than performing it
    in-house.                                                                                                                                                                                                                                                                                                                                           
|
| |  | The Company expects to begin implementing its
    newest proprietary typesetting system, ACE (Advanced Composition
    Engine), in 2004. It believes that ACE will significantly
    improve productivity, accuracy and page turnaround, and
    substantially shorten training cycles, giving the Company even
    greater flexibility and responsiveness to its clients.                                                                                                                                                                                                                                                                                 
|
| |  | The digital, print-on-demand services the Company
    offers through BES use advanced database technology, coupled
    with high-speed digital printing, to assist clients, primarily
    in the financial services industry, to reach their customers
    with more targeted levels of customized and personalized
    communications.                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company also developed BowneFaxTM
    to replace its standard fax machines. While a standard fax
    machine simply transmits a page from one location to another,
    BowneFaxTM creates a digital file at high resolution
    and speeds and facilitates work-sharing. In terms of speed,
    BowneFaxTM shortens turnaround time because pages are
    read and processed five to ten times faster than standard faxes.
    In terms of service, BowneFaxTM reduces the time the
    Company and its clients need to clarify unclear copy changes and
    significantly enhances accuracy through reduction of editing
    errors and page tracking.
|
| |  | XMarkTM, another one of the
    Companys proprietary technologies, takes input from
    clients in a variety of formats and allows conversion personnel
    to produce near-perfect conversions in a single cycle,
    standardizes the document format, and then produces output in a
    variety of formats. In terms of speed, XMarkTM
    reduces data conversion and composition production time in the
    range of 50 to 90 percent.                                                                                                                                                                                                               
|
| |  | Bowne was one of four U.S. finalists for the
    Wharton Infosys Business Transformation Award in 2003. This
    award is given to a Global 2000 company that has transformed its
    business and industry through the creative application of
    technology. Also, in this past year, Bowne moved from 295th to
    63rd place in 2003 in the top 500 ranking of the most
    innovative users of technology by Information Week magazine.                                                                                                                                                                                                              

The Company has continued to diversify its
business mix within the financial print business segment with
the introduction of Bowne Enterprise Solutions. Using a model
that involves extensive consultation with clients with respect
to their customer communications challenges, BES partners with
clients to deliver quality applications based upon the effective
integration of document creation, content management and
distribution methods. These methods include offset and digital
printing and electronic delivery. BES helps its clients create,
manage and distribute critical information, such as introductory
enrollment kits and brokerage statements, in order to produce
better returns on their marketing dollars. Using advanced
database technology, coupled with high-speed digital printing,
BES offers clients the opportunity to personalize and customize
communications to their customers. BESs digital,
print-on-demand services also eliminate the need to
conventionally print generic information and hold it in
inventory until it is used or becomes obsolete. BES maintains an
electronic library of the clients documents that can be
edited in real-time by the clients sales, marketing, legal
and other authorized users. This allows customized and
individual fulfillment with the most current copies available,
while reducing waste. Because of the extensive integration of
systems between BES and its clients, contracts for these
services tend to involve longer-term relationships. The clients
for these services include mutual funds, stock brokerage firms,
defined contribution providers, investment banks, insurance
companies and commercial banks.

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Outsourcing

The Companys document management
outsourcing business has greatly expanded since 1998 through
acquisitions, and Bowne Business Solutions has grown to become
the industry leader in providing outsourcing services primarily
to the legal and financial services communities. BBS has sought
to expand its business to existing and new clients by broadening
the range of services that it provides. BBS is also growing its
existing customer base through increased penetration of the
legal and investment banking industries. Furthermore, BBS seeks
to expand its business through its efforts to reach potential
clients in new industries, such as the consulting and
pharmaceutical industries.

The Companys outsourcing services include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | on-site management of document creation,
    reproduction and distribution operations at its clients
    facilities, and off-site backup of those same services;                                                                                                                                                                                                                                                                                                                                                       
|
| |  | specialized applications of graphics and
    presentation technologies, such as pitch books, charting, flow
    charts, conceptual diagrams and maps and multimedia applications
    such as animation, video and sound;                                                                                                                                                                                                                                                                                                
|
| |  | information technology management, desktop
    support services, data center support, technical training and
    telephone system support; and                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | litigation support services, including litigation
    resource management, which 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.

BBSs acquisition of DecisionQuest in
December 2002 allowed the Company to deliver litigation support
services spanning the entire litigation
lifecycleTM, from inception of the case through
trial. These additional services include 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.

Outsourcing allows BBS clients to focus on their
core businesses, gain access to the latest in technological
innovations without making direct investments, and reduce the
operating costs of investing in and managing non-core business
activities. Initially, the Company must earn the confidence and
trust of its clients by demonstrating its competency, efficiency
and quality of service in the more basic functions. Once BBS has
proven its reliability, the Company believes that many of its
clients become more comfortable with outsourcing other more
skilled and complex functions to them.

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 enables customers to
succeed in global markets by providing innovative linguistic and
cultural solutions. 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 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.

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BGS is the largest provider in the industry and
serves clients in a wide variety of vertical markets including
information technology, telecommunications, aerospace,
automotive, medical devices, pharmaceuticals, financial
services, entertainment, and government agencies in the United
States and Europe. BGS provides support to these customers in
three primary areas:



| |   |                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Localization/
    Translation the process of
    adapting content and products to meet the language and cultural
    requirements of users throughout the world. BGS offers a
    comprehensive solution covering all aspects of translation,
    engineering, content recreation, multimedia, linguistic quality
    control and testing.                   
|
| |  | Technical
    Writing the creation of
    technical documentation for owner and repair manuals,
    instructions for use, regulatory filings, and help systems. BGS
    authors and technical illustrators, working closely with client
    teams, develop effective documentation in a variety of formats
    suitable for distribution on-line or in print.
|
| |  | Interpretations
    assisting government agencies and commercial organizations
    conducting business or legal proceedings with parties who do not
    speak the same native language. BGS trained and certified
    interpreters in the US and Europe perform in a variety of
    settings including face-to-face, over-the-phone, and in
    conferences. 

The Company operates this business by building
and maintaining a network of employees and independent
translators, authors and interpreters located around the globe
who are engaged, as needed, based on their domain expertise and
the needs of the client. One of the Companys key
competitive advantages is its ability to manage this global
network of employees and linguistic agents through uniform
processes and standards of quality performance and the ability
to coordinate delivery of translated product in multiple
locations according to its clients schedule.

In the past, BGS relied heavily on revenue from
information technology clients. However, BGS has steadily
decreased its reliance on these clients through diversification
of its customer base. Revenues from information technology
clients have further decreased as those clients become more
efficient in their production methods reducing the revenue per
transaction even as the volume and number of languages covered
increases. BGS present focus is to grow revenue by
reaching clients in new and diverse industries and to penetrate
the significant number of companies that still perform their
globalization and localization services in-house. The Company
believes that any new business from companies that currently
handle this work in-house will further increase the size of the
currently served market.

In accordance with its strategy, BGS has made two
significant acquisitions to expand its scale and reach. BGS
acquired Mendez S.A. in August 2001 and Berlitz GlobalNet in
September 2002. Combined, these two acquisitions have helped BGS
to triple its size and extend its leadership in this industry.
These acquisitions have added both tools and competencies to BGS
and have provided a more diverse global client base. Due to the
Companys economies of scale and its multinational presence
as a result of these acquisitions, it believes that clients with
larger global projects requiring simultaneous multi-country
roll-outs are more likely to use Bownes services.

BGS has approximately 1,800 full-time employees
in 24 countries, as well as a global contractor network of more
than 10,000 qualified linguists covering over 80 languages and
dialects.

6



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##### Table of Contents



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                  |                    | 2003                    |     | 2002 |  | 2001
|                                 |                    |                         |     |      |  |     
|Transactional financial printing |                    |                         | 23  | %    |  |      | 27  | %  |  |  | 27  | % 
|Compliance printing              |                    |                         | 13  |      |  |      | 14  |    |  |  | 15  |   
|Mutual fund printing             |                    |                         | 12  |      |  |      | 15  |    |  |  | 16  |   
|Commercial printing              |                    |                         | 4   |      |  |      | 4   |    |  |  | 6   |   
|Digital printing and other       |                    |                         | 3   |      |  |      | 4   |    |  |  | 4   |   
|                                 |                    |                         |     |      |  |      |     |    |  |  |     |   
|                                 | Financial Printing |                         |     | 55   |  |      |     | 64 |  |  |     | 68 | 
|Outsourcing                      |                    |                         | 24  |      |  |      | 23  |    |  |  | 22  |   
|Globalization                    |                    |                         | 21  |      |  |      | 13  |    |  |  | 10  |   
|                                 |                    |                         |     |      |  |      |     |    |  |  |     |   
|                                 |                    |                         | 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, New York, NY
10014, telephone (212) 924-5500. The Companys Web
site is www.bowne.com. Our Web site contains electronic copies
of Bowne news releases and U.S. Securities and Exchange
Commission filings, as well as descriptions of Bownes
corporate governance structure, 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, compliance 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.

7



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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 compliance printing 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 historically
relied on more than half of its business from the recently weak
technology sector. During 2003 however, the segment began to
realize the benefits of a change in product mix reflecting a
continuing decline in the concentration of revenues from this
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 three 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 does not anticipate the
need to add significantly to staffing when the capital markets
return to higher levels of volume, as it more fully leverages
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
addition, in order to respond to the shift from traditional
forms of print manufacturing and document creation, the Company
continues to research and develop its digital print technology.
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.

8



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##### Table of Contents



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
also utilizes the following service marks: Empowering
InformationSM and Empowering Your
InformationSM and trademarks: BowneFaxTM,
BowneFile16®, BowneLink®, CaseMap®, Decision
Quest®, ElcanoTM, FundSmith®, Litigation
LifecycleTM, Litigators Notebook®,
RapidViewTM, Securities ConnectTM,
TimeMapTM, Transforming Digital CapitalTM
and XMarkTM.

Sales and Marketing

The Company employs approximately 370 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,
2003, no customer accounted for 10% or more of the
Companys sales. However, two customers, Microsoft and the
United States Department of Justice, are 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, 2003, the Company had
approximately 7,600 full-time 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.

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 18% of the Companys total
revenues in 2003, 15% in 2002 and 12% in 2001. During 2003, 2002
and 2001, revenues derived from foreign countries other than
Canada totaled $187, $147 and $122 million, respectively.
The financial printing segment had revenues of $36,

9



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##### Table of Contents



$44 and $52 million in these years,
respectively. The globalization segment had revenues of $151,
$99 and $70 million in 2003, 2002 and 2001, respectively.
The outsourcing segment had revenues of $0.4 and $4 million
in 2003 and 2002, respectively. International revenues in the
outsourcing segment during 2001 were not significant. A joint
venture arrangement with Williams Lea, formed in October 2002,
which is accounted for on the equity method, accounts for the
decrease in international revenue from the outsourcing segment,
as the Companys share of results from the joint venture
are reflected in other income since the date of formation. The
revenue from the clients served by this joint venture was
included in consolidated results of operations prior to the
formation of the joint venture. Canadian revenues were
approximately 4% of the Companys total sales in 2003 and
2002, and 5% in 2001. During 2003, 2002, and 2001, revenues
derived from Canada totaled $48, $43, and $50 million,
respectively.






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

Information regarding the material facilities of
the Company, as of December 31, 2003, six of which were
leased and eight of which were owned, 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 
|1570 Northside Drive  Atlanta, GA                           |  |         | 2009  |             |  | Customer service center, typesetting, printing
    plant and general office space.              |  | 51,000 
|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 
|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 in the financial printing and
globalization segments 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
plans to move to a new leased facility in Southern California
during 2004 and therefore intends to sell its Dominguez Hills
facility in the first half of 2004. Refer to Note 13 of the
Notes to Consolidated Financial Statements for additional
information regarding property and equipment leases.

10



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|        |                  
|------- | -----------------
|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 2003.






|                   |                                         
|------------------ | ----------------------------------------
|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 since
    January 2004 and from February 2000 through
    December 2000                                                                                                                                                                                                                                                                                                                                  |  |     | 58 | 
|C. Cody Colquitt    |  | Senior Vice President and Chief Financial Officer
    since March 2001; previously Vice President, Corporate
    Controller from February 1999 to August 2001; previously
    Vice President, Finance and Controller from September 1996
    of Bowne of Dallas, L.P., a subsidiary of the Company                                                                                                                                                                                                             |  |     | 42 | 
|Susan W. Cummiskey  |  | Senior Vice President, Human Resources since
    December 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |     | 51 | 
|James E. Fagan, Jr. |  | Senior Vice President of the Company 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                                                                                                                                                                 |  |     | 52 | 
|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.                                                                                                                                                                                                                                                                                                                        |  |     | 54 | 
|Philip E. Kucera    |  | Senior Vice President and General Counsel since
    December 1998                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |     | 61 | 
|David J. Shea       |  | Senior Vice President of the Company and Chief
    Executive Officer of Bowne Business Solutions, Inc. and Bowne
    Enterprise Solutions, L.L.C. since November 2003;
    previously 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 |  |     | 48 | 
|Reed R. Smith       |  | Senior Vice President of the Company 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                                                                                                                                                                                                                                                           |  |     | 46 | 

11



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##### Table of Contents



|                     |  |                                                                                                                                                                                                                                                                                                                                                  |  |     |    | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --- | -- | 
|                     |  | Principal Occupation                                                                                                                                                                                                                                                                                                                             |  |    
|Name                 |  | During Past Five Years                                                                                                                                                                                                                                                                                                                           |  | Age
|                     |  |                                                                                                                                                                                                                                                                                                                                                  |  |    
|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                                                                                                                             |  |     | 47 | 
|Richard Bambach, Jr. |  | Chief Accounting Officer of the Company since
    May 2002 and Vice President, Corporate Controller since
    August 2001; previously Vice President, External Financial
    Reporting for Winstar Communications, Inc. from
    August 1999; previously Vice President, Corporate
    Controller of ICG Communications, Inc. from February 1996 |  |     | 39 | 
|William J. Coote     |  | Vice President and Treasurer since
    December 1998                                                                                                                                                                                                                                                                                             |  |     | 49 | 
|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.                                                                                       |  |     | 52 | 

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 2003 and 2002 by year and quarters.

|               |  |      |       |     |  |           |       |  |  |   |      | 
|-------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|               |  |      |       |     |  | Dividends
|               |  |      |       |     |  | Per      
|               |  | High |       | Low |  | Share    
|               |  |      |       |     |  |          
|2003           |  |      |       |     |  |           |       |  |  |   |      | 
|Fourth quarter |  | $    | 15.82 |     |  | $         | 13.30 |  |  | $ | .055 | 
|Third quarter  |  |      | 15.81 |     |  |           | 12.78 |  |  |   | .055 | 
|Second quarter |  |      | 13.44 |     |  |           | 9.95  |  |  |   | .055 | 
|First quarter  |  |      | 12.16 |     |  |           | 9.13  |  |  |   | .055 | 
|               |  |      |       |     |  |           |       |  |  |   |      | 
|Calendar year  |  |      | 15.82 |     |  |           | 9.13  |  |  | $ | .22  | 
|               |  |      |       |     |  |           |       |  |  |   |      | 
|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  | 
|               |  |      |       |     |  |           |       |  |  |   |      | 

The closing price of the Companys common
stock on February 27, 2004 was $16.20 per share, and
the number of holders of record on that date was approximately
1,183.

12



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##### Table of Contents



Recent Sales of Unregistered
Securities

On September 24, 2003, the Company completed
a $75 million private placement of 5% Convertible
Subordinated Debentures due October 1, 2033 pursuant to
Rule 144A of the Securities Act of 1933, as amended. The
underwriting discount for the private placement was
$2.6 million and the net offering proceeds received by the
Company was approximately $72.4 million. The proceeds from
this private placement were used to pay down approximately
$57 million of the Companys revolving credit facility
and to repurchase $15 million of the Companys 6.9%
senior notes due January 30, 2007. The debentures may be
converted into shares of the Companys common stock prior
to their maturity or their prior redemption by the Company
initially at a conversion rate of 54.1126 shares of common stock
per $1,000 principal amount of debentures, which is equivalent
to a conversion price of approximately $18.48 per share (subject
to adjustment in certain circumstances) under the following
circumstances: (i) the sale price of the Companys
common stock reaches specified thresholds, (ii) the trading
price of a debenture falls below a specified threshold,
(iii) specified credit rating events with respect to the
debentures occur, (iv) the Company calls the debentures for
redemption, or (v) specified corporate transactions occur.
The Company may redeem any portion of the debentures in cash on
or after October 1, 2008 at a redemption price equal to
100% of the principal amount to be redeemed plus accrued and
unpaid interest and additional interest, if any, up to, but not
including the redemption date. In addition, each holder of the
debentures may require the Company to repurchase all or any
portion of that holders debentures on each of
October 1, 2008, October 1, 2013, October 1,
2018, October 1, 2023 and October 1, 2028, or in the
event of a change in control as that term is defined
in the indenture for the debentures, at a purchase price equal
to 100% of the principal amount plus accrued and unpaid interest
and additional interest, if any, up to, but not including the
redemption date. The Company would pay the repurchase price for
any debentures repurchased on October 1, 2008 in cash. The
Company would have the option of paying the repurchase price of
any debentures repurchased on October 1, 2013,
October 1, 2018, October 1, 2023, or October 1,
2028 in cash, shares of the Companys common stock, or a
combination of cash and shares of common stock.

13



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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,
|                                                                 |                                                                           |                        
|                                                                 |                                                                           | 2003                    |           | 2002      |   | 2001 |           | 2000      |   | 1999
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |     
|Operating Data                                                   |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Revenue                                                          |                                                                           | $                       | 1,064,820 |           |   | $    | 1,003,326 |           |   | $    | 1,054,631 |           |   | $ | 1,179,338 |           |   | $ | 1,072,729 |          
|Expenses:                                                        |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                                                                 | Cost of revenue                                                           |                         |           | (717,928  | ) |      |           | (667,089  | ) |      |           | (713,710  | ) |   |           | (753,639  | ) |   |           | (667,344  | )
|                                                                 | Selling and administrative                                                |                         |           | (273,438  | ) |      |           | (275,818  | ) |      |           | (268,773  | ) |   |           | (299,622  | ) |   |           | (281,175  | )
|                                                                 | Depreciation                                                              |                         |           | (40,332   | ) |      |           | (40,662   | ) |      |           | (41,117   | ) |   |           | (42,349   | ) |   |           | (39,606   | )
|                                                                 | Amortization                                                              |                         |           | (3,621    | ) |      |           | (2,017    | ) |      |           | (8,001    | ) |   |           | (7,318    | ) |   |           | (7,023    | )
|                                                                 | Restructuring charges, integration costs and
    asset impairment charges |                         |           | (25,591   | ) |      |           | (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      | ) |   |           |          |   |   |           |          |  
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Operating income (loss)                                          |                                                                           |                         | 3,910     |           |   |      | 18,620    |           |   |      | (577      | )         |   |   | 74,304    |           |   |   | 77,581    |          
|                                                                 | Interest expense                                                          |                         |           | (11,420   | ) |      |           | (7,127    | ) |      |           | (6,422    | ) |   |           | (7,254    | ) |   |           | (6,281    | )
|                                                                 | Other (expense) income, net                                               |                         |           | (1,013    | ) |      |           | (1,993    | ) |      |           | 1,565     |   |   |           | (1,635    | ) |   |           | 983       |  
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|(Loss) income from continuing operations before
    income taxes |                                                                           |                         | (8,523    | )         |   |      | 9,500     |           |   |      | (5,434    | )         |   |   | 65,415    |           |   |   | 72,283    |          
|                                                                 | Income tax expense                                                        |                         |           | (604      | ) |      |           | (9,145    | ) |      |           | (2,281    | ) |   |           | (28,145   | ) |   |           | (30,220   | )
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|(Loss) income from continuing operations                         |                                                                           | $                       | (9,127    | )         |   | $    | 355       |           |   | $    | (7,715    | )         |   | $ | 37,270    |           |   | $ | 42,063    |          
|                                                                 |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|Balance Sheet Data                                               |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                                                                 | Current assets                                                            |                         | $         | 258,610   |   |      | $         | 261,833   |   |      | $         | 264,698   |   |   | $         | 314,508   |   |   | $         | 309,439   |  
|                                                                 | Current liabilities                                                       |                         | $         | 183,232   |   |      | $         | 179,494   |   |      | $         | 186,556   |   |   | $         | 180,966   |   |   | $         | 193,690   |  
|                                                                 | Working capital                                                           |                         | $         | 75,378    |   |      | $         | 82,339    |   |      | $         | 78,142    |   |   | $         | 133,542   |   |   | $         | 115,749   |  
|                                                                 | Current ratio                                                             |                         |           | 1.41 to 1 |   |      |           | 1.46 to 1 |   |      |           | 1.42 to 1 |   |   |           | 1.74 to 1 |   |   |           | 1.60 to 1 |  
|                                                                 | Net plant and equipment                                                   |                         | $         | 134,862   |   |      | $         | 151,557   |   |      | $         | 163,838   |   |   | $         | 171,938   |   |   | $         | 173,293   |  
|                                                                 | Total assets                                                              |                         | $         | 717,602   |   |      | $         | 704,402   |   |      | $         | 637,334   |   |   | $         | 660,215   |   |   | $         | 678,624   |  
|                                                                 | Long-term debt                                                            |                         | $         | 139,828   |   |      | $         | 142,708   |   |      | $         | 76,941    |   |   | $         | 85,676    |   |   | $         | 47,281    |  
|                                                                 | Stockholders equity                                                      |                         | $         | 348,735   |   |      | $         | 336,320   |   |      | $         | 330,029   |   |   | $         | 360,966   |   |   | $         | 408,460   |  
|Per Share Data                                                   |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|(Loss) income from continuing operations:                        |                                                                           |                         |           |           |   |      |           |           |   |      |           |           |   |   |           |           |   |   |           |          
|                                                                 | Basic                                                                     |                         | $         | (.27      | ) |      | $         | .01       |   |      | $         | (.23      | ) |   | $         | 1.08      |   |   | $         | 1.14      |  
|                                                                 | Diluted                                                                   |                         | $         | (.27      | ) |      | $         | .01       |   |      | $         | (.23      | ) |   | $         | 1.05      |   |   | $         | 1.12      |  
|Dividends                                                        |                                                                           | $                       | .22       |           |   | $    | .22       |           |   | $    | .22       |           |   | $ | .22       |           |   | $ | .22       |          

During the first quarter of 2003, the Company
changed the way it reports certain expenses in its globalization
segment to conform to current practice in the globalization
industry. These expenses had previously been included in cost of
revenue and are now included in selling and administrative
expenses. The prior years amounts have been reclassified
to conform to the 2003 presentation. The impact of this
reclassification on prior years results was to decrease
cost of revenue and increase selling and administrative expenses
by $6,863, $3,952, $4,843, and $4,364 for each of the years
ended December 31, 2002 through December 31, 1999,
respectively. This reclassification does not impact operating
income or segment profit.

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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.

This report includes and incorporates by
reference forward-looking statements within the meaning of the
1995 Act. These statements are included throughout this report,
and in the documents incorporated by reference in this report,
and relate to, among other things, projections of revenues,
earnings, earnings per share, cash flows, capital expenditures,
working capital or other financial items, output, expectations
regarding acquisitions, discussions of estimated future revenue
enhancements, potential dispositions and cost savings. These
statements also relate to the Companys business strategy,
goals and expectations concerning the Companys market
position, future operations, margins, profitability, liquidity
and capital resources. The words anticipate,
believe, could, estimate,
expect, intend, may,
plan, predict, project,
will and similar terms and phrases identify
forward-looking statements in this report and in the documents
incorporated by reference in this report.

Although the Company believes the assumptions
upon which these forward-looking statements are based are
reasonable, any of these assumptions could prove to be
inaccurate and the forward-looking statements based on these
assumptions could be incorrect. The Companys operations
involve risks and uncertainties, many of which are outside the
Companys control, and any one of which, or a combination
of which, could materially affect the Companys results of
operations and whether the forward-looking statements ultimately
prove to be correct.

Actual results and trends in the future may
differ materially from those suggested or implied by the
forward-looking statements depending on a variety of factors
including, but not limited to:



| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic or capital market conditions
    affecting the demand for transactional financial printing or the
    Companys other services;                                                                                                                                                                               
|
| |  | competition based on pricing and other factors;                                                                                                                                                                                                                                                                                
|
| |  | fluctuations in the cost of paper, other raw
    materials and utilities;                                                                                                                                                                                                                                                      
|
| |  | changes in air and ground delivery costs and
    postal rates and postal regulations;                                                                                                                                                                                                                                          
|
| |  | seasonal fluctuations in overall demand for the
    Companys services;                                                                                                                                                                                                                                                        
|
| |  | changes in the printing market;                                                                                                                                                                                                                                                                                                
|
| |  | the Companys ability to integrate the
    operations of acquisitions into its operations;                                                                                                                                                                                                                                     
|
| |  | the financial condition of the Companys
    clients;                                                                                                                                                                                                                                                                          
|
| |  | the Companys ability to continue to obtain
    improved operating efficiencies;                                                                                                                                                                                                                                               
|
| |  | the Companys ability to continue to develop
    services for its clients;                                                                                                                                                                                                                                                     
|
| |  | changes in the rules and regulations to which the
    Company is subject and the cost of complying with these rules
    and regulations, including environmental and health and welfare
    benefit regulations;                                                                                                               
|
| |  | changes in the rules and regulations to which the
    Companys clients are subject, such as the recent
    implementation of the Sarbanes-Oxley Act of 2002, which may
    result in decreased capital markets activity as issuers weigh
    enhanced liabilities against the benefits of conducting
    securities offerings;
|
| |  | the effects of war or acts of terrorism affecting
    the overall business climate;                                                                                                                                                                                                                                            

15



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| |   |                                                                         
| | - | ------------------------------------------------------------------------
| |  | loss or retirement of key executives or
    employees; and              
|
| |  | natural events and acts of God such as
    earthquakes, fires or floods.

Many of these factors are described in greater
detail in the Companys filings with the Securities and
Exchange Commission, including those incorporated by reference
in this report. All future written and oral forward-looking
statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety
by the previous statements.

Overview

The Company began 2003 with a high degree of
uncertainty in each of its businesses. The financial printing
segment had just experienced the weakest six months of capital
market activity in the past decade. With the impending war in
Iraq, there was little to suggest improvement. This
segments digital printing group, Bowne Enterprise
Solutions, was coping with continuing contraction in its largest
customer groupthe mutual fund industryand the
challenges of introducing new customized communications
solutions to an uncertain financial services market. Bowne
Global Solutions had completed the acquisition of Berlitz
GlobalNet, but was continuing to integrate the two organizations
while also addressing integration-related customer relations and
retention issues. Bowne Business Solutions had just acquired
DecisionQuest, further strengthening the suite of litigation
support services provided by its outsourcing business; however,
this business had also experienced the dissolution of two large
legal clients and a weak capital market that depressed its
investment banking business.

The Company entered the year with the need to
strengthen its capital structure and maximize its performance
during unpredictable times. Discussions began in March to
renegotiate the covenants with its banks and private note
holders. The resulting amendment enabled the Company to maintain
its long-term strategy through 2003 and comfortably meet the
terms of its credit facilities even with the market
uncertainties. The Company also concluded it was carrying too
much senior debt as a result of its acquisition of DecisionQuest
and GlobalNet.

In response, the Company executed a
$75 million convertible subordinated debt offering that
reduced its reliance on its senior revolving credit facility.
The resulting capital structure provides stability and lowers
the Companys exposure to increases in borrowing rates.

Within operations, Bowne continued to pursue
process improvements throughout the Company and sought to
increase efficiencies while controlling capital expenditures. As
a result of the anemic conditions of capital markets in the
first half of the year, the Company further reduced staffing and
resources that supported financial printing. These actions
resulted in further restructuring charges of $12.4 million
in the financial printing segment in 2003 and brought total
reductions in annual fixed costs within this segment to more
than $120 million since the fourth quarter of 2000. The
Companys continued integration and reductions within Bowne
Global Solutions resulted in restructuring charges of
$8.6 million within the globalization segment.

The results of these actions were as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Financial Printing.In large part due to restructuring
    within the financial printing segment, segment profits in the
    fourth quarter of 2003 rose $9.9 million, or 225%, compared to
    the same period in the prior year. Comparing the stronger second
    half of 2003 with the same period in 2002, revenues increased
    $12.3 million, or 4.8%, with segment profits increasing
    $15.6 million, or 121%. More importantly, the leverage of
    having a more efficient operating model gives the Company
    confidence that profitability could improve rapidly as capital
    markets continue to rebound.
|
| |  | Globalization.Bowne
    Global Solutions successfully completed the GlobalNet
    integration, while margins and profitability improved each
    quarter. BGSs segment profit in the second half of 2003
    was $6,765 (6.4% as a percent of revenue) compared to segment
    profit of $6,307 (5.6% as a percent of revenue) in the first
    half of 2003, for total segment profit for the year of $13,072
    (6.0% as a percent of revenue). In 2002, BGS had a segment loss
    of $4,441.                                                                                                                           

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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Outsourcing.Bowne
    Business Solutions stabilized after the large client
    dissolutions earlier in the year and began to gain momentum,
    adding new clients and expanding contracts with existing
    clients. BBSs segment profit in the second half of 2003
    was $7,975 (6.3% as a percent of revenue) compared to segment
    profit of $6,067 (4.7% as a percent of revenue) in the first
    half of 2003, for total segment profit for the year of $14,042
    (5.5% as a percent of revenue). In 2002, BBS had a segment
    profit of $15,642 (6.7% as a percent of revenue).

Items Affecting Comparability

The Company continually reviews its business,
manages costs, and aligns its resources with market demand,
especially in light of the volatility of the capital markets and
sustained decrease in transactional financial printing activity.
In addition, the Company has also completed implementation of a
new operating model, which uses technology to better manage its
resources. As a result, the Company took several steps over the
last three years to reduce fixed costs, eliminate redundancies,
and better position the Company to respond to market pressures
or unfavorable economic conditions.

The following table summarizes the amounts
incurred for restructuring, integration and asset impairment
charges for each segment over the last three years:

|                   |  |      |        |      |  |      |        |  |  |   |        | 
|------------------ |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                   |  | 2003 |        | 2002 |  | 2001
|                   |  |      |        |      |  |     
|Financial Printing |  | $    | 12,380 |      |  | $    | 6,876  |  |  | $ | 6,567  | 
|Outsourcing        |  |      | 2,515  |      |  |      | 1,720  |  |  |   | 5,412  | 
|Globalization      |  |      | 8,605  |      |  |      | 10,624 |  |  |   | 5,945  | 
|Corporate          |  |      | 2,091  |      |  |      | 158    |  |  |   | 3,025  | 
|                   |  |      |        |      |  |      |        |  |  |   |        | 
|Total              |  | $    | 25,591 |      |  | $    | 19,378 |  |  | $ | 20,949 | 
|After tax impact   |  | $    | 18,708 |      |  | $    | 14,080 |  |  | $ | 13,959 | 
|Per share impact   |  | $    | 0.55   |      |  | $    | 0.41   |  |  | $ | 0.42   | 

The actions taken in 2003 are estimated to result
in additional annualized savings of approximately $45 to
$50 million. Since beginning its cost cutting initiatives
in the fourth quarter of 2000, the Company has reduced its
annual cost base for continuing operations by approximately $150
to $155 million through December 31, 2003. 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
during the period from 1996 through 2000. The Company does not
anticipate the need to replace this staff or the closed
facilities in order to respond to a recovery in the capital
markets, therefore yielding a higher degree of operating
leverage and allowing the Company to increase productivity in
such a recovery. The Company believes the current financial
print model has the capacity to support transactional revenues
in the range of $200-$300 million without adding fixed
costs. In addition to the cost reductions in its financial
printing segment, the Company has also made workforce reductions
in its outsourcing and globalization segments to better respond
to fluctuations in demand in those markets and to integrate the
acquisitions of Mendez and GlobalNet into the existing BGS
operation. Further discussion of the restructuring activities is
included in the segment information which follows, as well as in
Note 8 to the Consolidated Financial Statements.

The Company expects to incur additional
restructuring and integration charges in the first half of 2004
of approximately $5 to $7 million, primarily related to
further consolidation of facilities in the Companys
financial printing segment and in the globalization segment.

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 similar to the Companys existing
outsourcing business and has geographically expanded the
outsourcing business. 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

17



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##### Table of Contents



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 in cash. The
acquisition of GlobalNet strengthened BGSs position in the
globalization and localization industry and enhanced BGSs
results by enabling BGS to combine complementary services,
improve efficiencies, and diversify its customer base. 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 acquisition of DecisionQuest
enabled BBS to provide a broader and deeper array of outsourced
services to the legal industry.

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, resulting in a
pre-tax gain of $15,369 ($8,785 after tax, or $0.25 per
share). The Company also completed the sale of the Chicago
office building, resulting in a pre-tax gain of $4,889 ($2,787
after tax, or $0.08 per share).

During the fourth quarter of 2002, the Company
acquired full ownership of its financial printing fulfillment
operation, which had previously been operated as a joint
venture. As a result, the results from the fulfillment operation
are included in consolidated results of operations from the date
of acquisition. The joint venture had previously been accounted
for on the equity method of accounting, with the Companys
share of results reflected in other income.

In addition, in October 2002, BBS entered into a
joint venture agreement with Williams Lea to provide outsourcing
services to clients with offices in Asia. The joint venture is
accounted for on the equity method of accounting, with the
Companys share of results from the arrangement reflected
in other income from the date of formation. The revenue and
expenses from the clients served by this joint venture were
included in consolidated results of operations prior to the
formation of the joint venture.

During June 2001, the Company sold its commercial
printing operations in Montreal, Quebec, resulting in a pre-tax
loss of $1,858 ($1,626 after tax, or $0.05 per share).

Results of Operations

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.

Management uses segment profit and segment profit
less depreciation expense to evaluate the performance of its
operating segments. Segment profit is defined as gross margin
(revenue less cost of revenue) less selling and administrative
expenses. In addition, the outsourcing segments profit
includes the Companys equity share of income (losses)
associated with the CaseSoft joint venture investment. Segment
performance is evaluated exclusive of interest, income taxes,
amortization, certain shared corporate expenses, restructuring,
integration and asset impairment charges, disposal of certain
assets, other expenses and other income. Segment profit and
segment profit less depreciation expense 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.

In the first quarter of 2003, the Company changed
the manner in which it reports and evaluates segment
information. The Company now reports certain administrative,
legal, finance, and other support services which are not
directly attributable to the segments in the category
Corporate/Other. These costs had previously

18



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##### Table of Contents



been allocated to the individual operating
segments. All prior years segment information has been
reclassified to conform to the current years presentation.


Year ended December 31, 2003 compared to
Year ended December 31, 2002

Financial
Printing

|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |     |   
|----------------------------------------------------------- | -------------------------------- | ------------------------ | -------- | -------------- |  | ---- | --- | ------- | - | -------- | -------- | -------- |  |  | --- | -- | - | - | ------- | ------- | - |  | ---- | --- | --
|                                                            |                                  |                          |          |                |  |     
|                                                            |                                  | Years Ended December 31, |          |               
|                                                            |                                  |                          |          | Year over Year
|                                                            |                                  |                          |          | % of           |  |      |     | % of    |   |         
|Financial Printing Results:                                 |                                  | 2003                     |          | Revenue        |  | 2002 |     | Revenue |   | $ Change |          | % Change
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |         
|                                                            |                                  |                         
|                                                            |                                  | (Dollars in thousands)  
|Revenue:                                                    |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|                                                           
|                                                            | Transactional financial printing |                          | $        | 244,719        |  |      |     | 41      | % |          | $        | 273,900  |  |  |     | 43 | % |   | $       | (29,181 | ) |  |      | (11 | )%
|                                                            | Compliance printing              |                          |          | 142,293        |  |      |     | 24      |   |          |          | 139,455  |  |  |     | 22 |   |   |         | 2,838   |   |  |      | 2   |   
|                                                            | Mutual funds                     |                          |          | 125,159        |  |      |     | 21      |   |          |          | 150,921  |  |  |     | 24 |   |   |         | (25,762 | ) |  |      | (17 | ) 
|                                                            | Commercial                       |                          |          | 37,128         |  |      |     | 6       |   |          |          | 35,478   |  |  |     | 6  |   |   |         | 1,650   |   |  |      | 5   |   
|                                                            | Other                            |                          |          | 41,557         |  |      |     | 8       |   |          |          | 38,515   |  |  |     | 5  |   |   |         | 3,042   |   |  |      | 8   |   
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|Total revenue                                               |                                  |                          | 590,856  |                |  |      | 100 |         |   |          | 638,269  |          |  |  | 100 |    |   |   | (47,413 | )       |   |  | (7   | )  
|Cost of revenue                                             |                                  |                          | (367,429 | )              |  |      | (62 | )       |   |          | (391,233 | )        |  |  | (61 | )  |   |   | 23,804  |         |   |  | (6   | )  
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|Gross margin                                                |                                  |                          | 223,427  |                |  |      | 38  |         |   |          | 247,036  |          |  |  | 39  |    |   |   | (23,609 | )       |   |  | (10  | )  
|Selling and administrative                                  |                                  |                          | (161,538 | )              |  |      | (27 | )       |   |          | (180,467 | )        |  |  | (28 | )  |   |   | 18,929  |         |   |  | (10  | )  
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|Segment profit                                              |                                  | $                        | 61,889   |                |  |      | 11  | %       |   | $        | 66,569   |          |  |  | 11  | %  |   | $ | (4,680  | )       |   |  | (7   | )% 
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|Other Items:                                                |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |      |    
|                                                           
|Depreciation                                                |                                  | $                        | (27,353  | )              |  |      | (5  | )%      |   | $        | (29,075  | )        |  |  | (5  | )% |   | $ | 1,722   |         |   |  | (6   | )% 
|Restructuring, integration and asset impairment
    charges |                                  |                          | (12,380  | )              |  |      | (2  | )       |   |          | (6,876   | )        |  |  | (1  | )  |   |   | (5,504  | )       |   |  | 80   |    
|Gain on sale of certain printing assets                     |                                  |                          |         |                |  |      |    |         |   |          | 15,369   |          |  |  | 2   |    |   |   | (15,369 | )       |   |  | (100 | )  
|Gain on sale of building                                    |                                  |                          |         |                |  |      |    |         |   |          | 4,889    |          |  |  | 1   |    |   |   | (4,889  | )       |   |  | (100 | )  

Revenue decreased $47,413, or 7%, to $590,856 for
the year ended December 31, 2003, with the largest class of
service in this segment, transactional financial printing, down
$29,181 or 11% to $244,719 in 2003. The market for transactional
financial printing remained low and was down during 2003, as
compared to 2002, primarily due to reduced capital market
activity in 2003, both domestic and international. There were
also some significant transactions for which the Company
provided financial printing services during the prior year, with
no transactions of similar significance in 2003. The market for
transactional financial printing began to experience a rebound
during the second half of 2003, with transactional financial
printing revenues for the second half of 2003 increasing 43%
over the first half of 2003, primarily due to increased domestic
capital market activity in 2003 as well as an increase in
mergers and acquisitions transactions. Revenues from
transactional financial printing services during the fourth
quarter of 2003 were 54% higher than in the first quarter of
2003.

The Company continues to maintain its
industry-leading market share in both the domestic and
international markets, capturing the business connected with
approximately 42% of the IPO market in 2003, as well as 42% of
all U.S. public mergers and acquisitions valued over
$50 million. The Company is optimistic regarding the
revenues from transactional financial printing for 2004, due to
the apparent momentum in the capital markets. In the IPO market,
84 companies came to market in 2003, down from 94 companies in
2002, however, 53 of that 84 came to market in the second half
of 2003, with 24 coming in December. Merger and acquisition
transactions seem to be rebounding as well, with several
significant transactions in process.

The international market was also affected by the
downturn in the capital markets, with revenues of $78,016 for
the year ended December 31, 2003 compared to 2002 revenues
of $87,467, an 11% decline. The majority of this decline is from
the Asian subsidiaries which may have been impacted by the SARS
illness

19



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outbreak and its effect on the Asian capital
markets. The Company believes that its share of this competitive
market has remained stable and that it continues to be a leading
provider of services in all international markets.


Mutual fund services revenue decreased $25,762,
or 17%, to $125,159 for the year ended December 31, 2003,
which is primarily due to the continued consolidation of funds,
tightened spending by mutual funds in reaction to slowness in
the financial markets, and the loss of some clients due to
competitive pricing pressure. There were also certain special
proxy statement print jobs which were completed in 2002 that
were not repeated in 2003.

Financial printing revenue also declined
approximately $4,530 due to the sale of certain publishing
assets and liabilities during the third quarter of 2002. This
was offset by an increase of $5,292 related to fulfillment
services which are now included in consolidated results as a
result of the Companys acquisition of its fulfillment
operation which was previously operated as a joint venture
during most of 2002.

Gross margin of the financial printing segment
decreased by $23,609, or 10%, and the margin percentage
decreased by approximately one percentage point to 38%. The
reduced activity in transactional financial printing impacts
gross margins since, historically, transactional financial
printing is our most profitable class of service. There were
also some significant transactions for which the Company
provided financial printing services during the second quarter
of 2002, which increased the 2002 gross margin percentage, with
no transactions of similar significance in 2003. Margins were
also impacted by the competitive pricing pressure in the current
economic environment, as well as diminished resource utilization
resulting from the decreased mutual fund services revenue.
Offsetting these factors are the results of the Companys
ongoing cost reduction initiatives which have led to
improvements in gross margins.

Selling and administrative expenses decreased
$18,929, or 10%, to $161,538 primarily as a result of cost
reductions that were implemented during 2002 and 2003, including
workforce reductions and office closings during that time frame,
offset by higher employee benefit, incentive compensation, and
insurance costs. The decrease was also the result of lower
expenses that are directly associated with sales such as selling
expenses (including commissions) and certain variable
administrative expenses. As a percent of sales, selling and
administrative expenses decreased approximately one percentage
point to 27% from 2002 to 2003.

The resources that the Company commits to the
transactional financial printing market are significant and
management continues to balance these resources with market
conditions. During 2003, 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 its London manufacturing facility and a portion of its
London customer service center, as well as several other
offices. Total restructuring and asset impairment charges
related to the financial printing segment incurred as a result
of these programs were $12,380 compared to $6,876 in 2002.

Segment profit (as defined in Note 17 to the
Consolidated Financial Statements) from this segment for the
year ended December 31, 2003 was $61,889, a decrease of
$4,680, or 7%, from segment profit of $66,569 in 2002. The
decrease in segment profit is primarily a result of decreased
revenues in 2003. Segment profit as a percentage of revenue
remained consistent from 2002 to 2003. Refer to Note 17 of
the Consolidated Financial Statements for additional segment
financial information and reconciliation of segment profit to
pre-tax (loss) income.

20



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##### Table of Contents





| |            
| | -----------
| | Outsourcing

|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |         |   |  |  |     |   
|----------------------------------------------------------- |  | ------------------------ | -------- | -------------- |  | ---- | --- | ------- |  | -------- | -------- | -------- |  |  | --- | -- |  | - | ------- | - |  |  | --- | --
|                                                            |  |                          |          |                |  |     
|                                                            |  | Years Ended December 31, |          |               
|                                                            |  |                          |          | Year over Year
|                                                            |  |                          |          | % of           |  |      |     | % of    |  |         
|Outsourcing Results:                                        |  | 2003                     |          | Revenue        |  | 2002 |     | Revenue |  | $ Change |          | % Change
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |         
|                                                            |  |                         
|                                                            |  | (Dollars in thousands)  
|Revenue                                                     |  | $                        | 254,719  |                |  |      | 100 | %       |  | $        | 233,886  |          |  |  | 100 | %  |  | $ | 20,833  |   |  |  | 9   | % 
|Cost of revenue                                             |  |                          | (207,322 | )              |  |      | (81 | )       |  |          | (188,205 | )        |  |  | (80 | )  |  |   | (19,117 | ) |  |  | 10  |   
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |         |   |  |  |     |   
|Gross margin                                                |  |                          | 47,397   |                |  |      | 19  |         |  |          | 45,681   |          |  |  | 20  |    |  |   | 1,716   |   |  |  | 4   |   
|Selling and administrative                                  |  |                          | (33,249  | )              |  |      | (13 | )       |  |          | (30,039  | )        |  |  | (13 | )  |  |   | (3,210  | ) |  |  | 11  |   
|Other expense                                               |  |                          | (106     | )              |  |      | 0   |         |  |          |         |          |  |  | 0   |    |  |   | (106    | ) |  |  | 0   |   
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |         |   |  |  |     |   
|Segment profit                                              |  | $                        | 14,042   |                |  |      | 6   | %       |  | $        | 15,642   |          |  |  | 7   | %  |  | $ | (1,600  | ) |  |  | (10 | )%
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |         |   |  |  |     |   
|Other Items:                                                |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |         |   |  |  |     |   
|                                                           
|Depreciation                                                |  | $                        | (4,297   | )              |  |      | (2  | )%      |  | $        | (4,008   | )        |  |  | (2  | )% |  | $ | (289    | ) |  |  | 7   | % 
|Restructuring, integration and asset impairment
    charges |  |                          | (2,515   | )              |  |      | (1  | )       |  |          | (1,720   | )        |  |  | (1  | )  |  |   | (795    | ) |  |  | 46  |   

Revenue increased $20,833, or 9%, to $254,719 for
the year ended December 31, 2003. Most of the increase is
attributed to the acquisition of DecisionQuest in
December 2002, which accounted for approximately
$33.2 million in additional revenue for 2003. Excluding the
effect of the DecisionQuest acquisition, revenue was down
approximately 5%, which was the result of declining volumes from
investment banking clients, downsizing by certain clients and
the dissolutions of two large law firms, Hill & Barlow
PC and Brobeck, Phleger & Harrison L.L.P. These two
clients contributed to a year-over-year revenue decline of
approximately $9 million. A new joint venture arrangement
with Williams Lea, formed in October 2002, which is accounted
for on the equity method, also accounts for a decrease of
$3.8 million in revenue over the prior year, as the
Companys share of results from the arrangement is
reflected in other income in 2003. The revenue and expenses from
the clients served by this joint venture were included in
consolidated results of operations in 2002 prior to the
formation of the joint venture. Offsetting these amounts is
growth in new business, driven by new desktop publishing and
creative services opportunities and continued growth of market
share within the legal industry, accounting for an increase of
$22.2 million.

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 navigate
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 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. In addition, strategic investments
in digital litigation services such as electronic data services
are projected to drive additional revenue growth in 2004.
Products such as the recently announced RapidViewTM,
a web-based document hosting capability that makes lawsuit
discovery easier and more cost effective for litigation teams,
present a significant growth opportunity for the outsourcing
segment. During the fourth quarter of 2003, the Company secured
seven new outsourcing contracts, five of which were in the legal
market sector, one within investment banking and one in the
consulting industry. As a result, the Company has added
$22 million in total new contract revenue over the life of
those contracts to its existing base of business. In addition,
the Company was recently awarded two new three-year desktop
publishing agreements in the financial services industry sector
with a total value of approximately $34 million. The
Company also anticipates some increases in production volumes at
existing clients if the capital markets continue to improve
throughout 2004.

Gross margin from this segment increased $1,716
for the year ended December 31, 2003, while the margin
percentage decreased approximately one percentage point to 19%.
The increase in gross margin is

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directly related to the DecisionQuest
acquisition, as well as from cost cutting initiatives previously
put in place to reduce labor, equipment and indirect expenses
and savings resulting from the renegotiation of several
significant vendor contracts. The decrease in gross margin
percentage is directly related to lower resource utilization due
to decreased copy volumes from investment banking clients,
downsizing by certain clients and the dissolutions of the law
firms Hill & Barlow PC and Brobeck, Phleger &
Harrison L.L.P.


Selling and administrative expenses increased
$3,210, or 11%, to $33,249 and as a percent of sales, remained
flat at approximately 13%. The increase in expenses was caused
largely by the acquisition of DecisionQuest. In addition, this
segment increased its sales force to drive incremental higher
margin services.

During the year ended December 31, 2003, the
outsourcing segment incurred $2,515 in restructuring and asset
impairment charges, compared to $1,720 in 2002.

The outsourcing segment includes in its segment
profit its share of income (loss) from the CaseSoft joint
venture equity investment acquired as part of the December 2002
DecisionQuest acquisition. A loss of $106 was recognized by the
outsourcing segment for the year ended December 31, 2003 in
connection with this joint venture.

Segment profit (as defined in Note 17 to the
Consolidated Financial Statements) from this segment for the
year ended December 31, 2003 was $14,042. This was a
decrease of $1,600, or 10%, from segment profit of $15,642 in
2002. The decrease in segment profit was primarily a result of
the lower resource utilization due to decreased volumes from
investment banking clients, downsizing by certain clients, and
lower revenue and gross margin resulting from the dissolutions
of the law firms Hill & Barlow PC and Brobeck,
Phleger & Harrison L.L.P., as discussed above, offset
by DecisionQuest profits. Refer to Note 17 of the
Consolidated Financial Statements for additional segment
financial information and reconciliation of segment profit to
pre-tax income (loss).



| |              
| | -------------
| | Globalization

|                                                            |  |                          |          |                |  |      |     |         |  |          |         |          |  |  |     |    |  |   |         |   |  |  |     |  
|----------------------------------------------------------- |  | ------------------------ | -------- | -------------- |  | ---- | --- | ------- |  | -------- | ------- | -------- |  |  | --- | -- |  | - | ------- | - |  |  | --- | -
|                                                            |  |                          |          |                |  |     
|                                                            |  | Years Ended December 31, |          |               
|                                                            |  |                          |          | Year over Year
|                                                            |  |                          |          | % of           |  |      |     | % of    |  |         
|Globalization Results:                                      |  | 2003                     |          | Revenue        |  | 2002 |     | Revenue |  | $ Change |         | % Change
|                                                            |  |                          |          |                |  |      |     |         |  |          |         |         
|                                                            |  |                         
|                                                            |  | (Dollars in thousands)  
|Revenue                                                     |  | $                        | 219,245  |                |  |      | 100 | %       |  | $        | 131,171 |          |  |  | 100 | %  |  | $ | 88,074  |   |  |  | 67  | %
|Cost of revenue                                             |  |                          | (142,953 | )              |  |      | (65 | )       |  |          | (87,038 | )        |  |  | (66 | )  |  |   | (55,915 | ) |  |  | 64  |  
|                                                            |  |                          |          |                |  |      |     |         |  |          |         |          |  |  |     |    |  |   |         |   |  |  |     |  
|Gross margin                                                |  |                          | 76,292   |                |  |      | 35  |         |  |          | 44,133  |          |  |  | 34  |    |  |   | 32,159  |   |  |  | 73  |  
|Selling and administrative                                  |  |                          | (63,220  | )              |  |      | (29 | )       |  |          | (48,574 | )        |  |  | (37 | )  |  |   | (14,646 | ) |  |  | 30  |  
|                                                            |  |                          |          |                |  |      |     |         |  |          |         |          |  |  |     |    |  |   |         |   |  |  |     |  
|Segment profit (loss)                                       |  | $                        | 13,072   |                |  |      | 6   | %       |  | $        | (4,441  | )        |  |  | (3  | )% |  | $ | 17,513  |   |  |  | 394 | %
|                                                            |  |                          |          |                |  |      |     |         |  |          |         |          |  |  |     |    |  |   |         |   |  |  |     |  
|Other Items:                                                |  |                          |          |                |  |      |     |         |  |          |         |          |  |  |     |    |  |   |         |   |  |  |     |  
|                                                           
|Depreciation                                                |  | $                        | (6,888   | )              |  |      | (3  | )%      |  | $        | (5,580  | )        |  |  | (4  | )% |  | $ | (1,308  | ) |  |  | 23  | %
|Restructuring, integration and asset impairment
    charges |  |                          | (8,605   | )              |  |      | (4  | )       |  |          | (10,624 | )        |  |  | (8  | )  |  |   | 2,019   |   |  |  | (19 | )

Revenue increased $88,074, or 67%, to $219,245
for the year ended December 31, 2003. The increase is
primarily attributable to the acquisition of GlobalNet in
September of 2002, as well as organic growth. The increase in
revenue was accompanied by a change in product mix reflecting a
continuing decline in the concentration of revenues from the
information technology and telecommunications sectors,
consistent with the Companys efforts to diversify its
customer base. The diversification was evidenced by increases in
the government, life sciences, financial services, manufacturing
and transportation sectors. During 2003 the Company completed
significant projects for Microsoft, Nissan and the Special
Olympics, among others. Significant contracts signed recently
include the renewal of the U.S. Department of Justice
contract, and new contracts with the Irish Department of Justice
and BKK AS, one of Norways largest producers, wholesalers

22



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##### Table of Contents



and transmitters of electrical power. The Company
also entered into a five-year collaborative business agreement
with SAAB AB.


Gross margin from this segment increased $32,159,
or 73%, while the gross margin percentage increased
approximately one percentage point to 35%. Gains realized from
facility consolidation, headcount reductions and process
improvements related to the GlobalNet acquisition fueled the
increase in gross margin percentage, offset by pricing pressure
in the globalization market along with the negative impact from
the weak dollar. The Company anticipates margin improvement as
it continues to realize the benefits of merging facilities and
integrating the workforce of GlobalNet with the BGS workforce.
Additional initiatives expected to improve margins include the
rollout of a customer-facing portal designed to improve workflow
and an initiative to improve global vendor management through
consolidation and increased quality control.

Selling and administrative expenses increased
$14,646, or 30%, to $63,220, but as a percentage of revenue
decreased approximately eight percentage points to 29%. The
increase in selling and administrative expenses is generally
related to the acquisition of GlobalNet. Economies realized from
merging redundant facilities and integrating the workforces of
BGS and GlobalNet is the primary contributor to the decrease of
selling and administrative costs as a percentage of revenue.

For the year ended December 31, 2003,
restructuring, integration and asset impairment charges related
to the globalization segment were $8,605 compared to $10,624 for
the year ended December 31, 2002. These charges primarily
related to workforce reductions, office closings, and other
costs associated with the integration of GlobalNet.

As a result of the foregoing, segment profit (as
defined in Note 17 to the Consolidated Financial
Statements) for this segment for the year ended
December 31, 2003 was $13,072. This compares to a segment
loss in 2002 of $4,441. The significant improvement in segment
profit is largely a result of economies created through the
integration of GlobalNet and BGS. The Company expects this
segments profit to continue to improve in 2004 as it
finalizes the integration of BGS and GlobalNet. The Company
continues to review further office consolidation and
streamlining workflow processes through the expanded use of
technologies, including its web-based translation portal,
ElcanoTM. Refer to Note 17 of the Consolidated
Financial Statements for additional segment financial
information and reconciliation of segment profit (loss) to
pre-tax income (loss).



| |        
| | -------
| | Summary

Overall revenue increased $61,494, or 6%, to
$1,064,820 for the year ended December 31, 2003. The
increase is attributed to the increases in globalization and
outsourcing due to the acquisitions of GlobalNet and
DecisionQuest in 2002, offset by a decline in financial
printing. There was a $10,655, or 3%, increase in gross margin,
however the gross margin percentage decreased approximately one
percentage point to 33%. This decrease in gross margin
percentage was attributable to decreased margin percentages in
the financial printing and outsourcing segments.

Selling and administrative expenses on a
company-wide basis decreased $2,380, or 1%, to $273,438. This
decrease was primarily due to lower costs directly related to
the decrease in sales in financial printing, such as selling
expenses (including commissions) and certain variable
administrative expenses, as well as decreases in administrative
expenses as a result of workforce reductions, office closings,
and reductions in discretionary spending in all operating
segments. In addition, shared corporate expenses were $15,655 in
2003 compared to $17,351 in 2002, a decrease of $1,696,
primarily due to lower professional and consulting fees. These
decreases were offset by increases attributable to the
acquisitions of GlobalNet and DecisionQuest, and higher employee
benefit costs, incentive compensation, and insurance. As a
percentage of sales, these expenses decreased two percentage
points to 26%. This percentage was affected by the improvement
in the globalization segment primarily due to realizing
economies created by the acquisition of GlobalNet and cost
savings realized as it merged redundant facilities and
integrated the two workforces.

Depreciation decreased $330, primarily as a
result of reduced capital expenditures in recent years.
Amortization increased $1,604 as a result of the acquisitions of
GlobalNet and DecisionQuest in 2002.

23



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##### Table of Contents



There were $25,591 in restructuring, integration,
and asset impairment charges for the year ended
December 31, 2003, as compared to $19,378 in the prior
year, as discussed in Note 8 to the financial statements.

Interest expense increased $4,293, a 60%
increase, primarily as a result of higher average borrowings in
2003 ($175 million for the year ended December 31,
2003, as compared to $133 million for the year ended
December 31, 2002), and a slightly higher average interest
rate in the current year (5.6% for the year ended
December 31, 2003, as compared to 5.2% for the year ended
December 31, 2002). The increase in interest expense is
also the result of a $909 increase in the amortization of
deferred financing costs, resulting from the fees relating to
the Companys revolving credit facility, senior notes and
convertible subordinated debentures, all of which were either
completed or amended since February 2002. In addition, there was
also a write-off of $455 of previously deferred financing costs
in connection with the retirement of portions of the revolving
credit facility and senior notes during the third quarter of
2003, as discussed in Note 10 to the financial statements.

The gain on sale of certain printing assets of
$15,369 for the year ended December 31, 2002 relates to the
sale of certain publishing assets and liabilities associated
with its financial print segment, as discussed in Note 3 to
the financial statements.

The gain on the sale of building of $4,889 for
the year ended December 31, 2002 relates to the sale of the
Companys Chicago office building, as discussed in
Note 3 to the financial statements.

Income tax expense in 2003 was $604 on a pre-tax
loss of $8,523, compared to income tax expense in 2002 of $9,145
on pre-tax income of $9,500. Income tax expense in both years
was impacted significantly because there was no benefit taken
for losses in certain foreign jurisdictions because of the
uncertainty regarding their realization. The size of the
non-deductible expenses is relatively unchanged from year to
year, and the rate applied to U.S. taxable income (loss)
remained at approximately 39%.

As a result of the foregoing, the loss from
continuing operations for the year ended December 31, 2003
was $9,127 as compared to income of $355 for the same period
last year.

24



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##### Table of Contents





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared to
    Year Ended December 31, 2001



| |                   
| | ------------------
| | Financial Printing

|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |     |   
|----------------------------------------------------------- | -------------------------------- | ------------------------ | -------- | -------------- |  | ---- | --- | ------- | - | -------- | -------- | -------- |  |  | --- | -- | - | - | ------- | ------- | - |  | --- | --- | --
|                                                            |                                  |                          |          |                |  |     
|                                                            |                                  | Years Ended December 31, |          |               
|                                                            |                                  |                          |          | Year over Year
|                                                            |                                  |                          |          | % of           |  |      |     | % of    |   |         
|Financial Printing Results:                                 |                                  | 2002                     |          | Revenue        |  | 2001 |     | Revenue |   | $ Change |          | % Change
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |         
|                                                            |                                  |                         
|                                                            |                                  | (Dollars in thousands)  
|Revenue:                                                    |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|                                                           
|                                                            | Transactional financial printing |                          | $        | 273,900        |  |      |     | 43      | % |          | $        | 289,242  |  |  |     | 40 | % |   | $       | (15,342 | ) |  |     | (5  | )%
|                                                            | Compliance printing              |                          |          | 139,455        |  |      |     | 22      |   |          |          | 153,088  |  |  |     | 21 |   |   |         | (13,633 | ) |  |     | (9  | ) 
|                                                            | Mutual funds                     |                          |          | 150,921        |  |      |     | 24      |   |          |          | 165,169  |  |  |     | 23 |   |   |         | (14,248 | ) |  |     | (9  | ) 
|                                                            | Commercial                       |                          |          | 35,478         |  |      |     | 6       |   |          |          | 67,383   |  |  |     | 9  |   |   |         | (31,905 | ) |  |     | (47 | ) 
|                                                            | Other                            |                          |          | 38,515         |  |      |     | 5       |   |          |          | 46,308   |  |  |     | 7  |   |   |         | (7,793  | ) |  |     | (17 | ) 
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|Total revenue                                               |                                  |                          | 638,269  |                |  |      | 100 |         |   |          | 721,190  |          |  |  | 100 |    |   |   | (82,921 | )       |   |  | (11 | )  
|Cost of revenue                                             |                                  |                          | (391,233 | )              |  |      | (61 | )       |   |          | (463,746 | )        |  |  | (64 | )  |   |   | 72,513  |         |   |  | (16 | )  
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|Gross margin                                                |                                  |                          | 247,036  |                |  |      | 39  |         |   |          | 257,444  |          |  |  | 36  |    |   |   | (10,408 | )       |   |  | (4  | )  
|Selling and administrative                                  |                                  |                          | (180,467 | )              |  |      | (28 | )       |   |          | (188,630 | )        |  |  | (26 | )  |   |   | 8,163   |         |   |  | (4  | )  
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|Segment profit                                              |                                  | $                        | 66,569   |                |  |      | 11  | %       |   | $        | 68,814   |          |  |  | 10  | %  |   | $ | (2,245  | )       |   |  | (3  | )% 
|                                                            |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|Other Items:                                                |                                  |                          |          |                |  |      |     |         |   |          |          |          |  |  |     |    |   |   |         |         |   |  |     |    
|                                                           
|Depreciation                                                |                                  | $                        | (29,075  | )              |  |      | (5  | )%      |   | $        | (30,586  | )        |  |  | (4  | )% |   | $ | 1,510   |         |   |  | (5  | )% 
|Restructuring, integration and asset impairment
    charges |                                  |                          | (6,876   | )              |  |      | (1  | )       |   |          | (6,567   | )        |  |  | (1  | )  |   |   | (309    | )       |   |  | 5   |    
|Gain (loss) on sale of certain printing assets              |                                  |                          | 15,369   |                |  |      | 2   |         |   |          | (1,858   | )        |  |  | 0   |    |   |   | 17,227  |         |   |  | 927 |    
|Gain on sale of building                                    |                                  |                          | 4,889    |                |  |      | 1   |         |   |          |         |          |  |  |    |    |   |   | 4,889   |         |   |  | 100 |    

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 $15,342, or 5% to $273,900 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. During 2002 and 2001, the Company 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 for the past seven years.
Despite this downturn, the Company continued 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 remained stable in
2002 and that we were a leading provider of services in all
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 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.

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 December 31,
2002, 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 $6,876, compared to $6,567 in 2001.

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Commercial printing revenue decreased $31,905, or
47%, 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 $5,407, 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 $14,248, or 9%, primarily due to
the consolidation of funds and tightened spending by mutual
funds in reaction to slowness in the financial markets. There
was also a decrease in revenue from compliance printing. Revenue
from these services decreased by $13,633, or 9%, compared to
2001.

Gross margin contribution of the financial
printing segment decreased by $10,408. However, the gross margin
percentage increased by approximately three percentage points to
39%, 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
$8,163 or 4%, to $180,467, primarily as a result of cost
reductions implemented during 2002, 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 were 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 28%. This increase was primarily the result
of lower revenues available to absorb certain fixed selling and
administrative expenses.

Segment profit (as defined in Note 17 to the
Consolidated Financial Statements) from this segment for 2002
was $66,569. This was a decrease of $2,245, or 3%, compared to
segment profit of $68,814 in 2001. Refer to Note 17 of the
Consolidated Financial Statements for additional segment
financial information and reconciliation of segment profit to
pre-tax income (loss).

Outsourcing

|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |        |   |  |  |     |   
|----------------------------------------------------------- |  | ------------------------ | -------- | -------------- |  | ---- | --- | ------- |  | -------- | -------- | -------- |  |  | --- | -- |  | - | ------ | - |  |  | --- | --
|                                                            |  |                          |          |                |  |     
|                                                            |  | Years Ended December 31, |          |               
|                                                            |  |                          |          | Year over Year
|                                                            |  |                          |          | % of           |  |      |     | % of    |  |         
|Outsourcing Results:                                        |  | 2002                     |          | Revenue        |  | 2001 |     | Revenue |  | $ Change |          | % Change
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |         
|                                                            |  |                         
|                                                            |  | (Dollars in thousands)  
|Revenue                                                     |  | $                        | 233,886  |                |  |      | 100 | %       |  | $        | 231,791  |          |  |  | 100 | %  |  | $ | 2,095  |   |  |  | 1   | % 
|Cost of revenue                                             |  |                          | (188,205 | )              |  |      | (80 | )       |  |          | (188,574 | )        |  |  | (81 | )  |  |   | 369    |   |  |  | 0   |   
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |        |   |  |  |     |   
|Gross margin                                                |  |                          | 45,681   |                |  |      | 20  |         |  |          | 43,217   |          |  |  | 19  |    |  |   | 2,464  |   |  |  | 6   |   
|Selling and administrative                                  |  |                          | (30,039  | )              |  |      | (13 | )       |  |          | (28,408  | )        |  |  | (12 | )  |  |   | (1,631 | ) |  |  | 6   |   
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |        |   |  |  |     |   
|Segment profit                                              |  | $                        | 15,642   |                |  |      | 7   | %       |  | $        | 14,809   |          |  |  | 7   | %  |  | $ | 833    |   |  |  | 6   | % 
|                                                            |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |        |   |  |  |     |   
|Other Items:                                                |  |                          |          |                |  |      |     |         |  |          |          |          |  |  |     |    |  |   |        |   |  |  |     |   
|                                                           
|Depreciation                                                |  | $                        | (4,008   | )              |  |      | (2  | )%      |  | $        | (4,754   | )        |  |  | (2  | )% |  | $ | 746    |   |  |  | (16 | )%
|Restructuring, integration and asset impairment
    charges |  |                          | (1,720   | )              |  |      | (1  | )       |  |          | (5,412   | )        |  |  | (2  | )  |  |   | 3,692  |   |  |  | (68 | ) 

Revenue increased $2,095, or 1%, to $233,886 for
the year ended December 31, 2002. The slight increase was
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.

Gross margin from this segment increased $2,464,
or 6%, while the margin percentage increased approximately one
percentage point to 20%. This increase in gross margin
percentage was 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

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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
$1,631, or 6%, to $30,039, and as a percent of sales, it
increased by approximately one percentage point to 13%. This
increase was caused by an increase in certain administrative
costs, including facilities costs, and the acquisition of DMS
and DecisionQuest.

During 2002, the outsourcing segment incurred
$1,720 in restructuring and asset impairment charges, compared
to $5,412 in 2001.

Segment profit (as defined in Note 17 to the
Consolidated Financial Statements) from this segment in 2002 was
$15,642. This was an increase of $833, or 6%, over segment
profit of $14,809 in 2001. Refer to Note 17 of the
Consolidated Financial Statements for additional segment
financial information and reconciliation of segment profit to
pre-tax income (loss).

Globalization

|                                                            |  |                          |         |                |  |      |      |         |  |          |         |          |  |  |      |    |  |   |         |   |  |  |      |   
|----------------------------------------------------------- |  | ------------------------ | ------- | -------------- |  | ---- | ---- | ------- |  | -------- | ------- | -------- |  |  | ---- | -- |  | - | ------- | - |  |  | ---- | --
|                                                            |  |                          |         |                |  |     
|                                                            |  | Years Ended December 31, |         |               
|                                                            |  |                          |         | Year over Year
|                                                            |  |                          |         | % of           |  |      |      | % of    |  |         
|Globalization Results:                                      |  | 2002                     |         | Revenue        |  | 2001 |      | Revenue |  | $ Change |         | % Change
|                                                            |  |                          |         |                |  |      |      |         |  |          |         |         
|                                                            |  |                         
|                                                            |  | (Dollars in thousands)  
|Revenue                                                     |  | $                        | 131,171 |                |  |      | 100% |         |  | $        | 101,650 |          |  |  | 100% |    |  | $ | 29,521  |   |  |  | 29   | % 
|Cost of revenue                                             |  |                          | (87,038 | )              |  |      | (66  | )       |  |          | (60,920 | )        |  |  | (60  | )  |  |   | (26,118 | ) |  |  | 43   |   
|                                                            |  |                          |         |                |  |      |      |         |  |          |         |          |  |  |      |    |  |   |         |   |  |  |      |   
|Gross margin                                                |  |                          | 44,133  |                |  |      | 34   |         |  |          | 40,730  |          |  |  | 40   |    |  |   | 3,403   |   |  |  | 8    |   
|Selling and administrative                                  |  |                          | (48,574 | )              |  |      | (37  | )       |  |          | (34,459 | )        |  |  | (34  | )  |  |   | (14,115 | ) |  |  | 41   |   
|                                                            |  |                          |         |                |  |      |      |         |  |          |         |          |  |  |      |    |  |   |         |   |  |  |      |   
|Segment (loss) profit                                       |  | $                        | (4,441  | )              |  |      | (3   | )%      |  | $        | 6,271   |          |  |  | 6    | %  |  | $ | (10,712 | ) |  |  | (171 | )%
|                                                            |  |                          |         |                |  |      |      |         |  |          |         |          |  |  |      |    |  |   |         |   |  |  |      |   
|Other Items:                                                |  |                          |         |                |  |      |      |         |  |          |         |          |  |  |      |    |  |   |         |   |  |  |      |   
|                                                           
|Depreciation                                                |  | $                        | (5,580  | )              |  |      | (4   | )%      |  | $        | (3,337  | )        |  |  | (3   | )% |  | $ | (2,243  | ) |  |  | 67   | % 
|Restructuring, integration and asset impairment
    charges |  |                          | (10,624 | )              |  |      | (8   | )       |  |          | (5,945  | )        |  |  | (6   | )  |  |   | (4,679  | ) |  |  | 79   |   
|Purchased in-process research and development               |  |                          |        |                |  |      |     |         |  |          | (800    | )        |  |  | 0    |    |  |   | 800     |   |  |  | 100  |   

Revenue increased $29,521, or 29%, to $131,171 in
2002. This was 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.

Gross margin from this segment increased $3,403,
or 8%, while the gross margin percentage decreased approximately
six percentage points to 34%. Lower than expected revenue growth
on a higher fixed cost base, resulting from the Mendez
acquisition, was the principal cause of the margin percentage
decline. The Company 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.

Selling and administrative expenses increased
$14,115, or 41%, to $48,574, and as a percentage of revenue
increased approximately three percentage points to 37%. The
increase in selling and administrative expenses was generally
related to the acquisitions of Mendez and GlobalNet. The
increase as a percentage of revenue was primarily due to lower
than expected revenue growth on a higher fixed cost base.

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, segment loss (as
defined in Note 17 to the Consolidated Financial
Statements) for this segment in 2002 was $4,441. This compares
to segment profit in 2001 of $6,271. Refer to Note 17 of
the Consolidated Financial Statements for additional segment
financial information and reconciliation of segment profit
(loss) to pre-tax income (loss).



| |        
| | -------
| | 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 $4,684, or 1%, 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 $7,045 or 3%, to $275,818. This
category was 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. Shared corporate expenses
were $17,351 in 2002 compared to $17,746 in 2001, a decrease of
$395. As a percentage of sales, overall selling and
administrative expenses increased by approximately two
percentage points to 28%. This percentage increase was 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 8 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 (pre-tax gain
of $4,889) in 2002, as discussed in Note 3 to the financial
statements.

Income tax expense in 2002 was $9,145 on pre-tax
income of $9,500, compared to income tax expense in 2001 of
$2,281 on pre-tax loss of $5,434. Income tax expense in both
years 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 in the prior year.

2004 Outlook

The following statements and certain statements
made elsewhere in this document are based upon current
expectations. These statements are forward looking and are
subject to factors that could cause actual results to differ
materially from those suggested here, including demand for and
acceptance of the Companys

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services, new technological developments,
competition and general economic or market conditions,
particularly in the domestic and international capital markets.
Refer also to the Cautionary Statement Concerning Forward
Looking Statements included at the beginning of this Item 7.


For 2004, the Company expects improved results
over 2003. The Company is optimistic about the financial print
business due to the leverage in its operating model, as well as
the apparent momentum in capital market activity. The Company
also expects improvement in its outsourcing segment as the
capital markets improve. The Company expects improvement in its
globalization segment as it continues to realize the benefits of
the integration of recent acquisitions.

Although several circumstances, including
volatile market conditions, have limited the Companys
ability to predict future financial results, we estimate that
full year 2004 results will be in the ranges shown below.

|                                                                |                       |                |                      |                         | 
|--------------------------------------------------------------- | --------------------- | -------------- | -------------------- | ----------------------- | 
|                                                                |                       | Full-year 2004
|                                                                |                       |               
|Revenues:                                                       |                       |                | $1.1 to $1.2 billion |                        
|                                                                | Financial Print       |                |                      | $620 to $650 million    | 
|                                                                | Outsourcing           |                |                      | $270 to $280 million    | 
|                                                                | Globalization         |                |                      | $240 to $250 million    | 
|Segment Profit:                                                 |                       |                |                      |                        
|                                                                | Financial Print       |                |                      | $70 to $90 million      | 
|                                                                | Outsourcing           |                |                      | $19 to $22 million      | 
|                                                                | Globalization         |                |                      | $18 to $23 million      | 
|                                                                | Corporate/ Other      |                |                      | $(17) to $(25)  million | 
|                                                                | Restructuring charges |                |                      | $(5) to $(7) million    | 
|Depreciation and amortization                                   |                       |                | $43 to $44 million   |                        
|Interest expense                                                |                       |                | $10 to $12 million   |                        
|Diluted earnings per share                                      |                       |                | $0.45 to $0.77       |                        
|Diluted earnings per share, excluding
    restructuring charges |                       |                | $0.56 to $0.91       |                        
|Capital expenditures                                            |                       |                | $25 to $30 million   |                        

Liquidity and Capital Resources

|                                                        |  |      |           |      |  |      |           |   |  |   |           |  
|------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                        |  | 2003 |           | 2002 |  | 2001
|Liquidity and Cash Flow Information:                    |  |      |           |      |  |     
|Working capital                                         |  | $    | 75,378    |      |  | $    | 82,339    |   |  | $ | 78,142    |  
|Current ratio                                           |  |      | 1.41 to 1 |      |  |      | 1.46 to 1 |   |  |   | 1.42 to 1 |  
|Net cash provided by operating activities               |  | $    | 18,189    |      |  | $    | 74,788    |   |  | $ | 72,435    |  
|Net cash (used in) investing activities                 |  | $    | (23,188   | )    |  | $    | (92,445   | ) |  | $ | (94,801   | )
|Net cash (used in) provided by financing
    activities |  | $    | (10,872   | )    |  | $    | 22,769    |   |  | $ | 19,833    |  
|Capital expenditures                                    |  | $    | 24,174    |      |  | $    | 29,543    |   |  | $ | 39,478    |  
|Acquisitions, net of cash acquired                      |  |      |          |      |  | $    | 86,761    |   |  | $ | 59,863    |  
|Average days sales outstanding                          |  |      | 67        |      |  |      | 70        |   |  |   | 75        |  

On December 31, 2003, the Company had a
current ratio of 1.41 to 1 and working capital of $75,378. On
December 31, 2002, the Company had a current ratio of 1.46
to 1 and working capital of $82,339. The decrease in working
capital of $6,961 results from several factors. A decrease of
approximately $17 million in working capital is due to an
increase in accrued employee compensation and benefits as a
result of a higher current portion of the pension and other
retirement plan liabilities, as well as higher accrued incentive
compensation as of December 31, 2003 compared to
December 31, 2002. In addition, there was an approximately
$23 million decrease in working capital due to a lower
level of cash and a decline in prepaid expenses and other
current assets as of December 31, 2003 as compared to
December 31, 2002. These decreases in working capital were
offset by an increase in accounts receivable of approximately
$21 million due

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to higher revenue in the fourth quarter ended
December 31, 2003 as compared to December 31, 2002, as
well as a smaller balance in accrued restructuring charges at
December 31, 2003, which was lower by approximately
$7 million.


On September 24, 2003, the Company completed
a $75 million private placement of 5% Convertible
Subordinated Debentures due October 1, 2033. The proceeds
from this private placement were used to pay down a portion of
the Companys revolving credit facility and to repurchase a
portion of the senior notes. The Company may redeem any portion
of the debentures in cash on or after October 1, 2008 at a
redemption price equal to 100% of the principal amount to be
redeemed plus accrued and unpaid interest and additional
interest, if any, up to, but not including the redemption date.
In addition, each holder of the debentures may require the
Company to repurchase all or any portion of that holders
debentures on each of October 1, 2008, October 1,
2013, October 1, 2018, October 1, 2023 and
October 1, 2028, or in the event of a change in
control as that term is defined in the indenture for the
debentures, at a purchase price equal to 100% of the principal
amount plus accrued and unpaid interest and additional interest,
if any, up to, but not including the redemption date. The
Company would pay the repurchase price for any debentures
repurchased on October 1, 2008 in cash. The Company would
have the option of paying the repurchase price of any debentures
repurchased on October 1, 2013, October 1, 2018,
October 1, 2023, or October 1, 2028 in cash, shares of
the Companys common stock, or a combination of cash and
shares of common stock.

In February 2002, the Company completed a
$75 million private placement of senior notes with several
institutional lenders. The notes have an approximate interest
rate of 7.8% (including the impact of amendments and
prepayments), with payments required between January 2006 and
January 2012. The proceeds from the private placement were used
to pay down a portion of the Companys revolving credit
facility. The outstanding balance under these notes was
$60 million at December 31, 2003.

The Company completed its three-year
$175 million revolving credit facility on July 2, 2002
(amended in March and September 2003). In October 2003, the
commitment under this facility was permanently reduced to
$115 million. The outstanding balance under this facility
was $3 million at December 31, 2003.

The terms of the senior 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 senior notes and revolving credit agreement are
guaranteed by substantially all of the Companys
subsidiaries. The debentures are unsecured obligations and are
subordinated in right of payment to all of the Companys
existing and future senior debt. The debentures are not
guaranteed by any of the Companys subsidiaries and are
effectively subordinated to all existing and future indebtedness
and other liabilities of the Companys subsidiaries,
including trade creditors. The Company is not subject to any
financial covenants under the debentures.

Due to the continued economic downturn and impact
on the Companys business, the revolving credit agreement
and senior notes were amended in March 2003 to modify certain
financial covenant requirements and definitions. Under the terms
of these amendments, the Company is required to meet revised
leverage and fixed charge coverage ratios from the first quarter
of 2003 through the first quarter of 2004. These financial
covenant requirements were further revised as a result of the
September 2003 amendments described below. The new covenants are
less restrictive than the previously existing covenants. The
Company was in compliance with all loan covenants as amended as
of December 31, 2003. Based upon its current projections,
the Company believes it will be in compliance with the revised
quarterly loan covenants throughout fiscal year 2004. In the
event that actual results do not approximate forecasted results,
management believes it could execute contingency plans to
mitigate any adverse impact. Such plans include additional cost
reductions, asset sales, or seeking additional alternative
financing. While the Company believes that it could obtain any
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 March 2003 amendments,
the Company agreed to provide accounts receivable as collateral.
The collateral will be shared proportionally between the parties
to the revolving credit agreement and the senior notes. In
addition, interest rates charged under the revolving credit
agreement increased to LIBOR plus 125-325 basis points
depending on certain leverage ratios as defined in the credit
agreement,

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compared to LIBOR plus 105-200 basis points
under the previously existing covenants. Interest rates charged
under the senior notes increased by 25 basis points during
the amendment period and a subsequent period during which the
Company must meet the original covenant requirements (this rate
increase was made permanent by the September 2003 amendment
described below). The Company paid an amendment fee to approving
lenders and other costs aggregating approximately
$1.1 million, which is being amortized to interest expense
over the period covered by the amendment.


In September 2003, the Company entered into an
amendment to the revolving credit facility, that, among other
things, i) provided for the permanent reduction of the
credit facility by at least $50 million to the extent that
net proceeds from the issuance of the debentures were used to
reduce the Companys borrowings under the facility,
ii) modified the permitted leverage ratio under the
facility, and iii) added provisions relating to the repayment
and modification of subordinated debt, and approved the
subordination provisions of the recently issued debentures.

Also in September 2003, the Company entered into
an additional amendment for the senior notes that, among other
things, i) made the existing temporary increase in interest
rates permanent, ii) made a new temporary increase in
interest rates of 10 basis points, which will remain in
effect until the Company obtains an investment grade rating with
respect to the senior notes, iii) gave the holders of the
senior notes a put option exercisable during the six months
immediately prior to October 1, 2008, the first date on
which holders of the debentures may require the Company to
repurchase the debentures, iv) adjusted the fixed charge
coverage ratio test to be 1.50 to 1.00 as of the fourth quarter
of 2003 and for the remaining life of the senior notes,
v) added a debt to EBITDA ratio test of 3.25 to 1.00 and a
senior debt to EBITDA ratio test of 2.50 to 1.00 in the covenant
that limits the Companys ability to incur indebtedness,
and vi) removed a $25 million limitation on potential
acquisitions consummated before March 31, 2004.

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 its 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, 2003 were $24,174. For the full year 2004, the
Company plans capital spending of approximately $25 to
$30 million.

Cash Flows

The Companys focus on cash management
continues, including managing receivables and inventory.
Year-to-date average days sales outstanding improved to
67 days in 2003 from 70 days in 2002. The Company had
net cash provided by operating activities of $18,189, $74,788,
and $72,435 for the years ended December 31, 2003, 2002 and
2001, respectively. The reduction in net cash provided by
operating activities in 2003 reflects a significant increase in
accounts receivable as compared to a significant decrease in the
prior year (when excluding the effect of 2002 acquisitions). Net
cash provided by operating activities in 2003 was also reduced
by a significant decrease in accrued expenses, primarily caused
by a decline in the accrued restructuring balance during 2003,
while there was a significant increase in that balance in 2002.
Net cash provided by operating activities in 2002 reflected an
increase in accrued expenses, as opposed to a decrease in that
line item in 2001. This change was primarily caused by higher
accruals for restructuring charges. Offsetting this was a
smaller decrease in accounts receivable than experienced in
2001, and a slight increase in inventory in 2002 as opposed to a
decrease in the prior year. Overall, cash provided by operating
activities from continuing operations decreased by almost
$10 million from 2001 to 2002. However, cash used in
discontinued operations in 2002 was almost $12 million
lower than in 2001.

Net cash used in investing activities was
$23,188, $92,445, and $94,801 for the years ended
December 31, 2003, 2002 and 2001, respectively. The change
from 2002 to 2003 was primarily the result of less cash used in
the acquisition of businesses in the current year, which is
offset partially by the proceeds recognized on the sale of
certain printing assets and the Chicago building in 2002. Cash
used in the purchase of property, plant,

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and equipment during the year ended
December 31, 2003 was also $5,369 less than in the
comparable period in 2002. The change from 2001 to 2002 was
primarily due to the proceeds recognized on the sale of certain
printing assets and the Chicago building in 2002 and a decreased
level of capital expenditures in 2002 compared to 2001. This was
offset partially by a higher amount of cash paid in connection
with the 2002 GlobalNet and DecisionQuest acquisitions than for
the 2001 acquisitions of Mendez and DMS.


Net cash (used in) provided by financing
activities was $(10,872), $22,769, and $19,833, for the years
ended December 31, 2003, 2002 and 2001, respectively. The
change in 2003 compared to 2002 primarily resulted from net
repayments of debt in 2003, as compared to net borrowings in
2002, partially offset by slightly higher proceeds from stock
option exercises in 2003. The change in 2002 from 2001 primarily
resulted from slightly higher net borrowings in 2002, as
compared to 2001, as well as slightly higher proceeds from stock
option exercises.

Contractual Obligations, Commercial
Commitments, and Off-Balance Sheet Arrangements

As previously discussed, the Companys debt
consists primarily of the convertible subordinated debentures
issued in the private placement in September 2003, 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.

The Company had a synthetic lease for printing
equipment in the United States and Canada which was funded
through a master lease agreement administered by a commercial
bank. The lease, which is accounted for as an operating lease,
had an original expiration date in April 2003 which was extended
to May 19, 2003. In May, the Company purchased a portion of
the equipment under the old agreement at the residual value of
approximately $3.1 million, and replaced a portion of the
existing agreement with a new synthetic lease agreement, which
is also accounted for as an operating lease. The equipment under
the new facility had a fair value of approximately
$13.8 million. The new facility has a term of four years,
with expected minimum lease payments of approximately
$2.5 million in 2004, 2005, and 2006 and $1.0 million
in 2007, all of which is included in the table below in the
future minimum synthetic lease payment amounts. At the end of
this new facility, the Company has the option of purchasing the
equipment at the estimated residual value of approximately
$6.3 million. The equipment under the new lease had an
aggregate residual value of approximately $12.8 million at
December 31, 2003.

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

|                                      |  |                      |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------------------- |  | -------------------- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                      |  |                     
|                                      |  | Payments Due by Year
|Contractual                           |  |                     
|Obligations                           |  | Total                |         | 2004 |  | 2005 |        | 2006 |  | 2007 |        | 2008 |  | Thereafter
|                                      |  |                      |         |      |  |      |        |      |  |      |        |      |  |           
|Long-term debt obligations(1)         |  | $                    | 140,244 |      |  | $    | 516    |      |  | $    | 3,703  |      |  | $          | 4,547  |  |  | $ | 14,257 |  |  | $ | 79,075 |  |  | $ | 38,146 | 
|Operating lease obligations(2)(3)     |  |                      | 207,719 |      |  |      | 45,888 |      |  |      | 38,908 |      |  |            | 27,670 |  |  |   | 20,193 |  |  |   | 14,343 |  |  |   | 60,717 | 
|Capital lease obligations             |  |                      | 354     |      |  |      | 254    |      |  |      | 100    |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Synthetic lease obligation(4)         |  |                      | 14,731  |      |  |      | 2,455  |      |  |      | 2,455  |      |  |            | 2,455  |  |  |   | 7,366  |  |  |   |       |  |  |   |       | 
|Unconditional purchase obligations(5) |  |                      | 4,912   |      |  |      | 2,235  |      |  |      | 2,677  |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|                                      |  |                      |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|Total contractual cash obligations    |  | $                    | 367,960 |      |  | $    | 51,348 |      |  | $    | 47,843 |      |  | $          | 34,672 |  |  | $ | 41,816 |  |  | $ | 93,418 |  |  | $ | 98,863 | 
|                                      |  |                      |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The debt payment information presented above
    assumes that the Companys convertible subordinated
    debentures issued in September 2003 will either be redeemed by
    the Company or repurchased by the holders in October 2008, the
    earliest date upon which redemption or repurchase may occur.
    Refer to Note 10 to the Consolidated Financial Statements
    for additional information regarding the redemption and
    repurchase provisions of the debentures.
|   
|(2) | The operating lease obligations shown in the
    table have not been reduced by minimum non-cancelable sublease
    rentals aggregating approximately $2.3 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 as a
    result of the secondary liability provisions of the primary
    lease agreements.      
|   
|(3) | Operating lease payments include amounts
    associated with equipment located at customer sites, with the
    term of the lease typically tied to the length of the customer
    contract.                                                                                                                                                                                                                                                                                       
|   
|(4) | The synthetic lease payments indicated in the
    table assume that the Company would exercise its option to
    purchase the equipment at the end of the lease for approximately
    $6.3 million, which represents the estimated residual value
    of the equipment at the end of the lease.                                                                                                                                                                                   
|   
|(5) | Unconditional purchase obligations primarily
    represent commitments for services ($4.5 million) and
    capital expenditures ($0.4 million).                                                                                                                                                                                                                                                                                                                                   

As discussed in Note 12 to the Consolidated
Financial Statements, the Company has long-term liabilities for
deferred employee compensation, including pension, supplemental
retirement plan, and deferred compensation. The payments related
to the supplemental retirement plan and deferred compensation
are not included above since they are dependent upon when the
employee retires or leaves the Company, and whether the employee
elects lump-sum or annuity payments. In addition, minimum
pension funding requirements are not included above as such
amounts are not available for all periods presented. The Company
estimates it will contribute approximately $19 million to
its pension and supplemental retirement plans in 2004. During
2003, the Company made approximately $9 million in pension
and supplemental retirement plan contributions.

The Company has issued standby letters of credit
in the ordinary course of business totaling $5,240. These
letters of credit expire in 2004 ($3,371), 2005 ($1,691) and
2006 ($178). The Company also has issued guarantees of up to
$7 million related to equipment lease agreements between
its outsourcing segment and certain equipment vendors, as well
as a performance guarantee issued under a client contract, also
in the outsourcing segment. The Company does not use
derivatives, variable interest entities, or any other form of
off-balance sheet financing (other than the synthetic lease
discussed above).

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As of December 31, 2003, the Company had a
guarantee of up to $6 million Canadian dollars related to a
credit facility of its Canadian subsidiary. In February 2004,
the credit facility was re-negotiated and the guarantee was
removed. In its place, the Canadian subsidiary used its
equipment as collateral.

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 the current arrangements will not be
significant to the Companys financial condition or results
of operations.

Critical Accounting Policies and
Estimates

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 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

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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 third 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. Subsequent valuations
performed at December 31, 2002 and December 31, 2003
have also supported the goodwill balance with no impairment. At
December 31, 2003, our goodwill balance was $250,260, which
primarily related to the globalization segment ($126,054) and
the outsourcing segment ($107,890).

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 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

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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, 2003, the Company had an
allowance for doubtful accounts of $16,328.

Accounting for Income
Taxes Accounting for taxes
requires significant judgments in the development of estimates
used in income tax calculations. Such judgments include, but are
not 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, 2003 and 2002, the Company
had deferred tax assets in excess of deferred tax liabilities of
$27,627 and $16,048, respectively. At December 31, 2003 and
2002, management determined that it is more likely than not that
$16,746 and $7,671, respectively, of such assets will be
realized, resulting in a valuation allowance of $10,881 and
$8,377, 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
primary factor used to assess the likelihood of realization is
the Companys forecast of future taxable income. 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

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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 discount rate at which the future obligations are discounted
to value the liability, expected rate of return on plan assets,
and projected salary increases. These rates are set annually as
of December 31.


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 6.25% at
December 31, 2003, compared to 6.5% at December 31,
2002 and 7.25% at December 31, 2001. The 6.5% percent at
December 31, 2002 was used to calculate the 2003 pension
expense. Each 0.5 percentage point change in the discount rate
would result in an $8.1 million change in the projected
pension benefit obligation and a $1.3 million change in
pension expense.

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. From 1998 to 2001, 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. In
2002, management lowered the expected rate of return assumption
to 9.0%, and during 2003 lowered it again to 8.5% 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 $0.24 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 three years.

Restructuring
Accrual During fiscal 2003
and 2002, 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.

As a component of the 2003 restructuring charge
of $25.6 million, the Company recorded an expense related
to facility closures and lease termination costs totaling
$5.1 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.

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 was adopted by the Company effective
fiscal 2003. The adoption of this standard did not have a
material effect on the Companys financial statements.

37



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##### Table of Contents



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 adopted the disclosure requirements of SFAS 148
during the fourth quarter of 2002. The application of the
disclosure portion of this standard had no impact on our
consolidated financial position or results of operations. The
FASB recently indicated that they will require stock-based
employee compensation to be recorded as a charge to earnings
beginning in 2005. The FASB has not yet issued an exposure draft
or a proposed standard. The Company will continue to monitor the
progress on the issuance of this proposed standard as well as
evaluate its position with respect to current guidance.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, and amended the interpretation
with FIN 46(R) in December 2003. This interpretation and its
amendment set forth a requirement for an investor with a
majority of the variable interests in a variable interest entity
(VIE) to consolidate the entity and also requires
majority and significant variable interest investors to provide
certain disclosures. A VIE is an entity in which the equity
investors do not have a controlling interest, or the equity
investment at risk is insufficient to finance the entitys
activities without receiving additional subordinated financial
support from the other parties. The provisions of FIN 46 were
effective immediately for all arrangements entered into with new
VIEs created after January 31, 2003. The Company has not
entered into any arrangements with VIEs after January 31,
2003. For arrangements entered into with VIEs created prior to
January 31, 2003, the provisions of FIN 46 have been
delayed to the first interim or annual period beginning after
December 15, 2003. The Company has evaluated the impact of
adoption of FIN 46(R) for its arrangements created before
January 31, 2003. The adoption of this standard is not
expected to impact the Companys financial statements.

In May 2003, the FASB issued Statement of
Financial Accounting Standard No. 150
(SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective immediately for all instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this
standard did not have an effect on the Companys financial
statements.

In December 2003, the FASB issued Statement of
Financial Accounting Standard No. 132(R)
(SFAS 132(R)), Employers
Disclosures about Pensions and Other Postretirement Benefits
 An Amendment of FASB Statements No. 87, 88, and 106,
and a revision of SFAS 132, which revises disclosures
about pension plans and other postretirement benefit plans.
SFAS 132(R) does not change the measurement or recognition
of those plans, but increases current disclosure requirements by
requiring more details about pension plan assets, benefit
obligations, cash flows, benefit costs and related information.
Companies are required to segregate plan assets by category, and
to provide certain expected rates of return and other
informational disclosures. The new disclosures are generally
effective for 2003 calendar year-end financial statements of
public companies. SFAS 132(R) also requires companies to
disclose various elements of pension and other postretirement
benefit costs in interim-period financial statements for
quarters beginning after December 15, 2003. The Company
applied this standard during the year ended December 31,
2003. The application of this standard had no impact on our
consolidated financial position or results of operations.






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

38



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##### Table of Contents



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

The Companys exposure to market risk for
changes in interest rates relates primarily to its short-term
investment portfolio, long-term debt obligations, revolving
credit agreement and synthetic lease agreement.

The Company does not use derivative instruments
in its short-term investment portfolio. The Companys
senior notes issued in February 2002 and its debentures issued
in September 2003 consist of fixed rate instruments, and
therefore, would not be impacted by changes in interest rates.
The senior notes have an average fixed interest rate of
approximately 7.8% (including the impact of amendments and
prepayments), and require payments between January 2006 and
January 2012. The debentures have a fixed interest rate of 5%.
Amounts borrowed under the three-year $175 million
revolving credit facility that was completed in July 2002 (and
amended in March and September 2003, with the facility reduced
to $115 million in October 2003) bear interest at LIBOR
plus 125-325 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, 2003, the average interest rate on
this line of credit approximated 4%. A hypothetical change in
the annual interest rate of 1% per annum would result in a
change in annual interest expense of approximately
$0.8 million, based on the average outstanding balances
under the revolving credit facility during the year ended
December 31, 2003.

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 $24,556, $12,102 and $(4,086) in its
consolidated statements of comprehensive income (loss) included
in stockholders equity for the years ended
December 31, 2003, 2002 and 2001, respectively. This income
is primarily attributed to the fluctuation in value between the
U.S. dollar and the euro, pound sterling and Canadian
dollar.

Equity Price Risk

The Company currently does 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 values, 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.

39



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|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, 2003 and 2002 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, 2003. 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, 2003 and 2002, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003, 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 8 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.



|             | 
|------------ | 
|/s/ KPMG LLP | 

New York, New York

February 11, 2004


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##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |          |  
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- | ---------- | -------- | - | ---- | --------- | -------- | - | - | ---------- | -------- | -
|                                                                 |                                                                                       |                                             
|                                                                 |                                                                                       | Year Ended December 31,                     
|                                                                 |                                                                                       |                                             
|                                                                 |                                                                                       | 2003                                         |            | 2002     |   | 2001
|                                                                 |                                                                                       |                                              |            |          |   |     
|                                                                 |                                                                                       |                                             
|                                                                 |                                                                                       | (In thousands, except per share information)
|Revenue                                                          |                                                                                       | $                                            | 1,064,820  |          |   | $    | 1,003,326 |          |   | $ | 1,054,631  |         
|Expenses:                                                        |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 | Cost of revenue                                                                       |                                              |            | (717,928 | ) |      |           | (667,089 | ) |   |            | (713,710 | )
|                                                                 | Selling and administrative                                                            |                                              |            | (273,438 | ) |      |           | (275,818 | ) |   |            | (268,773 | )
|                                                                 | Depreciation                                                                          |                                              |            | (40,332  | ) |      |           | (40,662  | ) |   |            | (41,117  | )
|                                                                 | Amortization                                                                          |                                              |            | (3,621   | ) |      |           | (2,017   | ) |   |            | (8,001   | )
|                                                                 | Restructuring charges, integration costs and
    asset impairment charges             |                                              |            | (25,591  | ) |      |           | (19,378  | ) |   |            | (20,949  | )
|                                                                 | 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     | )
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 |                                                                                       |                                              | (1,060,910 | )        |   |      | (984,706  | )        |   |   | (1,055,208 | )       
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|Operating income (loss)                                          |                                                                                       |                                              | 3,910      |          |   |      | 18,620    |          |   |   | (577       | )       
|                                                                 | Interest expense                                                                      |                                              |            | (11,420  | ) |      |           | (7,127   | ) |   |            | (6,422   | )
|                                                                 | Other (expense) income, net                                                           |                                              |            | (1,013   | ) |      |           | (1,993   | ) |   |            | 1,565    |  
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|(Loss) income from continuing operations before
    income taxes |                                                                                       |                                              | (8,523     | )        |   |      | 9,500     |          |   |   | (5,434     | )       
|                                                                 | Income tax expense                                                                    |                                              |            | (604     | ) |      |           | (9,145   | ) |   |            | (2,281   | )
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|(Loss) income from continuing operations                         |                                                                                       |                                              | (9,127     | )        |   |      | 355       |          |   |   | (7,715     | )       
|Discontinued operations:                                         |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 | Loss from discontinued operations (less
    applicable tax benefit of $9,060 in 2001) |                                              |            |         |   |      |           |         |   |   |            | (16,363  | )
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|Net (loss) income                                                |                                                                                       | $                                            | (9,127     | )        |   | $    | 355       |          |   | $ | (24,078    | )       
|                                                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|(Loss) earnings per share from continuing
    operations:        |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 | Basic                                                                                 |                                              | $          | (.27     | ) |      | $         | .01      |   |   | $          | (.23     | )
|                                                                 | Diluted                                                                               |                                              | $          | (.27     | ) |      | $         | .01      |   |   | $          | (.23     | )
|Loss per share from discontinued
    operations:                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 | Basic                                                                                 |                                              | $          |         |   |      | $         |         |   |   | $          | (.49     | )
|                                                                 | Diluted                                                                               |                                              | $          |         |   |      | $         |         |   |   | $          | (.49     | )
|Total (loss) earnings per share:                                 |                                                                                       |                                              |            |          |   |      |           |          |   |   |            |         
|                                                                 | Basic                                                                                 |                                              | $          | (.27     | ) |      | $         | .01      |   |   | $          | (.73     | )
|                                                                 | Diluted                                                                               |                                              | $          | (.27     | ) |      | $         | .01      |   |   | $          | (.73     | )

See Notes to Accompanying Consolidated Financial
Statements

41



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##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |         |     |         | 
|------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------ | ------- | --- | ------- | ------- | ------- | --- | ------- | 
|                                                                                                                    |                                                                                                    |                                                                                 
|                                                                                                                    |                                                                                                    | December 31,                                                                    
|                                                                                                                    |                                                                                                    |                                                                                 
|                                                                                                                    |                                                                                                    | 2003                                                                             |                                            | 2002   
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |        
|                                                                                                                    |                                                                                                    |                                                                                 
|                                                                                                                    |                                                                                                    | (In thousands, except                                                           
|                                                                                                                    |                                                                                                    | share information)                                                              
|Assets                                                                                                              |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Current assets:                                                                                                     |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    | Cash and cash equivalents                                                                          |                                                                                  | $                                          | 17,010  |     |         | $       | 32,881  |    
|                                                                                                                    | Marketable securities                                                                              |                                                                                  |                                            | 77      |     |         |         | 1,814   |    
|                                                                                                                    | Accounts receivable, less allowance for doubtful
    accounts of $16,328 (2003) and $16,142 (2002) |                                                                                  |                                            | 197,903 |     |         |         | 176,984 |    
|                                                                                                                    | Inventories                                                                                        |                                                                                  |                                            | 20,290  |     |         |         | 19,555  |    
|                                                                                                                    | Prepaid expenses and other current assets                                                          |                                                                                  |                                            | 23,330  |     |         |         | 30,599  |    
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total current assets                       |         |     | 258,610 |         |         |     | 261,833 | 
|Property, plant and equipment at cost, less
    accumulated depreciation of $295,574 (2003) and $265,583
    (2002) |                                                                                                    |                                                                                  | 134,862                                    |         |     |         | 151,557 |        
|Other noncurrent assets:                                                                                            |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    | Goodwill, less accumulated amortization of
    $33,293 (2003) and $31,466 (2002)                   |                                                                                  |                                            | 250,260 |     |         |         | 226,386 |    
|                                                                                                                    | Intangible assets, less accumulated amortization
    of $8,694 (2003) and $5,034 (2002)            |                                                                                  |                                            | 42,572  |     |         |         | 41,573  |    
|                                                                                                                    | Deferred income taxes                                                                              |                                                                                  |                                            | 12,796  |     |         |         | 3,759   |    
|                                                                                                                    | Other                                                                                              |                                                                                  |                                            | 18,502  |     |         |         | 19,294  |    
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total assets                               |         | $   | 717,602 |         |         | $   | 704,402 | 
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Liabilities and Stockholders
    Equity                                                                            |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Current liabilities:                                                                                                |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    | Current portion of long-term debt and other
    short-term borrowings                              |                                                                                  | $                                          | 770     |     |         | $       | 497     |    
|                                                                                                                    | Accounts payable                                                                                   |                                                                                  |                                            | 37,866  |     |         |         | 44,370  |    
|                                                                                                                    | Employee compensation and benefits                                                                 |                                                                                  |                                            | 69,385  |     |         |         | 50,045  |    
|                                                                                                                    | Accrued expenses and other obligations                                                             |                                                                                  |                                            | 75,211  |     |         |         | 84,582  |    
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total current liabilities                  |         |     | 183,232 |         |         |     | 179,494 | 
|Other liabilities:                                                                                                  |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    | Long-term debt  net of current portion                                                            |                                                                                  |                                            | 139,828 |     |         |         | 142,708 |    
|                                                                                                                    | Deferred employee compensation and other                                                           |                                                                                  |                                            | 45,807  |     |         |         | 45,880  |    
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total liabilities                          |         |     | 368,867 |         |         |     | 368,082 | 
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Commitments and contingencies                                                                                       |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|Stockholders equity:                                                                                               |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    | Preferred stock:                                                                                   |                                                                                  |                                            |         |     |         |         |         |    
|                                                                                                                    |                                                                                                    | Authorized 1,000,000 shares, par value $.01                                      |                                            |         |     |         |         |         |     |        
|                                                                                                                    |                                                                                                    | Issuable in series  none issued                                                 |                                            |         |    |         |         |         |    |        
|                                                                                                                    | Common stock:                                                                                      |                                                                                  |                                            |         |     |         |         |         |    
|                                                                                                                    |                                                                                                    | Authorized 60,000,000 shares, par value $.01                                     |                                            |         |     |         |         |         |     |        
|                                                                                                                    |                                                                                                    | Issued and outstanding 40,334,233 shares
    (2003) and 40,129,833 shares (2002) |                                            |         | 403 |         |         |         | 401 |        
|                                                                                                                    | Additional paid-in capital                                                                         |                                                                                  |                                            | 56,882  |     |         |         | 53,881  |    
|                                                                                                                    | Retained earnings                                                                                  |                                                                                  |                                            | 323,370 |     |         |         | 339,913 |    
|                                                                                                                    | Treasury stock, at cost, 6,296,750 shares
    (2003) and 6,567,214 shares (2002)                   |                                                                                  |                                            | (55,534 | )   |         |         | (57,920 | )  
|                                                                                                                    | Accumulated other comprehensive income, net                                                        |                                                                                  |                                            | 23,614  |     |         |         | 45      |    
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total stockholders equity                 |         |     | 348,735 |         |         |     | 336,320 | 
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        
|                                                                                                                    |                                                                                                    |                                                                                  | Total liabilities and stockholders equity |         | $   | 717,602 |         |         | $   | 704,402 | 
|                                                                                                                    |                                                                                                    |                                                                                  |                                            |         |     |         |         |        

See Notes to Accompanying Consolidated Financial
Statements

42



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##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |         |  
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------- | -------- | ------- | - | ---- | -------- | ------- | - | - | -------- | ------- | -
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | Year Ended December 31,
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | 2003                    |          | 2002    |   | 2001
|                                                                                                                                 |                                                   |                         |          |         |   |     
|                                                                                                                                 |                                                   |                        
|                                                                                                                                 |                                                   | (In thousands)         
|Cash flows from operating
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net (loss) income                                                                                                                |                                                   | $                       | (9,127   | )       |   | $    | 355      |         |   | $ | (24,078  | )      
|Adjustments to reconcile net (loss) income to net
    cash provided by operating activities:                                     |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|                                                                                                                                 | Depreciation                                      |                         |          | 40,332  |   |      |          | 40,662  |   |   |          | 41,117  |  
|                                                                                                                                 | Amortization                                      |                         |          | 3,621   |   |      |          | 2,017   |   |   |          | 8,001   |  
|                                                                                                                                 | Asset impairment charges                          |                         |          | 2,345   |   |      |          | 2,876   |   |   |          | 7,456   |  
|                                                                                                                                 | Purchased in-process research and development     |                         |          |        |   |      |          |        |   |   |          | 800     |  
|                                                                                                                                 | Provision for doubtful accounts                   |                         |          | 5,017   |   |      |          | 7,828   |   |   |          | 12,081  |  
|                                                                                                                                 | (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                  |                         |          | 645     |   |      |          | 1,144   |   |   |          | 2,235   |  
|                                                                                                                                 | Gain on sales of securities and other investments |                         |          | (1,022  | ) |      |          |        |   |   |          |        |  
|                                                                                                                                 | Provision for deferred employee compensation      |                         |          | 14,591  |   |      |          | 11,485  |   |   |          | 6,464   |  
|                                                                                                                                 | Loss from discontinued operations, net of tax     |                         |          |        |   |      |          |        |   |   |          | 16,363  |  
|                                                                                                                                 | Deferred income taxes                             |                         |          | (9,037  | ) |      |          | (707    | ) |   |          | 3,409   |  
|                                                                                                                                 | Other                                             |                         |          | 847     |   |      |          | (6,727  | ) |   |          | (5,696  | )
|Changes in other assets and liabilities, net of
    acquisitions, discontinued operations and certain non-cash
    transactions: |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|                                                                                                                                 | Accounts receivable                               |                         |          | (21,105 | ) |      |          | 20,455  |   |   |          | 44,143  |  
|                                                                                                                                 | Inventories                                       |                         |          | (735    | ) |      |          | (496    | ) |   |          | 13,233  |  
|                                                                                                                                 | Prepaid expenses and other current assets         |                         |          | 6,178   |   |      |          | 6,105   |   |   |          | 8,172   |  
|                                                                                                                                 | Accounts payable                                  |                         |          | (6,504  | ) |      |          | (2,956  | ) |   |          | (10,574 | )
|                                                                                                                                 | Employee compensation and benefits                |                         |          | 1,423   |   |      |          | (6,279  | ) |   |          | (23,074 | )
|                                                                                                                                 | Accrued expenses and other obligations            |                         |          | (7,713  | ) |      |          | 21,669  |   |   |          | (15,169 | )
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash provided by operating
    activities  continuing operations                                                            |                                                   |                         | 19,756   |         |   |      | 77,173   |         |   |   | 86,741   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash used in discontinued operations                                                                                             |                                                   |                         | (1,567   | )       |   |      | (2,385   | )       |   |   | (14,306  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash provided by operating activities                                                                                        |                                                   |                         | 18,189   |         |   |      | 74,788   |         |   |   | 72,435   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash flows from investing
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Purchase of property, plant and equipment                                                                                        |                                                   |                         | (24,174  | )       |   |      | (29,543  | )       |   |   | (39,478  | )      
|Proceeds from the sale of fixed assets                                                                                           |                                                   |                         | 662      |         |   |      | 564      |         |   |   | 664      |        
|Acquisition of businesses, net of cash acquired                                                                                  |                                                   |                         |         |         |   |      | (86,761  | )       |   |   | (59,863  | )      
|Proceeds from sale of certain assets, including
    $2,471 of notes received in 2001                                             |                                                   |                         |         |         |   |      | 15,000   |         |   |   | 4,876    |        
|Purchase of marketable securities and other
    investments                                                                      |                                                   |                         |         |         |   |      |         |         |   |   | (1,000   | )      
|Proceeds from sale of building                                                                                                   |                                                   |                         |         |         |   |      | 8,295    |         |   |   |         |        
|Proceeds from sales of marketable securities and
    other investments                                                           |                                                   |                         | 324      |         |   |      |         |         |   |   |         |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash used in investing activities                                                                                            |                                                   |                         | (23,188  | )       |   |      | (92,445  | )       |   |   | (94,801  | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash flows from financing
    activities:                                                                                        |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Proceeds from borrowings                                                                                                         |                                                   |                         | 313,374  |         |   |      | 368,244  |         |   |   | 299,781  |        
|Payment of debt                                                                                                                  |                                                   |                         | (321,381 | )       |   |      | (340,951 | )       |   |   | (274,361 | )      
|Proceeds from stock options exercised                                                                                            |                                                   |                         | 4,551    |         |   |      | 2,838    |         |   |   | 1,778    |        
|Payment of dividends                                                                                                             |                                                   |                         | (7,416   | )       |   |      | (7,362   | )       |   |   | (7,275   | )      
|Purchase of treasury stock                                                                                                       |                                                   |                         |         |         |   |      |         |         |   |   | (90      | )      
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net cash (used in) provided by financing
    activities                                                                          |                                                   |                         | (10,872  | )       |   |      | 22,769   |         |   |   | 19,833   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Net (decrease) increase in cash and cash
    equivalents                                                                         |                                                   |                         | (15,871  | )       |   |      | 5,112    |         |   |   | (2,533   | )      
|Cash and Cash Equivalents  Beginning
    of year                                                                                |                                                   |                         | 32,881   |         |   |      | 27,769   |         |   |   | 30,302   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        
|Cash and Cash Equivalents  End of
    year                                                                                      |                                                   | $                       | 17,010   |         |   | $    | 32,881   |         |   | $ | 27,769   |        
|                                                                                                                                 |                                                   |                         |          |         |   |      |          |         |   |   |          |        

See Notes to Accompanying Consolidated Financial
Statements

43



---



##### Table of Contents



BOWNE & CO., INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                                                            |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |        |  
|--------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------------------- | --- | ----------- |  | -------- | ------ | ------------- |  | -------- | ------- | ----- |  | - | ------ | ------ | - | - | ------- | - |  | - | ------- | ------ | -
|                                                                                                                            |                                                             |                                             
|                                                                                                                            |                                                             | Year Ended December 31, 2003, 2002, and 2001
|                                                                                                                            |                                                             |                                             
|                                                                                                                            |                                                             |                                              |     | 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, 2001                                                                                                  |                                                             | $                                            | 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 |       
|Comprehensive income (loss):                                                                                                |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Net loss                                                                                                                    |                                                             |                                              |     |             |  |          |        |               |  |          | (9,127  | )     |  |   |        |        |   |   |         |   |  |   | (9,127  | )     
|Foreign currency translation adjustment                                                                                     |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   | 24,556 |        |   |   |         |   |  |   | 24,556  |       
|Minimum pension liability adjustment (net of tax
    effect)                                                                |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   | (441   | )      |   |   |         |   |  |   | (441    | )     
|Unrealized gains on securities:                                                                                             |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|                                                                                                                            | Unrealized holding gains arising during the period          |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | 25     |   |   |         |   |  |   |         | 25     |  
|                                                                                                                            | Income tax expense related to unrealized holding
    gains  |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        | (11    | ) |   |         |   |  |   |         | (11    | )
|Reclassification adjustment for realized holding
    gains on certain investments during the year (net of tax effect)       |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   | (560   | )      |   |   |         |   |  |   | (560    | )     
|                                                                                                                            |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Comprehensive income                                                                                                        |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   | 14,442  |       
|                                                                                                                            |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Cash dividends ($.22 per share)                                                                                             |                                                             |                                              |     |             |  |          |        |               |  |          | (7,416  | )     |  |   |        |        |   |   |         |   |  |   | (7,416  | )     
|Noncash stock compensation                                                                                                  |                                                             |                                              |     |             |  |          | 649    |               |  |          |         |       |  |   |        |        |   |   | 189     |   |  |   | 838     |       
|Exercise of stock options                                                                                                   |                                                             |                                              | 2   |             |  |          | 2,352  |               |  |          |         |       |  |   |        |        |   |   | 2,197   |   |  |   | 4,551   |       
|                                                                                                                            |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       
|Balance at December 31, 2003                                                                                                |                                                             | $                                            | 403 |             |  | $        | 56,882 |               |  | $        | 323,370 |       |  | $ | 23,614 |        |   | $ | (55,534 | ) |  | $ | 348,735 |       
|                                                                                                                            |                                                             |                                              |     |             |  |          |        |               |  |          |         |       |  |   |        |        |   |   |         |   |  |   |         |       

See Notes to Accompanying Consolidated Financial
Statements

44



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

BOWNE & CO., INC. AND
SUBSIDIARIES

(In thousands, except share and 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 wholly-owned subsidiaries.
Investments in 50% owned joint ventures are accounted for under
the equity method, where the investment in the entity is
reported in other assets in the consolidated balance sheet and
the Companys percentage share of the earnings or losses
from the joint venture is recorded as other income (expense) in
the consolidated statement of operations. 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,
|                                 |                               |             
|                                 |                               | 2003         |         | 2002    
|                                 |                               |              |         |         
|Land and buildings               |                               | $            | 73,400  |          |         | $ | 72,460  |         
|Machinery and plant equipment    |                               |              | 76,411  |          |         |   | 76,905  |         
|Computer equipment and software  |                               |              | 176,430 |          |         |   | 167,219 |         
|Furniture, fixtures and vehicles |                               |              | 43,305  |          |         |   | 41,373  |         
|Leasehold improvements           |                               |              | 60,890  |          |         |   | 59,183  |         
|                                 |                               |              |         |          |         |   |         |         
|                                 |                               |              | 430,436 |          |         |   | 417,140 |         
|                                 | Less accumulated depreciation |              |         | (295,574 | )       |   |         | (265,583 | )      
|                                 |                               |              |         |          |         |   |         |         
|                                 |                               | Net          |         | $        | 134,862 |   |         | $        | 151,557 | 
|                                 |                               |              |         |          |         |   |         |         

45



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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

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
$7 million in 2003, $6 million in 2002 and
$7 million in 2001 related to software development costs
pertaining to the following: improvements in the financial
printing business typesetting, work-sharing, estimating
and production systems, the development of a workflow system for
its localization business, the installation of a financial
reporting system, a customer relationship management system, and
an employee performance measurement system, the development of
customer-facing applications including a self-filing Web-based
solution for SEC Section 16 documents, a fulfillment
application 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 with a balance of $10.4 million and $7.2 million
as of December 31, 2003 and 2002, respectively, related to
a minimum pension liability on its defined benefit pension plan
and SERP plan.



| |                         
| | ------------------------
| | Stock-Based Compensation

At December 31, 2003, the Company has
several stock-based employee compensation plans, which are
described more fully in Note 15. 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 (loss)
income and (loss) earnings per share if the Company had applied
the

46



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

|                                       |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |         |        |  
|-------------------------------------- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | ------ | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                       |             |                                                                                                                                                              
|                                       |             | Years Ended December 31,                                                                                                                                     
|                                       |             |                                                                                                                                                              
|                                       |             | 2003                                                                                                                                                          |   | 2002    |        | 2001
|                                       |             |                                                                                                                                                               |   |         |        |     
|Net (loss) income:                     |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |        
|                                       | As reported |                                                                                                                                                               | $ | (9,127  | )      |      | $ | 355    |        |   | $ | (24,078 | )     
|                                       |             | Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related pro forma tax effects |   |         | (2,291 | )    |   |        | (4,315 | ) |   |         | (3,983 | )
|                                       |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |        
|                                       | Pro forma   |                                                                                                                                                               | $ | (11,418 | )      |      | $ | (3,960 | )      |   | $ | (28,061 | )     
|                                       |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |        
|As reported (loss) earnings per share: |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |        
|                                       | Basic       |                                                                                                                                                               | $ | (.27    | )      |      | $ | .01    |        |   | $ | (.73    | )     
|                                       | Diluted     |                                                                                                                                                               | $ | (.27    | )      |      | $ | .01    |        |   | $ | (.73    | )     
|Pro forma loss per share:              |             |                                                                                                                                                               |   |         |        |      |   |        |        |   |   |        
|                                       | Basic       |                                                                                                                                                               | $ | (.34    | )      |      | $ | (.12   | )      |   | $ | (.85    | )     
|                                       | Diluted     |                                                                                                                                                               | $ | (.34    | )      |      | $ | (.12   | )      |   | $ | (.85    | )     

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:

|                                |  |         |  |         |  |        
|------------------------------- |  | ------- |  | ------- |  | -------
|                                |  | 2003    |  | 2002    |  | 2001   
|                                |  | Grants  |  | Grants  |  | Grants 
|                                |  |         |  |         |  |        
|Expected dividend yield         |  | 1.6%    |  | 2.0%    |  | 1.8%   
|Expected stock price volatility |  | 34.2%   |  | 41.0%   |  | 45.1%  
|Risk-free interest rate         |  | 2.4%    |  | 2.2%    |  | 3.7%   
|Expected life of options        |  | 3 years |  | 3 years |  | 3 years
|Weighted average fair value     |  | $3.01   |  | $2.68   |  | $3.95  

In December 2002, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure (SFAS 148). SFAS 148
provides alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based
employee compensation as originally provided by
SFAS No. 123 Accounting for Stock-Based
Compensation. Additionally, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent
disclosure in both the annual and interim financial statements
about the method of accounting for stock-based compensation and
the effect of the method used on reported results. The
transitional disclosure requirements of SFAS 148 were
adopted in the fourth quarter of 2002. The FASB recently
indicated that they will require stock-based employee
compensation to be recorded as a charge to earnings beginning in
2005. The FASB has not yet issued an exposure draft or a
proposed standard. The Company will continue to monitor the
progress on the issuance of this proposed standard as well as
evaluate its position with respect to current guidance.



| |             
| | ------------
| | 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.

47



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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, 2003, the cumulative
amount of undistributed foreign earnings was approximately
$35 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,
2003, 2002 and 2001 excludes the dilutive effect of
approximately 2,501,151, 2,586,346, and 2,490,679 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.

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

|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 
|----------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                                                        |  |                        
|                                                                        |  | Year Ended December 31,
|                                                                        |  |                        
|                                                                        |  | 2003                    |            | 2002 |  | 2001
|                                                                        |  |                         |            |      |  |     
|Average shares outstanding  basic
    shares                           |  |                         | 33,735,795 |      |  |      | 33,472,462 |  |  |  | 33,081,005 | 
|Potential dilutive effect of stock options and
    deferred stock units |  |                         | 1,411,159  |      |  |      | 1,204,378  |  |  |  | 1,075,450  | 
|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 
|Average shares outstanding  diluted
    shares                         |  |                         | 35,146,954 |      |  |      | 34,676,840 |  |  |  | 34,156,455 | 
|                                                                        |  |                         |            |      |  |      |            |  |  |  |            | 



| |                             
| | ----------------------------
| | 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 10) 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 senior notes is approximately
$59.3 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
$61.9 million at December 31, 2003. The fair value of
the Companys debentures is approximately
$89.6 million, based upon publicly listed dealer prices.
This compares to a carrying value of $76 million at
December 31, 2003.

48



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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



| |                 
| | ----------------
| | 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 17.



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform to the 2003 presentation.



| |                                 
| | --------------------------------
| | 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 was adopted by the Company effective
fiscal 2003. The adoption of this standard did not have a
material effect on the Companys financial statements.

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 adopted the
disclosure requirements of SFAS 148 during the fourth
quarter of 2002. The application of the disclosure portion of
this standard had no impact on our consolidated financial
position or results of operations. The FASB recently indicated
that they will require stock-based employee compensation to be
recorded as a charge to earnings beginning in 2005. The FASB has
not yet issued an exposure draft or a proposed standard. The
Company will continue to monitor the progress on the issuance of
this proposed standard as well as evaluate its position with
respect to current guidance.

49



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, and amended the interpretation
with FIN 46(R) in December 2003. This interpretation and
its amendment sets forth a requirement for an investor with a
majority of the variable interests in a variable interest entity
(VIE) to consolidate the entity and also requires
majority and significant variable interest investors to provide
certain disclosures. A VIE is an entity in which the equity
investors do not have a controlling interest, or the equity
investment at risk is insufficient to finance the entitys
activities without receiving additional subordinated financial
support from the other parties. The provisions of FIN 46
were effective immediately for all arrangements entered into
with new VIEs created after January 31, 2003. The Company
has not entered into any arrangements with VIEs after
January 31, 2003. For arrangements entered into with VIEs
created prior to January 31, 2003, the provisions of
FIN 46 have been delayed to the first interim or annual
period beginning after December 15, 2003. The Company has
evaluated the impact of adoption of FIN 46(R) for its
arrangements created before January 31, 2003. The adoption
of this standard is not expected to impact the Companys
financial statements.

In May 2003, the FASB issued Statement of
Financial Accounting Standard No. 150
(SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective immediately for all instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this
standard did not have an effect on the Companys financial
statements.

In December 2003, the FASB issued Statement of
Financial Accounting Standard No. 132(R)
(SFAS 132(R)), Employers
Disclosures about Pensions and Other Postretirement Benefits
 An Amendment of FASB Statements No. 87, 88, and 106,
and a revision of SFAS 132, which revises disclosures
about pension plans and other postretirement benefit plans.
SFAS 132(R) does not change the measurement or recognition
of those plans, but increases current disclosure requirements by
requiring more details about pension plan assets, benefit
obligations, cash flows, benefit costs and related information.
Companies are required to segregate plan assets by category, and
to provide certain expected rates of return and other
informational disclosures. The new disclosures are generally
effective for 2003 calendar year-end financial statements of
public companies. SFAS 132(R) also requires companies to
disclose various elements of pension and other postretirement
benefit costs in interim-period financial statements for
quarters beginning after December 15, 2003. The Company
applied this standard during the year ended December 31,
2003. The application of this standard had no impact on our
consolidated financial position or results of operations.

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 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.



| |                  
| | -----------------
| | 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 acquisition
of GlobalNet strengthened BGSs position in the
globalization and localization industry and enhanced BGSs
results by enabling BGS to combine complementary services,
improve efficiencies, and diversify its customer base.

50



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

The net cash outlay of $57.5 million, which
included approximately $1.8 million of acquisition costs
and was 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 is
being amortized over its estimated life of 5-10 years, and
the amount allocated to the proprietary technology is being
amortized over its estimated useful life of 3 years. The
portion allocated to goodwill is not being amortized. The amount
of goodwill that is expected to be deductible for tax purposes
is approximately $17.0 million.

The Company originally accrued $4.0 million
of costs associated with the integration of GlobalNets
operations. The integration eliminated redundant functions and
excess facilities in geographical regions where the Company had
globalization operations in the same location as GlobalNet.
These costs include estimated severance costs
($1.8 million), lease termination costs ($0.8 million)
and other costs ($1.4 million) associated with eliminating
GlobalNet facilities and terminating certain GlobalNet
employees. In addition, there were other adjustments made to
GlobalNets opening balance sheet during 2003 due to the
finalization of purchase price accounting resulting in an
increase to goodwill of approximately $4.0 million.

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  |        
|                                                                                                       |                           |   |         |        

51



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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.

|                                           |         |                         |           |      |   |   |           |       |  
|------------------------------------------ | ------- | ----------------------- | --------- | ---- | - | - | --------- | ----- | -
|                                           |         |                        
|                                           |         | 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.



| |                    
| | -------------------
| | DecisionQuest, Inc.

In December 2002, the Company acquired
DecisionQuest (DQ), a provider of litigation
resources, including trial research, strategic communications
and strategic marketing, for approximately $31 million in
cash. The purchase agreement provided for the payment of
additional consideration upon the achievement of certain
milestones based upon earnings over a one-year period. These
milestones were not achieved during 2003, and therefore no
additional payments will be made. The excess purchase price over
the identifiable net tangible assets, which totaled
$17.5 million, has been 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 is being amortized over 11 years,
and various covenants not to compete with several members of
management valued at $1.8 million, which are being
amortized over their remaining useful life of 5 years.
There was also $1.9 million related to the trade name,
which is not being amortized, as it has an indefinite life. The
remaining $10.5 million has been recorded as goodwill and
is not being amortized in accordance with SFAS 142. All of
the goodwill is expected to be deductible for tax purposes. At
acquisition, DQs tangible assets included an investment in
a 50% owned joint venture (CaseSoft), which was preliminarily
valued at $9.9 million, as well as a note receivable from
that joint venture of $2.0 million. The note receivable was
paid in full during 2003. The final valuation of CaseSoft
received during 2003 resulted in a reduction of $4.9 million to
the preliminary value of that investment and a corresponding
increase in the amount allocated to goodwill ($4.1 million)
and deferred taxes ($0.8 million). In addition, there were
other adjustments made to DecisionQuests opening balance
sheet during 2003 from changes in estimates, resulting in an
increase to goodwill of approximately $0.5 million. DQ is
included in the outsourcing segment.

52



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

Note 3  Dispositions of
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. 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 $624 and $2,760 at
December 31, 2003 and 2002, 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 cost of
marketable securities exceeded fair value by $44 at
December 31, 2003, while the fair value of marketable
securities exceeded cost by $864 at December 31, 2002. Cost
was determined on the basis of specific identification. Most of
the decrease in unrealized gain came as a result of the Company
contributing its investment in EDGAR On-Line common stock to the
Companys pension plan as part of its required annual
contribution during the third quarter of 2003. At that time, the
Company recognized a gain of $698, which is included in other
income for the year ended December 31, 2003.

Note 6  Inventories

Inventories consist of the following:

|                |  |              |        |      |  |   |        | 
|--------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                |  |             
|                |  | December 31,
|                |  |             
|                |  | 2003         |        | 2002
|                |  |              |        |     
|Raw materials   |  | $            | 5,149  |      |  | $ | 6,255  | 
|Work-in-process |  |              | 15,141 |      |  |   | 13,300 | 
|                |  |              |        |      |  |   |        | 
|                |  | $            | 20,290 |      |  | $ | 19,555 | 
|                |  |              |        |      |  |   |        | 

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

53



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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 ceased 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, or any
subsequent evaluations, since the fair value of each reporting
unit exceeded the carrying amount.

Goodwill not subject to amortization (net of
accumulated amortization through December 31, 2001) is
$250,260 and $226,386 at December 31, 2003 and 2002,
respectively. Goodwill increased $23,874 in 2003, primarily as a
result of the change in foreign currency rates used to translate
balances into U.S. dollars at year end, and adjustments to
preliminary purchase price allocations made in prior periods to
goodwill recorded in the outsourcing and globalization segments.

The changes in the carrying amount of goodwill
for the years ended December 31, 2002 and 2003 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 | 
|Adjustments to previously recorded purchase price |  |           |       |             |  |               | 5,105   |       |  |   | 3,118   |  |  |   | 8,223   | 
|Foreign currency translation adjustment           |  |           | 481    |             |  |               |        |       |  |   | 15,170  |  |  |   | 15,651  | 
|                                                  |  |           |        |             |  |               |         |       |  |   |         |  |  |   |         | 
|Balance at December 31, 2003                      |  | $         | 16,316 |             |  | $             | 107,890 |       |  | $ | 126,054 |  |  | $ | 250,260 | 
|                                                  |  |           |        |             |  |               |         |       |  |   |         |  |  |   |         | 

54



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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

|                                 |                                                           |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |       | 
|-------------------------------- | --------------------------------------------------------- | ----------------- | ------ | ----------------- |  | ------------ | ----- | ------------ |  | - | ------ | ------ |  | - | ----- | ----- | 
|                                 |                                                           |                   |        |                  
|                                 |                                                           | December 31, 2003 |        | December 31, 2002
|                                 |                                                           |                   |        |                  
|                                 |                                                           |                   |        | Accumulated       |  |              |       | Accumulated 
|                                 |                                                           | Gross Amount      |        | Amortization      |  | Gross Amount |       | Amortization
|                                 |                                                           |                   |        |                   |  |              |       |             
|Amortizable intangible assets:   |                                                           |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 | Customer lists                                            |                   | $      | 35,423            |  |              | $     | 7,708        |  |   | $      | 34,068 |  |   | $     | 4,792 | 
|                                 | Software licenses and proprietary technology              |                   |        | 1,760             |  |              |       | 596          |  |   |        | 1,617  |  |   |       | 242   | 
|                                 | Covenants not-to-compete                                  |                   |        | 1,800             |  |              |       | 390          |  |   |        | 1,800  |  |   |       |      | 
|Unamortizable intangible assets: |                                                           |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 | Trade name                                                |                   |        | 1,900             |  |              |       |             |  |   |        | 1,900  |  |   |       |      | 
|                                 | Intangible asset related to minimum pension
    liability |                   |        | 10,383            |  |              |       |             |  |   |        | 7,222  |  |   |       |      | 
|                                 |                                                           |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      
|                                 |                                                           | $                 | 51,266 |                   |  | $            | 8,694 |              |  | $ | 46,607 |        |  | $ | 5,034 |      
|                                 |                                                           |                   |        |                   |  |              |       |              |  |   |        |        |  |   |       |      

Amortization expense related to identifiable
intangible assets was $3,621, $2,017 and $1,146 for the years
ended December 31, 2003, 2002, and 2001, respectively.
Estimated annual amortization expense for the years ended
December 31, 2004 through December 31, 2008 is shown
below:

|     |  |   |       | 
|---- |  | - | ----- | 
|2004 |  | $ | 3,580 | 
|2005 |  | $ | 3,548 | 
|2006 |  | $ | 3,380 | 
|2007 |  | $ | 3,148 | 
|2008 |  | $ | 2,653 | 

The following adjusted financial information
reflects the impact that SFAS 142 would have had on net
loss and diluted loss per share for the year ended
December 31, 2001 if adopted in 2001:

|                                                         |  |                   |         |          |  |   |      |  
|-------------------------------------------------------- |  | ----------------- | ------- | -------- |  | - | ---- | -
|                                                         |  |                  
|                                                         |  | Year Ended       
|                                                         |  | December 31, 2001
|                                                         |  |                  
|                                                         |  |                   |         | Loss Per
|                                                         |  | Net Loss          |         | Share   
|                                                         |  |                   |         |         
|Amounts as reported                                      |  | $                 | (24,078 | )        |  | $ | (.73 | )
|Goodwill amortization, net of pro forma income
    taxes |  |                   | 6,119   |          |  |   | .18  |  
|                                                         |  |                   |         |          |  |   |      |  
|Adjusted amounts                                         |  | $                 | (17,959 | )        |  | $ | (.55 | )
|                                                         |  |                   |         |          |  |   |      |  

Note 8  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.
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

55



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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 S.A. (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 printing 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 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.

During 2003, the Company continued implementation
of the cost reduction efforts announced in the fourth quarter of
2002, and initiated further cost reductions as it responded to
the continued lower levels of capital market activity during the
first half of 2003. These cost reductions included additional
workforce reductions in all business segments and in certain
corporate departments, the closing of its London manufacturing
facility and a portion of the London financial printing customer
service center, in addition to closing two other offices in the
financial printing segment, as well as adjustments related to
changes in assumptions in some previous office closings. There
was also an asset impairment charge for a technology system
which no longer has value to the Company. The integration of
GlobalNets operations with the existing BGS operation
continued which resulted in additional headcount reductions,
office closings and integration-related expenses. These actions
resulted in restructuring, integration and asset impairment
charges totaling $25,591 during the year ended December 31,
2003.

The following information summarizes the costs
incurred with respect to restructuring activities initiated
during 2003:

|                   |  |               |        |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|------------------ |  | ------------- | ------ | --------- |  | ----------- | ----- | ----- |  | ----- | ----- |  |  | - | ----- |  |  | - | ------ | 
|                   |  | Severance and |        |           |  |             |       |       |  |      
|                   |  | Personnel-    |        | Occupancy |  | Asset       |       |       |  |      
|                   |  | Related Costs |        | Costs     |  | Impairments |       | Other |  | Total
|                   |  |               |        |           |  |             |       |       |  |      
|Financial printing |  | $             | 6,979  |           |  | $           | 4,333 |       |  | $     | 160   |  |  | $ | 908   |  |  | $ | 12,380 | 
|Outsourcing        |  |               | 1,733  |           |  |             | 305   |       |  |       | 147   |  |  |   | 330   |  |  |   | 2,515  | 
|Globalization      |  |               | 4,704  |           |  |             | 434   |       |  |       | 1,308 |  |  |   | 2,159 |  |  |   | 8,605  | 
|Corporate          |  |               | 1,361  |           |  |             |      |       |  |       | 730   |  |  |   |      |  |  |   | 2,091  | 
|                   |  |               |        |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 
|Total              |  | $             | 14,777 |           |  | $           | 5,072 |       |  | $     | 2,345 |  |  | $ | 3,397 |  |  | $ | 25,591 | 
|                   |  |               |        |           |  |             |       |       |  |       |       |  |  |   |       |  |  |   |        | 

56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

The activity related to these accruals through
December 31, 2003, 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                 |  |               | (7,609  | )         |  |       | (399   | )     |  |   | (2,305 | ) |  |   | (10,313 | )
|                             |  |               |         |           |  |       |        |       |  |   |        |   |  |   |         |  
|Balance at December 31, 2002 |  |               | 7,294   |           |  |       | 3,438  |       |  |   | 833    |   |  |   | 11,565  |  
|2003 Expense                 |  |               | 14,777  |           |  |       | 5,072  |       |  |   | 3,397  |   |  |   | 23,246  |  
|Paid in 2003                 |  |               | (18,602 | )         |  |       | (3,472 | )     |  |   | (3,322 | ) |  |   | (25,396 | )
|                             |  |               |         |           |  |       |        |       |  |   |        |   |  |   |         |  
|Balance at December 31, 2003 |  | $             | 3,469   |           |  | $     | 5,038  |       |  | $ | 908    |   |  | $ | 9,415   |  
|                             |  |               |         |           |  |       |        |       |  |   |        |   |  |   |         |  

The Company expects to incur additional
restructuring and integration charges in the first half of 2004
of approximately $5 to $7 million, primarily related to
further consolidation of facilities in the Companys
financial printing segment and in the globalization segment.

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. Occupancy costs in 2002 and 2003
represent the closing of various financial printing offices, as
well as many BGS locations closing as a result of the
integration with GlobalNet. The majority of the remaining
accrued severance and personnel-related costs are expected to be
paid by the end of the second quarter of 2004.

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 severance and
personnel-related costs remaining are expected to be paid by
March of 2005.

The payments made related to this 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   |  |               | 236    |           |  |       | 58    |       |  |   |     |   |  |   | 294    |  
|                             |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2002 |  |               | 1,592  |           |  |       | 108   |       |  |   |     |   |  |   | 1,700  |  
|Paid in 2003                 |  |               | (461   | )         |  |       | (69   | )     |  |   |     |   |  |   | (530   | )
|Effect of foreign currency   |  |               | 389    |           |  |       | (34   | )     |  |   |     |   |  |   | 355    |  
|                             |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2003 |  | $             | 1,520  |           |  | $     | 5     |       |  | $ |     |   |  | $ | 1,525  |  
|                             |  |               |        |           |  |       |       |       |  |   |      |   |  |   |        |  

In connection with the Companys acquisition
of GlobalNet in September 2002, the Company accrued costs of
$2,497 associated with the integration of GlobalNets
operations, which were accounted for as part of

57



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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. During 2003, the Company finalized its
estimate of these costs by adjustments in the amount of $1,000.
These adjustments increased goodwill related to the acquisition
of GlobalNet. The majority of the remaining accrued severance
and personnel-related costs are expected to be paid by the end
of the first quarter of 2004.

The payments made related to this accrual are
summarized below.

|                             |  |               |        |           |  |       |      |   |  |   |        |  
|---------------------------- |  | ------------- | ------ | --------- |  | ----- | ---- | - |  | - | ------ | -
|                             |  | Severance and |        |           |  |      
|                             |  | Personnel-    |        | Occupancy |  |      
|                             |  | Related Costs |        | Costs     |  | Total
|                             |  |               |        |           |  |      
|Opening balance              |  | $             | 1,789  |           |  | $     | 708  |   |  | $ | 2,497  |  
|Paid in 2002                 |  |               | (964   | )         |  |       | (99  | ) |  |   | (1,063 | )
|                             |  |               |        |           |  |       |      |   |  |   |        |  
|Balance at December 31, 2002 |  |               | 825    |           |  |       | 609  |   |  |   | 1,434  |  
|Adjustments in 2003          |  |               | 525    |           |  |       | 475  |   |  |   | 1,000  |  
|Paid in 2003                 |  |               | (1,120 | )         |  |       | (561 | ) |  |   | (1,681 | )
|                             |  |               |        |           |  |       |      |   |  |   |        |  
|Balance December 31, 2003    |  |               | 230    |           |  |       | 523  |   |  |   | 753    |  
|                             |  |               |        |           |  |       |      |   |  |   |        |  

Note 9  Income Taxes

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

|          |                 |                         |        |        |   |      |        |        |   |   |         |         |  
|--------- | --------------- | ----------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|          |                 |                        
|          |                 | Year Ended December 31,
|          |                 |                        
|          |                 | 2003                    |        | 2002   |   | 2001
|          |                 |                         |        |        |   |     
|Current:  |                 |                         |        |        |   |      |        |        |   |   |         |        
|          | U.S. federal    |                         | $      | 2,494  |   |      | $      | 6,200  |   |   | $       | (10,005 | )
|          | Foreign         |                         |        | 5,046  |   |      |        | 1,000  |   |   |         | 510     |  
|          | State and local |                         |        | 1,420  |   |      |        | 2,823  |   |   |         | (693    | )
|          |                 |                         |        |        |   |      |        |        |   |   |         |        
|          |                 |                         | 8,960  |        |   |      | 10,023 |        |   |   | (10,188 | )      
|          |                 |                         |        |        |   |      |        |        |   |   |         |        
|Deferred: |                 |                         |        |        |   |      |        |        |   |   |         |        
|          | U.S. federal    |                         |        | (234   | ) |      |        | 3,945  |   |   |         | 5,125   |  
|          | Foreign         |                         |        | (6,561 | ) |      |        | (3,483 | ) |   |         | (1,949  | )
|          | State and local |                         |        | (1,561 | ) |      |        | (1,340 | ) |   |         | 233     |  
|          |                 |                         |        |        |   |      |        |        |   |   |         |        
|          |                 |                         | (8,356 | )      |   |      | (878   | )      |   |   | 3,409   |        
|          |                 |                         |        |        |   |      |        |        |   |   |         |        
|          |                 | $                       | 604    |        |   | $    | 9,145  |        |   | $ | (6,779  | )      
|          |                 |                         |        |        |   |      |        |        |   |   |         |        

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

|                        |  |                         |     |      |  |      |       |  |  |   |        |  
|----------------------- |  | ----------------------- | --- | ---- |  | ---- | ----- |  |  | - | ------ | -
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2003                    |     | 2002 |  | 2001
|                        |  |                         |     |      |  |     
|Continuing operations   |  | $                       | 604 |      |  | $    | 9,145 |  |  | $ | 2,281  |  
|Discontinued operations |  |                         |    |      |  |      |      |  |  |   | (9,060 | )
|                        |  |                         |     |      |  |      |       |  |  |   |        |  
|                        |  | $                       | 604 |      |  | $    | 9,145 |  |  | $ | (6,779 | )
|                        |  |                         |     |      |  |      |       |  |  |   |        |  

58



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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

|                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|-------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                 |  |                        
|                                 |  | Year Ended December 31,
|                                 |  |                        
|                                 |  | 2003                    |         | 2002 |  | 2001
|                                 |  |                         |         |      |  |     
|United States                    |  | $                       | 3,080   |      |  | $    | 27,178  |   |  | $ | (26,373 | )
|Foreign                          |  |                         | (11,603 | )    |  |      | (17,678 | ) |  |   | (4,484  | )
|                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|Total (loss) income before taxes |  | $                       | (8,523  | )    |  | $    | 9,500   |   |  | $ | (30,857 | )
|                                 |  |                         |         |      |  |      |         |   |  |   |         |  

Income taxes paid during the years ended
December 31, 2003, 2002 and 2001 were $6,712, $2,682 and
$6,248, respectively.

The following table reconciles income tax expense
(benefit) based upon the U.S. federal statutory tax rate to
the Companys actual income tax expense (benefit):

|                                                                      |  |                         |        |      |  |      |       |   |  |   |         |  
|--------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ----- | - |  | - | ------- | -
|                                                                      |  |                        
|                                                                      |  | Year Ended December 31,
|                                                                      |  |                        
|                                                                      |  | 2003                    |        | 2002 |  | 2001
|                                                                      |  |                         |        |      |  |     
|Income tax (benefit) expense based upon
    U.S. statutory tax rate   |  | $                       | (2,983 | )    |  | $    | 3,325 |   |  | $ | (10,800 | )
|State income tax (benefit) expense                                    |  |                         | (92    | )    |  |      | 964   |   |  |   | (299    | )
|Effect of foreign taxes (including change in
    valuation allowance) |  |                         | 2,547  |      |  |      | 2,595 |   |  |   | (135    | )
|Non-deductible amortization of goodwill and other
    intangibles     |  |                         |       |      |  |      |      |   |  |   | 2,122   |  
|Non-deductible meals and entertainment expenses                       |  |                         | 1,617  |      |  |      | 2,319 |   |  |   | 1,426   |  
|Other, net                                                            |  |                         | (485   | )    |  |      | (58   | ) |  |   | 907     |  
|                                                                      |  |                         |        |      |  |      |       |   |  |   |         |  
|Total income tax expense (benefit)                                    |  | $                       | 604    |      |  | $    | 9,145 |   |  | $ | (6,779  | )
|                                                                      |  |                         |        |      |  |      |       |   |  |   |         |  

Foreign taxes had a significant impact in 2003
and 2002 since the Company was not able to recognize the tax
benefit of losses in certain foreign jurisdictions because of
the uncertainty regarding their realization.

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.

59



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

Significant components of the Companys
deferred tax assets and liabilities at December 31, 2003
and 2002 are as follows:

|                                              |                                    |      |         |         |   |   |         |         |  
|--------------------------------------------- | ---------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                              |                                    | 2003 |         | 2002   
|                                              |                                    |      |         |        
|Deferred tax assets:                          |                                    |      |         |         |   |   |         |        
|                                              | Operating loss carryforwards       |      | $       | 20,339  |   |   | $       | 12,546  |  
|                                              | Deferred compensation and benefits |      |         | 25,950  |   |   |         | 22,330  |  
|                                              | Allowance for doubtful accounts    |      |         | 3,950   |   |   |         | 3,912   |  
|                                              | Tax credits                        |      |         | 2,714   |   |   |         | 699     |  
|                                              | Other, net                         |      |         | 2,538   |   |   |         | 1,154   |  
|                                              |                                    |      |         |         |   |   |         |        
|Gross deferred tax assets                     |                                    |      | 55,491  |         |   |   | 40,641  |        
|                                              |                                    |      |         |         |   |   |         |        
|Deferred tax liabilities:                     |                                    |      |         |         |   |   |         |        
|                                              | Capitalized software costs         |      |         | (15,376 | ) |   |         | (12,605 | )
|                                              | Intangible assets                  |      |         | (10,066 | ) |   |         | (10,675 | )
|                                              | Depreciation                       |      |         | (2,422  | ) |   |         | (1,313  | )
|                                              |                                    |      |         |         |   |   |         |        
|Gross deferred tax liabilities                |                                    |      | (27,864 | )       |   |   | (24,593 | )      
|                                              |                                    |      |         |         |   |   |         |        
|Deferred tax asset valuation allowance        |                                    |      | (10,881 | )       |   |   | (8,377  | )      
|                                              |                                    |      |         |         |   |   |         |        
|Net deferred tax asset                        |                                    |      | 16,746  |         |   |   | 7,671   |        
|Less current portion  deferred tax
    asset |                                    |      | (3,950  | )       |   |   | (3,912  | )      
|                                              |                                    |      |         |         |   |   |         |        
|Net non-current deferred tax asset            |                                    | $    | 12,796  |         |   | $ | 3,759   |        
|                                              |                                    |      |         |         |   |   |         |        

The current portion of deferred tax asset is
included in prepaid expenses and other current assets and the
non-current portion of deferred tax assets is included in
deferred income taxes in the accompanying consolidated balance
sheet.

The Company has, as of December 31, 2003,
approximately $79 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 is
approximately $5.7 million and $3.1 million of current
taxes payable at December 31, 2003 and 2002, respectively.

The change in the valuation allowance is due to
foreign net operating losses which may not be utilized in future
years.

Note 10  Debt

The components of debt at December 31, 2003
and 2002 are as follows:

|                                    |  |              |         |      |  |   |         | 
|----------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                    |  |             
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2003         |         | 2002
|                                    |  |              |         |     
|Convertible subordinated debentures |  | $            | 75,000  |      |  | $ |        | 
|Senior notes                        |  |              | 60,000  |      |  |   | 75,000  | 
|Revolving credit facility           |  |              | 3,000   |      |  |   | 64,000  | 
|Other                               |  |              | 2,598   |      |  |   | 4,205   | 
|                                    |  |              |         |      |  |   |         | 
|                                    |  | $            | 140,598 |      |  | $ | 143,205 | 
|                                    |  |              |         |      |  |   |         | 

On September 24, 2003, the Company completed
a $75 million private placement of 5% Convertible
Subordinated Debentures (debentures) due
October 1, 2033. The debentures are convertible, at the

60



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

holders option under certain circumstances,
into 4,058,445 shares of the Companys common stock,
equivalent to a conversion price of approximately
$18.48 per share (which was greater than market price at
the date of issuance), subject to certain adjustments. The
proceeds from this private placement were used to pay down a
portion of the Companys revolving credit facility and were
used to repurchase a portion of the Companys senior notes.
This amount is classified as long-term debt on the balance sheet
as of December 31, 2003. Interest is payable semi-annually
on April 1 and October 1, commencing April 1,
2004. The Company may redeem any portion of the debentures for
cash on or after October 1, 2008 at a redemption price
equal to 100% of the principal amount to be redeemed plus
accrued and unpaid interest and additional interest, if any, up
to, but not including the redemption date. In addition, each
holder of the debentures may require the Company to repurchase
all or any portion of that holders debentures on each of
October 1, 2008, October 1, 2013, October 1,
2018, October 1, 2023 and October 1, 2028, or in the
event of a change in control as that term is
described in the indenture for the debentures, at a purchase
price equal to 100% of the principal amount plus accrued and
unpaid interest and additional interest, if any, up to, but not
including the redemption date. The Company would pay the
repurchase price for any debentures repurchased on
October 1, 2008 in cash. The Company would have the option
of paying the repurchase price of any debentures repurchased on
October 1, 2013, October 1, 2018, October 1,
2023, or October 1, 2028 in cash, shares of the
Companys common stock, or a combination of cash and shares
of common stock. The Company incurred approximately
$3.7 million in expenses in connection with the issuance of
the debentures, which will be amortized to interest expense
through October 1, 2008 (the earliest date at which the
debentures may be redeemed by the Company).

On July 2, 2002, the Company completed its
$175 million three-year revolving credit facility. During
the year ended December 31, 2003, the average interest rate
on this line of credit approximated 4%. 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 $3,000 and $64,000
at December 31, 2003 and 2002, respectively. In September
2003, the Company entered into an amendment to this facility,
that, among other things, i) provided for the permanent
reduction of the credit facility by at least $50 million to
the extent that net proceeds from the issuance of the debentures
were used to reduce the Companys borrowings under the
facility, ii) modified the permitted leverage ratio under
the facility, and iii) added provisions relating to the
repayment and modification of subordinated debt, and approved
the subordination provisions of the recently issued debentures.
In September 2003, a portion of the proceeds from the issuance
of the debentures were used to pay down a portion of this credit
facility. As a result, the commitment under the facility was
permanently reduced to $115 million.

On February 6, 2002, the Company completed a
$75 million private placement of senior notes with several
institutional lenders. The private placement consisted of
$25 million 6.9% senior notes due January 30,
2007, $22 million 7.85% senior notes due
January 30, 2012 and $28 million 7.31% senior
notes with annual payments of $4 million required each
January 30, from 2006 to 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, 2003 and 2002. Interest is payable every six
months. At its option, the Company may pre-pay all or part of
the senior notes in an amount equal to the principal amount plus
accrued interest plus a make-whole payment determined in
accordance with the note agreement. In October 2003, a portion
of the proceeds from the issuance of the debentures were used to
pre-pay $15 million of the 6.9% senior notes due
January 30, 2007. The make-whole payment was waived by the
note holder.

The terms of the senior 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 senior notes and revolving credit agreement are
guaranteed by substantially all of the Companys
subsidiaries. The debentures are unsecured obligations and are
subordinated in right of payment to all of the Companys
existing and future

61



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

senior debt. The debentures are not guaranteed by
any of the Companys subsidiaries and are effectively
subordinated to all existing and future indebtedness and other
liabilities of the Companys subsidiaries, including trade
creditors. The Company is not subject to any financial covenants
under the debentures.

Due to the impact of the continued economic
downturn on the Companys business, the revolving credit
agreement and senior notes were amended in March 2003 to modify
certain financial covenant requirements and definitions. Under
the terms of these amendments, the Company is required to meet
revised leverage and fixed charge coverage ratios from the first
quarter of 2003 through the first quarter of 2004. These
financial covenant requirements were further revised as a result
of the September 2003 amendments described elsewhere in this
footnote. The new covenants are less restrictive than the
previously existing covenants. The Company was in compliance
with all loan covenants as amended as of December 31, 2003,
and based upon its current projections, the Company believes it
will be in compliance with the revised quarterly loan covenants
throughout fiscal year 2004. In the event that actual results do
not approximate forecasted results, management believes it could
execute contingency plans to mitigate any adverse impact. Such
plans include additional cost reductions, asset sales, or
seeking additional alternative financing. While the Company
believes that it could obtain any 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 March 2003 amendments,
the Company 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 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 increased by 25 basis points during the amendment
period and a subsequent period during which the Company must
meet the original covenant requirements (this rate increase was
made permanent by the September 2003 amendment described below).
The Company paid an amendment fee to approving lenders and other
costs aggregating approximately $1.1 million, which will be
amortized to interest expense over the period covered by the
amendment.

In September 2003, the Company entered into an
additional amendment for the senior notes that, among other
things, i) made the existing temporary increase in interest
rates permanent, ii) made a new temporary increase in
interest rates of 10 basis points, which will remain in
effect until the Company obtains an investment grade rating with
respect to the senior notes, iii) gave the holders of the
senior notes a put option exercisable during the six months
immediately prior to October 1, 2008, the first date on
which holders of the debentures may require the Company to
repurchase the debentures, iv) adjusted the fixed charge
coverage ratio test to be 1.50 to 1.00 beginning as of the
fourth quarter of 2003 and for the remaining life of the senior
notes, v) added a debt to EBITDA ratio test of 3.25 to 1.00
and a senior debt to EBITDA ratio test of 2.50 to 1.00 in the
covenant that limits the Companys ability to incur
indebtedness, and vi) removed a $25.0 million
limitation on potential acquisitions consummated before
March 31, 2004.

The Companys Canadian subsidiary has a
$10 million Canadian dollar credit facility, which had a
balance of $0 and $2,250 Canadian dollars (US $1,431) at
December 31, 2003 and 2002, respectively. In February 2004,
the credit facility was re-negotiated and the Companys
guarantee of up to $6 million Canadian dollars was removed.
In its place, the Canadian subsidiary used its equipment as
collateral.

Aggregate annual installments of both notes
payable and long-term debt due for the next five years and
thereafter are $770, $3,803, $4,547, $14,257, $79,075, and
$38,146, respectively.

Interest paid was $11,052, $4,672, and $6,541 for
the years ended December 31, 2003, 2002 and 2001,
respectively.

62



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

Note 11  Employee Benefit
Plans



| |              
| | -------------
| | Pension Plans

The Company sponsors a defined benefit pension
plan which covers certain United States employees not covered by
union agreements. Benefits are based upon salary and years of
service. 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 benefits are 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 executive retirement
plan (SERP) for certain executive management employees.
Employees covered by union agreements (less than 1% of total
Company employees) 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.

The components of the net periodic benefit cost
are as follows:

|                                             |  |                         |        |                         |  |      |        |      |  |      |        |      |  |   |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------- |  | ----------------------- | ------ | ----------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                             |  |                         |        |                        
|                                             |  | Pension Plan            |        | SERP                   
|                                             |  |                         |        |                        
|                                             |  |                         |        |                        
|                                             |  | Year Ended December 31, |        | Year Ended December 31,
|                                             |  |                         |        |                        
|                                             |  | 2003                    |        | 2002                    |  | 2001 |        | 2003 |  | 2002 |        | 2001
|                                             |  |                         |        |                         |  |      |        |      |  |      |        |     
|Service cost                                 |  | $                       | 6,017  |                         |  | $    | 7,113  |      |  | $    | 6,419  |      |  | $ | 654   |  |  | $ | 523   |  |  | $ | 493   | 
|Interest cost                                |  |                         | 5,933  |                         |  |      | 5,299  |      |  |      | 4,455  |      |  |   | 1,632 |  |  |   | 1,565 |  |  |   | 1,423 | 
|Expected return on plan assets               |  |                         | (4,076 | )                       |  |      | (5,202 | )    |  |      | (6,200 | )    |  |   |      |  |  |   |      |  |  |   |      | 
|Amortization of transition (asset) liability |  |                         | (321   | )                       |  |      | (321   | )    |  |      | (321   | )    |  |   | 101   |  |  |   | 101   |  |  |   | 101   | 
|Amortization of prior service cost           |  |                         | 318    |                         |  |      | 99     |      |  |      | 47     |      |  |   | 1,350 |  |  |   | 1,022 |  |  |   | 985   | 
|Amortization of actuarial loss (gain)        |  |                         | 1,070  |                         |  |      |       |      |  |      | (1,199 | )    |  |   | 425   |  |  |   | 347   |  |  |   |      | 
|Curtailment gain                             |  |                         |       |                         |  |      |       |      |  |      | (1,132 | )    |  |   |      |  |  |   |      |  |  |   |      | 
|                                             |  |                         |        |                         |  |      |        |      |  |      |        |      |  |   |       |  |  |   |       |  |  |   |       | 
|Net periodic cost of defined benefit plans   |  |                         | 8,941  |                         |  |      | 6,988  |      |  |      | 2,069  |      |  |   | 4,162 |  |  |   | 3,558 |  |  |   | 3,002 | 
|Union plans                                  |  |                         | 295    |                         |  |      | 304    |      |  |      | 408    |      |  |   |      |  |  |   |      |  |  |   |      | 
|Other retirement plans                       |  |                         | 1,003  |                         |  |      | 828    |      |  |      | 745    |      |  |   |      |  |  |   |      |  |  |   |      | 
|                                             |  |                         |        |                         |  |      |        |      |  |      |        |      |  |   |       |  |  |   |       |  |  |   |       | 
|Total cost                                   |  | $                       | 10,239 |                         |  | $    | 8,120  |      |  | $    | 3,222  |      |  | $ | 4,162 |  |  | $ | 3,558 |  |  | $ | 3,002 | 
|                                             |  |                         |        |                         |  |      |        |      |  |      |        |      |  |   |       |  |  |   |       |  |  |   |       | 

63



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

The reconciliation of the beginning and ending
balances in benefit obligations and fair value of plan assets,
as well as the funded status of the Companys plans, is as
follows:

|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ------------ |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                  |  |              |         |             
|                                                  |  | Pension Plan |         | SERP        
|                                                  |  |              |         |             
|                                                  |  |              |         |             
|                                                  |  | December 31, |         | December 31,
|                                                  |  |              |         |             
|                                                  |  | 2003         |         | 2002         |  | 2003 |         | 2002
|                                                  |  |              |         |              |  |      |         |     
|Projected benefit obligation at beginning of year |  | $            | 90,659  |              |  | $    | 74,194  |      |  | $ | 22,631  |   |  | $ | 21,294  |  
|Service cost                                      |  |              | 6,017   |              |  |      | 7,113   |      |  |   | 654     |   |  |   | 523     |  
|Interest cost                                     |  |              | 5,933   |              |  |      | 5,299   |      |  |   | 1,633   |   |  |   | 1,565   |  
|Amendments                                        |  |              | 2,639   |              |  |      |        |      |  |   | 2,290   |   |  |   |        |  
|Actuarial loss                                    |  |              | 9,558   |              |  |      | 9,839   |      |  |   | 2,848   |   |  |   | 1,429   |  
|Benefits paid                                     |  |              | (5,481  | )            |  |      | (5,786  | )    |  |   | (1,953  | ) |  |   | (2,180  | )
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Projected benefit obligation at end of year       |  |              | 109,325 |              |  |      | 90,659  |      |  |   | 28,103  |   |  |   | 22,631  |  
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at beginning of year    |  |              | 49,700  |              |  |      | 59,350  |      |  |   |        |   |  |   |        |  
|Actual return on plan assets                      |  |              | 11,982  |              |  |      | (7,607  | )    |  |   |        |   |  |   |        |  
|Employer contributions                            |  |              | 7,035   |              |  |      | 3,743   |      |  |   | 1,953   |   |  |   | 2,180   |  
|Benefits paid                                     |  |              | (5,481  | )            |  |      | (5,786  | )    |  |   | (1,953  | ) |  |   | (2,180  | )
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at end of year          |  |              | 63,236  |              |  |      | 49,700  |      |  |   |        |   |  |   |        |  
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Funded status                                     |  |              | (46,089 | )            |  |      | (40,959 | )    |  |   | (28,103 | ) |  |   | (22,631 | )
|Unrecognized net transition (asset) obligation    |  |              | (1,879  | )            |  |      | (2,200  | )    |  |   | 334     |   |  |   | 435     |  
|Unrecognized prior service cost                   |  |              | 3,283   |              |  |      | 962     |      |  |   | 6,766   |   |  |   | 5,825   |  
|Unrecognized net actuarial loss                   |  |              | 21,223  |              |  |      | 20,640  |      |  |   | 7,057   |   |  |   | 4,634   |  
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Net accrued cost                                  |  | $            | (23,462 | )            |  | $    | (21,557 | )    |  | $ | (13,946 | ) |  | $ | (11,737 | )
|                                                  |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  

The accumulated benefit obligation for the
Companys defined benefit pension plan was $90,808 and
$72,918 at December 31, 2003 and 2002, respectively. The
accumulated benefit obligation for the Companys SERP was
$24,148 and $20,514 at December 31, 2003 and 2002,
respectively.

Amounts recognized in the balance sheet consist
of:

|                                               |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | ------------ | ------- | ------------ |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                               |  |              |         |             
|                                               |  | Pension Plan |         | SERP        
|                                               |  |              |         |             
|                                               |  |              |         |             
|                                               |  | December 31, |         | December 31,
|                                               |  |              |         |             
|                                               |  | 2003         |         | 2002         |  | 2003 |         | 2002
|                                               |  |              |         |              |  |      |         |     
|Accrued benefit liability                      |  | $            | (27,572 | )            |  | $    | (23,219 | )    |  | $ | (24,148 | ) |  | $ | (20,514 | )
|Intangible asset for minimum pension liability |  |              | 3,283   |              |  |      | 962     |      |  |   | 7,100   |   |  |   | 6,260   |  
|Accumulated other comprehensive loss           |  |              | 512     |              |  |      | 434     |      |  |   | 1,923   |   |  |   | 1,560   |  
|Deferred income tax asset                      |  |              | 315     |              |  |      | 266     |      |  |   | 1,179   |   |  |   | 957     |  
|                                               |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  
|Net amount recognized                          |  | $            | (23,462 | )            |  | $    | (21,557 | )    |  | $ | (13,946 | ) |  | $ | (11,737 | )
|                                               |  |              |         |              |  |      |         |      |  |   |         |   |  |   |         |  

The amounts of accrued benefit liabilities are
included in current and long-term liabilities for employee
compensation and benefits. At December 31, 2003 and 2002,
the Company had an additional minimum pension liability of
$14,312 and $10,439, respectively, 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 had a
corresponding intangible asset of $10,383 and $7,222 at
December 31, 2003 and 2002, respectively. The net charge to
accumulated other comprehensive income in stockholders
equity as of December 31, 2003 was $2,435, which is net of
a $1,494 deferred tax asset. The net charge to

64



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

accumulated other comprehensive income in
stockholders equity as of December 31, 2002 was
$1,994, which is net of a $1,223 deferred tax asset. The charges
to other comprehensive income relating to the additional minimum
pension liability adjustments were $441, net of $271 tax
benefit, in 2003, and $1,994, net of $1,223 tax benefit, in
2002. The increase in unfunded accumulated benefit obligations
was primarily due to a reduction in the assumed discount rate.
The SERP plan contains covenants which prohibit retired
participants from engaging in competition with the Company.

The weighted average assumptions that were used
to determine the Companys benefit obligations as of the
measurement date (December 31) were as follows:

|                                 |  |              |      |                          |  |      |      |      |  |      |      |      |  |       |  |       |  |      
|-------------------------------- |  | ------------ | ---- | ------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ----- |  | ----- |  | -----
|                                 |  |              |      |                          |  |      |      |     
|                                 |  | Pension Plan |      |                         
|                                 |  |              |      | SERP                    
|                                 |  |              |      |                         
|                                 |  | Years Ended  |      |                         
|                                 |  | December 31, |      | Years Ended December 31,
|                                 |  |              |      |                         
|                                 |  | 2003         |      | 2002                     |  | 2001 |      | 2003 |  | 2002 |      | 2001
|                                 |  |              |      |                          |  |      |      |      |  |      |      |     
|Discount rate                    |  |              | 6.25 | %                        |  |      | 6.50 | %    |  |      | 7.25 | %    |  | 6.25% |  | 6.50% |  | 7.25%
|Projected future salary increase |  |              | 4.0  | %                        |  |      | 4.0  | %    |  |      | 4.0  | %    |  | 4.0%  |  | 4.0%  |  | 4.0% 

The weighted average assumptions that were used
to determine the Companys net periodic benefit cost were
as follows:

|                                                 |  |              |     |                          |  |      |      |      |  |      |      |      |  |      |  |       |  |      
|------------------------------------------------ |  | ------------ | --- | ------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- |  | ----- |  | -----
|                                                 |  |              |     |                          |  |      |      |     
|                                                 |  | Pension Plan |     |                         
|                                                 |  |              |     | SERP                    
|                                                 |  |              |     |                         
|                                                 |  | Years Ended  |     |                         
|                                                 |  | December 31, |     | Years Ended December 31,
|                                                 |  |              |     |                         
|                                                 |  | 2003         |     | 2002                     |  | 2001 |      | 2003 |  | 2002 |      | 2001
|                                                 |  |              |     |                          |  |      |      |      |  |      |      |     
|Discount rate                                    |  |              | 6.5 | %                        |  |      | 7.25 | %    |  |      | 7.75 | %    |  | 6.5% |  | 7.25% |  | 7.75%
|Projected future salary increase                 |  |              | 4.0 | %                        |  |      | 4.0  | %    |  |      | 4.5  | %    |  | 4.0% |  | 4.0%  |  | 4.5% 
|Expected long-term rate of return on plan assets |  |              | 8.5 | %                        |  |      | 9.0  | %    |  |      | 9.5  | %    |  | N/A  |  | N/A   |  | N/A  

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. In setting
this rate, management uses a building block approach. Historic
real return trends for the various asset classes in the
Plans portfolio are combined with anticipated future
market conditions to estimate the real rate of return for each
class. These rates are then adjusted for anticipated future
inflation to determine estimated nominal rates of return for
each class. The expected rate of return on plan assets is
determined to be the weighted average of the nominal returns
based on the weightings of the classes within the total asset
portfolio.

From 1998 through 2001, 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 anticipated lower future asset
performance of the U.S. equity markets and lower expected
future rates of inflation. For 2003, the expected return was
lowered to 8.5% to further adjust for anticipated lower future
asset performance and inflation.

The percentage of the fair value of total pension
plan assets held by asset category as of December 31, 2003
and 2002 is as follows:

|                        |  |              |     |      |  |  |     |  
|----------------------- |  | ------------ | --- | ---- |  |  | --- | -
|                        |  |             
|                        |  | December 31,
|                        |  |             
|Asset Category:         |  | 2003         |     | 2002
|                        |  |              |     |     
|Equity securities       |  |              | 75  | %    |  |  | 66  | %
|Fixed income securities |  |              | 23  |      |  |  | 29  |  
|Other                   |  |              | 2   |      |  |  | 5   |  
|                        |  |              |     |      |  |  |     |  
|Total                   |  |              | 100 | %    |  |  | 100 | %
|                        |  |              |     |      |  |  |     |  

65



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

The Companys investment objective as it
relates to pension plan assets is to obtain a reasonable rate of
return, defined as income plus realized and unrealized capital
gains and losses  commensurate with the Prudent Man
Rule of the Employee Retirement Income Security Act
(ERISA) of 1974. The Company expects its investment
managers who invest in equity funds to produce a cumulative
annualized total return net-of-fees that exceeds the appropriate
broad market index by a minimum of 100 basis points per
year over moving 3 and/or 5-year periods. The Company expects
its investment managers who invest in fixed income securities to
produce a cumulative annualized total return net-of-fees that
exceeds the appropriate broad market index by a minimum of
50 basis points per year over moving 3 and/or 5-year
periods. The Company also expects its investment managers to
maintain premium performance compared to a peer group of
similarly oriented investment advisors.

In selecting equities for all funds, including
convertible and preferred securities, futures and covered
options, traded on a US stock exchange or otherwise available as
ADRs (American Depository Receipts), the Company expects its
investment managers to give emphasis to high-quality companies
with proven management styles and records of growth, as well as
sound financial structure. Domestic equity managers may invest
in foreign securities in the form of ADRs; however, they may not
exceed 20% of the equity market value of the account. Security
selection and diversification is the sole responsibility of the
portfolio manager, subject to (i) a maximum 6% commitment
of the total equity market value for an individual security
(ii) for funds benchmarked by Russell 1000 or S&P 500,
30% for a particular economic sector, utilizing the 15 S&P
500 economic sectors and (iii) for funds benchmarked by
Russell 2000, a 40% maximum in any Russell 2000 Index major
sector and no more than two times (2X) the weight of any major
Russell 2000 Index industry weight.

Fixed income securities are limited to US
Treasury issues, Government Agencies, Mortgages or Corporate
Bonds with ratings of Baa or BBB or better as rated by
Moodys or Standard and Poors, respectively.
Securities falling below investment grade after purchase are
carefully scrutinized to see if they should be sold. Investments
are typically in publicly held companies. The duration of fixed
income in the aggregate is targeted to be equal to that of the
broad, domestic fixed income market (such as the Lehman Brothers
Aggregate Bond Index), plus or minus 3 years. In a rising
interest rate environment, the Company may designate a portion
of the fixed income assets to be held in shorter-duration
instruments to reduce the risk of loss of principal.

The Company targets the plans asset
allocation within the following ranges within each asset class:

|               |               |                 |         |         |         |  
|-------------- | ------------- | --------------- | ------- | ------- | ------- | -
|Asset Classes: |               | Ranges         
|               |               |                
|Equities       |               |                 | 65  85 | %      
|               | Domestic      |                 |         | 55  75 | %      
|               |               | Large Cap Core  |         |         | 28  38 | %
|               |               | Large Cap Value |         |         | 15  25 | %
|               |               | Small Cap       |         |         | 10  20 | %
|               | International |                 |         | 5  15  | %      
|Fixed Income   |               |                 | 15  35 | %      
|Alternatives   |               |                 | 5  15  | %      

The Company seeks to diversify its investments in
a sufficient number of securities so that a decline in the price
of one companys securities or securities of companies in
one industry will lessen the likelihood of a pronounced negative
effect upon the value of the entire portfolio. There is no limit
on the amount of the portfolios assets that can be
invested in any security issued by the United States Government
or one of its agencies. No more than 6% of the portfolios
assets of any one manager at market are to be invested in the
securities of any one company.

66



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

In addition, investment managers are prohibited
from trading in certain investments and are further restricted
as follows (unless specifically approved by the Companys
management as an exception):



| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Option trading is limited to writing covered
    options.                                                                                                                                                                                                              
|
| |  | Letter stock.                                                                                                                                                                                                                                                          
|
| |  | Bowne & Co., Inc. common stock.                                                                                                                                                                                                                                        
|
| |  | Commodities.                                                                                                                                                                                                                                                           
|
| |  | Direct real estate or mortgages.                                                                                                                                                                                                                                       
|
| |  | Security loans.                                                                                                                                                                                                                                                        
|
| |  | Risky or volatile derivative securities as
    commonly defined by the financial industry.                                                                                                                                                                             
|
| |  | Manager portfolios may hold no greater than two
    times (2X) their respective index sector weights, up to a
    maximum of 30%.                                                                                                                                      
|
| |  | No position greater than two (2) weeks
    average trading volume.                                                                                                                                                                                                    
|
| |  | No more than 4.99% of the outstanding shares of
    any company may be owned in the clients portfolio.                                                                                                                                                                
|
| |  | Unless authorized in specific manager guidelines,
    managers may not sell securities short, buy securities on
    margin, buy private or direct placements or restricted
    securities, borrow money or pledge assets, nor buy or sell
    commodities or annuities.

The Company monitors investment manager
performance on a regular basis for consistency of investment
philosophy, return relative to objectives, and investment risk.
Risk is evaluated as a function of asset concentration, exposure
to extreme economic conditions, and performance volatility.
Investment performance is reviewed on a quarterly basis, and
individual managers results are evaluated quarterly and
over rolling one, three and five-year periods.

The Company expects to contribute approximately
$14.7 million to its pension plan in 2004.

The Company expects the following benefit
payments to be paid out of the plans for the years indicated.
The expected benefits are based on the same assumptions used to
measure the Companys benefit obligation at
December 31 and include estimated future employee service.
Payments from the pension plan are made from plan assets,
whereas payments from the SERP are made by the Company.

|            |  |              |        |      |  |   |       | 
|----------- |  | ------------ | ------ | ---- |  | - | ----- | 
|Year        |  | Pension Plan |        | SERP
|            |  |              |        |     
|2004        |  | $            | 3,244  |      |  | $ | 4,424 | 
|2005        |  |              | 3,694  |      |  |   | 4,277 | 
|2006        |  |              | 4,596  |      |  |   | 3,916 | 
|2007        |  |              | 5,902  |      |  |   | 1,364 | 
|2008        |  |              | 6,291  |      |  |   | 2,023 | 
|2009  2013 |  | $            | 47,776 |      |  | $ | 9,990 | 



| |                           
| | --------------------------
| | 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 $0,
$363 and $2,781 for the years ended December 31, 2003, 2002
and 2001, respectively. Effective December 31, 2002, this
Plan was closed to employee contributions, and was merged with
the qualified 401(k) Plan discussed below to

67



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

form the Bowne 401(k) Savings Plan also discussed
below. Employees previously covered by this plan are now able to
participate in the 401(k) Savings Plan.

The remaining domestic subsidiaries had been
participating in a qualified 401(k) Plan that was 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, this Plan was merged into the 401(k)
Savings Plan discussed below. Amounts charged to income for the
401(k) Plan, representing the Companys matching
contributions, were $966 and $837 for the years ended
December 31, 2002 and 2001, respectively.

Effective January 1, 2003, substantially all
of the Companys domestic eligible non-union employees can
participate in the qualified 401(k) Savings Plan, and the
Company will match 100% of the first 3% of the
participants compensation contributed to the 401(k)
Savings Plan plus 50% of the next 2% of compensation contributed
to the 401(k) Savings Plan. Amounts charged to income for the
401(k) Savings Plan, representing the Companys matching
contributions, were $7,040 for the year ended December 31,
2003. Effective December 31, 2003, the Employees
Stock Purchase Plan discussed below was merged into this plan
and all account balances were transferred accordingly. As a
result, participants in this plan are able to invest
contributions in the common stock of the Company. The Plan
acquired 51,832 shares of the common stock of the Company during
2003 (not including the transfer of approximately 1.4 million
shares from the Employees Stock Purchase Plan). At
December 31, 2003, the 401(k) Savings Plan held
1,449,634 shares of the Companys common stock. 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.

Under the Employees Stock Purchase Plan,
the Company and participating subsidiaries matched 50% of
amounts contributed (after-tax) by employees up to twelve
hundred dollars per employee per year. Effective
December 31, 2002, this Plan was closed to non-union
employee contributions and effective December 31, 2003 this
plan was terminated and all account balances were transferred to
the 401(k) Savings Plan, discussed above. Prior to the
termination of the plan, all contributions were invested in the
common stock of the Company. The plan acquired 44,919, 241,192
and 379,121 shares in the years ended December 31,
2003, 2002 and 2001 respectively, of the Companys common
stock on the open market. At December 31, 2003 the plan
transferred all shares of the Companys common stock to the
401(k) Savings Plan. At December 31, 2002, the Stock
Purchase Plan held 1,947,743 shares of the Companys
common stock. Charges to income amounted to $64, $388 and $964
for the years ended December 31, 2003, 2002, and 2001,
respectively. The shares held by the plan were considered
outstanding in computing the Companys basic earnings per
share, and dividends paid to the plan are charged to retained
earnings.



| |            
| | -----------
| | Health Plan

The Company maintains a voluntary employee
benefit health and welfare plan (the Plan) covering
substantially all of its non-union employees. The Company funds
disbursements as incurred. At December 31, 2003 and 2002,
accrued expense for Plan participants incurred but not
reported claims were $4,600 and $4,625 respectively. Amounts
charged to income for the Plan were $23,162, $25,939 and $29,107
for the years ended December 31, 2003, 2002, and 2001,
respectively.

68



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

Note 12  Deferred Employee
Compensation and Other

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

|                                                   |  |              |        |      |  |   |        | 
|-------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                                   |  |             
|                                                   |  | December 31,
|                                                   |  |             
|                                                   |  | 2003         |        | 2002
|                                                   |  |              |        |     
|Pension and other retirement costs, long-term      |  | $            | 12,730 |      |  | $ | 16,467 | 
|Supplemental retirement, long-term                 |  |              | 19,803 |      |  |   | 18,484 | 
|Deferred compensation and other long-term benefits |  |              | 10,786 |      |  |   | 9,929  | 
|Other                                              |  |              | 2,488  |      |  |   | 1,000  | 
|                                                   |  |              |        |      |  |   |        | 
|                                                   |  | $            | 45,807 |      |  | $ | 45,880 | 
|                                                   |  |              |        |      |  |   |        | 

Note 13  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.

The Company had a synthetic lease for printing
equipment in the United States and Canada which was funded
through a master lease agreement administered by a commercial
bank. The lease, which is accounted for as an operating lease,
had an original expiration date in April 2003, which was
extended to May 19, 2003. In May, the Company purchased a
portion of the equipment under the old agreement at the residual
value of approximately $3.1 million, and replaced a portion
of the existing agreement with a new synthetic lease agreement.
The equipment under the new facility had a fair value of
approximately $13.8 million. The new facility has a term of
four years, with expected minimum lease payments of
approximately $2.5 million in 2004, 2005, and 2006 and
$1.0 million in 2007. At the end of this new facility, the
Company has the option of purchasing the equipment at the
estimated residual value of approximately $6.3 million. The
equipment under the new lease had an aggregate residual value of
approximately $12.8 million at December 31, 2003.

Rent expense relating to premises and equipment
amounted to $61,700, $60,240, and $50,184 for the years ended
December 31, 2003, 2002 and 2001, respectively. Included in
these amounts is rent expense associated with equipment located
at customer sites, which amounted to $20,061, $16,554 and,
$16,879 for the years ended December 31, 2003, 2002 and
2001, 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, 2003, are summarized as follows:

|            |       |   |        |         | 
|----------- | ----- | - | ------ | ------- | 
|2004        |       | $ | 45,888 |        
|2005        |       |   | 38,908 |        
|2006        |       |   | 27,670 |        
|2007        |       |   | 20,193 |        
|2008        |       |   | 14,343 |        
|2009  2020 |       |   | 60,717 |        
|            |       |   |        |        
|            | Total |   | $      | 207,719 | 
|            |       |   |        |        

Future rental commitments for leases have not
been reduced by minimum non-cancelable sublease rentals
aggregating approximately $2.3 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 as a result
of the secondary liability provisions of the primary lease
agreements.

69



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##### Table of Contents



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 the current 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 14  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.

During 2000 the Board of Directors authorized the
expenditure of up to $60 million to repurchase shares of
the Companys common stock. 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 and stock
incentive plans. Through December 31, 2001, the Company
purchased approximately 4 million shares, at an average
price of $10.63. No shares were repurchased during 2002 or 2003.

Note 15  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 2000 Plan did not require shareholder approval.

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.

70



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

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        |                      |  | 4,164,595           |           |                      |  | 12.96 |  |  |  | 1,167,305 |          
|Plans not approved by shareholders: |                      |                      |  |                     |           |                      |  |       |  |  |  |          
|                                    | Stock options        |                      |  | 2,449,024           |           |                      |  | 12.13 |  |  |  | 39,655    |          
|                                    | Deferred stock units |                      |  | 896,776             |           |                      |  | (a)   |  |  |  | 504,037   |          
|                                    |                      |                      |  |                     |           |                      |  |       |  |  |  |          
|                                    |                      | Total                |  |                     | 7,510,395 |                      |  |       |  |  |  |           | 1,710,997 | 
|                                    |                      |                      |  |                     |           |                      |  |       |  |  |  |          




(a) Not applicable

Details of stock options are as follows:

|                             |                          |           |  |           |  |  |   |       | 
|---------------------------- | ------------------------ | --------- |  | --------- |  |  | - | ----- | 
|                             |                          |           |  | Weighted 
|                             |                          |           |  | Average  
|                             |                          | Number of |  | Option   
|                             |                          | Shares    |  | Price    
|                             |                          |           |  |          
|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 | 

71



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

|                             |                          |           |  |           |  |  |   |       | 
|---------------------------- | ------------------------ | --------- |  | --------- |  |  | - | ----- | 
|                             |                          |           |  | Weighted 
|                             |                          |           |  | Average  
|                             |                          | Number of |  | Option   
|                             |                          | Shares    |  | Price    
|                             |                          |           |  |          
|Year Ended December 31, 2003 |                          |           |  |           |  |  |   |      
|                             | Granted                  |           |  | 1,573,795 |  |  | $ | 13.48 | 
|                             | Exercised                |           |  | 458,077   |  |  |   | 10.09 | 
|                             | Cancelled                |           |  | 258,150   |  |  |   | 13.51 | 
|                             | Outstanding, end of year |           |  | 6,613,619 |  |  |   | 12.66 | 
|                             | Exercisable, end of year |           |  | 4,768,407 |  |  |   | 12.50 | 

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, 2003   |           | Life                |  | Price    |         | December 31, 2003 |  | Price   
|                |  |                     |           |                     |  |          |         |                   |  |         
|$ 8.03  $10.36 |  |                     | 1,022,297 |                     |  |          | 6 years |                   |  | $        | 9.13  |  |  |  | 975,532   |  |  | $ | 9.10  | 
|10.37   11.30  |  |                     | 1,004,280 |                     |  |          | 6 years |                   |  |          | 10.69 |  |  |  | 602,850   |  |  |   | 10.74 | 
|11.31   12.80  |  |                     | 907,075   |                     |  |          | 6 years |                   |  |          | 12.24 |  |  |  | 902,075   |  |  |   | 12.24 | 
|12.81   13.75  |  |                     | 1,438,875 |                     |  |          | 5 years |                   |  |          | 12.93 |  |  |  | 1,412,875 |  |  |   | 12.92 | 
|13.76   13.86  |  |                     | 1,319,000 |                     |  |          | 7 years |                   |  |          | 13.86 |  |  |  |          |  |  |   |      | 
|13.87   22.50  |  |                     | 922,092   |                     |  |          | 5 years |                   |  |          | 16.98 |  |  |  | 875,075   |  |  |   | 17.08 | 
|                |  |                     |           |                     |  |          |         |                   |  |          |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 6,613,619 |                     |  |          | 6 years |                   |  | $        | 12.66 |  |  |  | 4,768,407 |  |  | $ | 12.50 | 
|                |  |                     |           |                     |  |          |         |                   |  |          |       |  |  |  |           |  |  |   |       | 



| |                           
| | --------------------------
| | 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.

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, 2,217,000 stock options at an average exercise
price of $2.14 during 2002, and 1,655,000 stock options at an
average exercise price of $1.87 during 2003. In addition,
498,150 and 3,436,150 stock options were forfeited during 2003
and 2002, respectively. The options outstanding under the Plans
are 3,940,625, 2,783,775 and 4,098,850 at December 31,
2003, 2002 and 2001, respectively. The options generally vest
over periods ranging from two to four years; 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

72



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

as compensation expense in 2001. The Company did
not purchase any options during 2003. No compensation expense
was recognized in either 2003 or 2002.



| |                      
| | ---------------------
| | 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 diluted
earnings per share. At December 31, 2003 and 2002, the
amounts included in stockholders equity for these units
were $8.6 million and $8.1 million, respectively. At
December 31, 2003, 2002 and 2001, there were 717,633,
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 commissions to a future date.
The amounts deferred, plus any matching contribution made by the
Company, will be paid in cash upon retirement, termination or in
certain hardship situations. A portion of the deferred amount is
paid out based upon the value of the Companys common stock
(deferred stock equivalent). Amounts accrued which
the employees participating in the Plan have elected to be paid
in deferred stock equivalents amounted to $2,212 and $2,081 at
December 31, 2003 and 2002, respectively. 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 employer matching amounts due under
the plan may be accelerated. At December 31, 2003, 2002 and
2001, respectively, there were 179,143, 164,742 and 146,327
deferred stock equivalents outstanding under this Plan. These
awards are included as shares outstanding in computing the
Companys diluted earnings per share.

Note 16  Comprehensive Income
(Loss)

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

|                                                                           |  |              |        |      |  |      |        |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                           |  |             
|                                                                           |  | December 31,
|                                                                           |  |             
|                                                                           |  | 2003         |        | 2002 |  | 2001
|                                                                           |  |              |        |      |  |     
|Foreign currency translation adjustment                                    |  | $            | 26,076 |      |  | $    | 1,520  |   |  | $ | (10,582 | )
|Minimum pension liability adjustment (net of tax
    effect)               |  |              | (2,435 | )    |  |      | (1,994 | ) |  |   |        |  
|Unrealized (losses) gains on marketable
    securities (net of tax effect) |  |              | (27    | )    |  |      | 519    |   |  |   | 1,322   |  
|                                                                           |  |              |        |      |  |      |        |   |  |   |         |  
|                                                                           |  | $            | 23,614 |      |  | $    | 45     |   |  | $ | (9,260  | )
|                                                                           |  |              |        |      |  |      |        |   |  |   |         |  

Note 17  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 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, compliance printing, mutual fund printing,
    commercial printing, digital printing, and electronic delivery
    of personalized communications.

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NOTES TO CONSOLIDATED FINANCIAL
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BOWNE & CO., INC. AND
SUBSIDIARIES  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 DecisionQuest from its date of acquisition,
    December 4, 2002, including the equity share of the income
    (losses) of the CaseSoft, Inc. joint venture arrangement
    (CaseSoft) owned 50% by DecisionQuest.
|
| | Globalization
    outsourced globalization solutions, including technical writing
    and content creation, terminology and content management,
    interpretation services, and localization and translation
    services. This segment is commonly referred to as Bowne Global
    Solutions (BGS). The results for the globalization segment
    include the operating results of GlobalNet from its date of
    acquisition, September 27, 2002.                                                                                                                                  

In the first quarter of 2003, the Company changed
the manner in which it reports and evaluates segment
information. The Company now reports certain administrative,
legal, finance, and other support services which are not
directly attributable to the segments in the category
Corporate/ Other. These costs had previously been
allocated to the individual operating segments. The prior
years segment information has been reclassified to conform
to the current years presentation.

Information regarding the operations of each
business segment is set forth on the following page. Performance
is evaluated based on several factors, of which the primary
financial measures are segment profit and segment profit less
depreciation expense. Segment profit is defined as gross margin
(revenue less cost of revenue) less selling and administrative
expenses, plus the Companys equity share of income
(losses) associated with the CaseSoft joint venture investment
in the outsourcing segment. Segment performance is evaluated
exclusive of interest, income taxes, amortization, certain
shared corporate expenses, restructuring, integration and asset
impairment charges, the disposal of certain assets, other
expenses and other income. Therefore, this information is
presented in order to reconcile to income (loss) before income
taxes. The Corporate/ Other category includes (i) corporate
expenses for shared administrative, legal, finance and other
support services which are not directly attributable to the
operating segments, (ii) restructuring, integration and
asset impairment charges, and (iii) other expenses and
other income.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                          |  |                        
|                                                                          |  | Year Ended December 31,
|                                                                          |  |                        
|                                                                          |  | 2003                    |           | 2002 |  | 2001
|                                                                          |  |                         |           |      |  |     
|Revenue from external customers:                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                                        |  | $                       | 590,856   |      |  | $    | 638,269   |   |  | $ | 721,190   |  
|Outsourcing                                                               |  |                         | 254,719   |      |  |      | 233,886   |   |  |   | 231,791   |  
|Globalization                                                             |  |                         | 219,245   |      |  |      | 131,171   |   |  |   | 101,650   |  
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                          |  | $                       | 1,064,820 |      |  | $    | 1,003,326 |   |  | $ | 1,054,631 |  
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Segment profit (loss):                                                    |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                                        |  | $                       | 61,889    |      |  | $    | 66,569    |   |  | $ | 68,814    |  
|Outsourcing                                                               |  |                         | 14,042    |      |  |      | 15,642    |   |  |   | 14,809    |  
|Globalization                                                             |  |                         | 13,072    |      |  |      | (4,441    | ) |  |   | 6,271     |  
|Corporate/ Other (see detail below)                                       |  |                         | (42,153   | )    |  |      | (18,464   | ) |  |   | (39,788   | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                          |  | $                       | 46,850    |      |  | $    | 59,306    |   |  | $ | 50,106    |  
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Depreciation expense:                                                     |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                                        |  | $                       | 27,353    |      |  | $    | 29,075    |   |  | $ | 30,586    |  
|Outsourcing                                                               |  |                         | 4,297     |      |  |      | 4,008     |   |  |   | 4,754     |  
|Globalization                                                             |  |                         | 6,888     |      |  |      | 5,580     |   |  |   | 3,337     |  
|Corporate                                                                 |  |                         | 1,794     |      |  |      | 1,999     |   |  |   | 2,440     |  
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                          |  | $                       | 40,332    |      |  | $    | 40,662    |   |  | $ | 41,117    |  
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Segment profit (loss) less
    depreciation:                              |  |                         |           |      |  |      |           |   |  |   |           |  
|Financial printing                                                        |  | $                       | 34,536    |      |  | $    | 37,494    |   |  | $ | 38,228    |  
|Outsourcing                                                               |  |                         | 9,745     |      |  |      | 11,634    |   |  |   | 10,055    |  
|Globalization                                                             |  |                         | 6,184     |      |  |      | (10,021   | ) |  |   | 2,934     |  
|Corporate/ Other                                                          |  |                         | (43,947   | )    |  |      | (20,463   | ) |  |   | (42,228   | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                          |  |                         | 6,518     |      |  |      | 18,644    |   |  |   | 8,989     |  
|Amortization expense                                                      |  |                         | (3,621    | )    |  |      | (2,017    | ) |  |   | (8,001    | )
|Interest expense                                                          |  |                         | (11,420   | )    |  |      | (7,127    | ) |  |   | (6,422    | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|(Loss) income from continuing operations before
    income taxes          |  |                         | (8,523    | )    |  |      | 9,500     |   |  |   | (5,434    | )
|Loss from discontinued operations before income
    taxes                 |  |                         |          |      |  |      |          |   |  |   | (25,423   | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Pre-tax (loss) income                                                     |  | $                       | (8,523    | )    |  | $    | 9,500     |   |  | $ | (30,857   | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|Corporate/ Other (by type):                                               |  |                         |           |      |  |      |           |   |  |   |           |  
|Shared corporate expenses                                                 |  | $                       | (15,655   | )    |  | $    | (17,351   | ) |  | $ | (17,746   | )
|Other (expense) income, net                                               |  |                         | (907      | )    |  |      | (1,993    | ) |  |   | 1,565     |  
|Purchased in-process research and development                             |  |                         |          |      |  |      |          |   |  |   | (800      | )
|Restructuring charges, integration costs and
    asset impairment charges |  |                         | (25,591   | )    |  |      | (19,378   | ) |  |   | (20,949   | )
|Gain (loss) on sale of certain assets                                     |  |                         |          |      |  |      | 20,258    |   |  |   | (1,858    | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  
|                                                                          |  | $                       | (42,153   | )    |  | $    | (18,464   | ) |  | $ | (39,788   | )
|                                                                          |  |                         |           |      |  |      |           |   |  |   |           |  

75



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|----------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                        |  |                        
|                        |  | Year Ended December 31,
|                        |  |                        
|                        |  | 2003                    |         | 2002 |  | 2001
|                        |  |                         |         |      |  |     
|Assets:                 |  |                         |         |      |  |      |         |  |  |   |         | 
|Financial printing      |  | $                       | 240,963 |      |  | $    | 239,022 |  |  | $ | 293,565 | 
|Outsourcing             |  |                         | 188,084 |      |  |      | 194,318 |  |  |   | 164,317 | 
|Globalization           |  |                         | 240,159 |      |  |      | 219,450 |  |  |   | 137,607 | 
|Corporate               |  |                         | 48,396  |      |  |      | 51,612  |  |  |   | 41,845  | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|                        |  | $                       | 717,602 |      |  | $    | 704,402 |  |  | $ | 637,334 | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|Capital spending:       |  |                         |         |      |  |      |         |  |  |   |         | 
|Financial printing      |  | $                       | 6,621   |      |  | $    | 11,901  |  |  | $ | 18,203  | 
|Outsourcing             |  |                         | 3,441   |      |  |      | 3,268   |  |  |   | 5,818   | 
|Globalization           |  |                         | 7,704   |      |  |      | 4,328   |  |  |   | 2,985   | 
|Corporate               |  |                         | 6,408   |      |  |      | 10,046  |  |  |   | 11,808  | 
|Discontinued operations |  |                         |        |      |  |      |        |  |  |   | 664     | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 
|                        |  | $                       | 24,174  |      |  | $    | 29,543  |  |  | $ | 39,478  | 
|                        |  |                         |         |      |  |      |         |  |  |   |         | 

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,
|                                |  |                        
|                                |  | 2003                    |           | 2002 |  | 2001
|                                |  |                         |           |      |  |     
|Revenue by source:              |  |                         |           |      |  |      |           |  |  |   |           | 
|United States                   |  | $                       | 830,531   |      |  | $    | 812,762   |  |  | $ | 882,507   | 
|Canada                          |  |                         | 47,659    |      |  |      | 43,258    |  |  |   | 50,127    | 
|Other foreign, primarily Europe |  |                         | 186,630   |      |  |      | 147,306   |  |  |   | 121,997   | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|                                |  | $                       | 1,064,820 |      |  | $    | 1,003,326 |  |  | $ | 1,054,631 | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|Long-lived assets, net:         |  |                         |           |      |  |      |           |  |  |   |           | 
|United States                   |  | $                       | 332,523   |      |  | $    | 297,671   |  |  | $ | 286,400   | 
|Canada                          |  |                         | 11,750    |      |  |      | 6,634     |  |  |   | 6,658     | 
|Other foreign, primarily Europe |  |                         | 114,719   |      |  |      | 138,264   |  |  |   | 79,578    | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 
|                                |  | $                       | 458,992   |      |  | $    | 442,569   |  |  | $ | 372,636   | 
|                                |  |                         |           |      |  |      |           |  |  |   |           | 

Note 18  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. This segment is reflected as a
discontinued operation.

The discontinued operations had net liabilities
(including accrued restructuring and discontinuance costs) of
$1,199 and $2,745 at December 31, 2003 and
December 31, 2002, 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

76



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


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

activity in accrued restructuring and
discontinuance costs through December 31, 2003, including
additions and payments made on that accrual, is summarized below.

|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  
|---------------------------- |  | ------------- | ------ | --------- |  | ----- | ------ | ----- |  | - | ---- | - |  | - | ------ | -
|                             |  | Severance and |        |           |  |       |        |      
|                             |  | Personnel-    |        | Occupancy |  |       |        |      
|                             |  | Related Costs |        | Costs     |  | Other |        | Total
|                             |  |               |        |           |  |       |        |      
|Balance at December 31, 2000 |  | $             | 1,160  |           |  | $     | 762    |       |  | $ | 106  |   |  | $ | 2,028  |  
|2001 Expenses                |  |               | 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  |  
|Paid in 2003                 |  |               |       |           |  |       | (1,264 | )     |  |   | (65  | ) |  |   | (1,329 | )
|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  
|Balance at December 31, 2003 |  | $             |       |           |  | $     | 1,122  |       |  | $ |     |   |  | $ | 1,122  |  
|                             |  |               |        |           |  |       |        |       |  |   |      |   |  |   |        |  

77



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BOWNE & CO., INC. AND
SUBSIDIARIES

SUMMARY OF QUARTERLY DATA

(In thousands except share and per share
information, unaudited)


The Companys quarterly results for each of
the first three quarters in the year ended December 31,
2003 have been restated to reflect the reduction in other income
from the CaseSoft joint venture (acquired in December 2002) due
to a misinterpretation of a preferential profit allocation
provision in the joint venture agreement. The impact on (loss)
income before income taxes for each of the first three quarters
of 2003 was $267, $221, and $482, respectively, totaling $970.
The impact on net (loss) income was $164, $136, and $296,
respectively, totaling $596, or $.02 per share. There was
no impact on results of operations for 2002 or for the full year
2003. A summary of quarterly financial information for the years
ended December 31, 2003 and 2002 is as follows:

|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  |  | 
|--------------------------------- | ------- | ---------------------- | ------- | ------- | - | ------- | ------- | ------ |  | - | ------- | ------ | - |  |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |        
|                                  |         | As Previously Reported |         |         |   |        
|                                  |         |                        |         |         |   |        
|                                  |         | First                  |         | Second  |   | Third   |         |        |  |  
|                                  |         | Quarter                |         | Quarter |   | Quarter |         |        |  |  
|                                  |         |                        |         |         |   |         |         |        |  |  
|Year Ended December 31, 2003      |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|Revenue                           |         | $                      | 255,723 |         |   | $       | 307,741 |        |  | $ | 249,979 |        |   |  |  |  |  |  |  | 
|Gross margin                      |         |                        | 82,067  |         |   |         | 99,497  |        |  |   | 82,097  |        |   |  |  |  |  |  |  | 
|(Loss) income before income taxes |         |                        | (5,839  | )       |   |         | 871     |        |  |   | 224     |        |   |  |  |  |  |  |  | 
|Income tax benefit (expense)      |         |                        | 1,586   |         |   |         | (613    | )      |  |   | (1,433  | )      |   |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|Net (loss) income                 |         | $                      | (4,253  | )       |   | $       | 258     |        |  | $ | (1,209  | )      |   |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|Net (loss) income per share:      |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|                                  | Basic   |                        | $       | (.13    | ) |         | $       | .01    |  |   | $       | (.04   | ) |  |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|                                  | Diluted |                        | $       | (.13    | ) |         | $       | .01    |  |   | $       | (.04   | ) |  |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|Average shares outstanding:       |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|                                  | Basic   |                        |         | 33,585  |   |         |         | 33,632 |  |   |         | 33,782 |   |  |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 
|                                  | Diluted |                        |         | 34,599  |   |         |         | 34,828 |  |   |         | 35,568 |   |  |  |  |  |  |  |  | 
|                                  |         |                        |         |         |   |         |         |        |  |   |         |        |   |  |  |  |  |  |  | 

|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |        |  
|--------------------------------- | ------- | ----------- | ------- | ------- | - | ------- | ------- | ------- |  | --------- | ------- | ------ | - | - | ------- | ------ | - | - | --------- | ------ | -
|                                  |         |             |         |         |   |        
|                                  |         | As Restated |         |         |   |        
|                                  |         |             |         |         |   |        
|                                  |         | First       |         | Second  |   | Third   |         | Fourth  |  |          
|                                  |         | Quarter     |         | Quarter |   | Quarter |         | Quarter |  | Full Year
|                                  |         |             |         |         |   |         |         |         |  |          
|Year Ended December 31, 2003      |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|Revenue                           |         | $           | 255,723 |         |   | $       | 307,741 |         |  | $         | 249,979 |        |   | $ | 251,377 |        |   | $ | 1,064,820 |       
|Gross margin                      |         |             | 82,067  |         |   |         | 99,497  |         |  |           | 82,097  |        |   |   | 83,231  |        |   |   | 346,892   |       
|(Loss) income before income taxes |         |             | (6,106  | )       |   |         | 650     |         |  |           | (258    | )      |   |   | (2,809  | )      |   |   | (8,523    | )     
|Income tax benefit (expense)      |         |             | 1,689   |         |   |         | (528    | )       |  |           | (1,247  | )      |   |   | (518    | )      |   |   | (604      | )     
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|Net (loss) income                 |         | $           | (4,417  | )       |   | $       | 122     |         |  | $         | (1,505  | )      |   | $ | (3,327  | )      |   | $ | (9,127    | )     
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|Net (loss) income per share:      |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|                                  | Basic   |             | $       | (.13    | ) |         | $       | .00     |  |           | $       | (.04   | ) |   | $       | (.10   | ) |   | $         | (.27   | )
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|                                  | Diluted |             | $       | (.13    | ) |         | $       | .00     |  |           | $       | (.04   | ) |   | $       | (.10   | ) |   | $         | (.27   | )
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|Average shares outstanding:       |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|                                  | Basic   |             |         | 33,585  |   |         |         | 33,632  |  |           |         | 33,782 |   |   |         | 33,945 |   |   |           | 33,736 |  
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       
|                                  | Diluted |             |         | 34,599  |   |         |         | 34,828  |  |           |         | 35,568 |   |   |         | 35,861 |   |   |           | 35,147 |  
|                                  |         |             |         |         |   |         |         |         |  |           |         |        |   |   |         |        |   |   |           |       

78



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##### Table of Contents



|                                  |         |         |         |         |  |         |         |         |  |           |         |        |  |   |         |        |   |   |           |        | 
|--------------------------------- | ------- | ------- | ------- | ------- |  | ------- | ------- | ------- |  | --------- | ------- | ------ |  | - | ------- | ------ | - | - | --------- | ------ | 
|                                  |         | 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                      |         |         | 84,466  |         |  |         | 113,301 |         |  |           | 64,614  |        |  |   | 73,856  |        |   |   | 336,237   |       
|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 | 
|                                  |         |         |         |         |  |         |         |         |  |           |         |        |  |   |         |        |   |   |           |       

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.






|         |                        
|-------- | -----------------------
|Item 9A. | 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 as of
December 31, 2003, pursuant to Exchange Act
Rule 13a-15(e) and 15d-15(e). 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.

79



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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 12, 2004.

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 12, 2004.

The information required by this Item 10
with respect to the Companys Audit Committee is
incorporated herein by reference from the information provided
under the heading Committees of the Board of the
Companys definitive Proxy Statement anticipated to be
dated April 12, 2004.

The Companys Board of Directors has
determined that Mr. Douglas B. Fox and Mr. Wendell M.
Smith, who serve on the Companys Audit Committee, are each
an audit committee financial expert and are
independent, in accordance with the Sarbanes-Oxley
Act of 2002 (SOX), Exchange Act Rule 10A-3 and
New York Stock Exchange listing requirements.

The Companys corporate governance
guidelines as well as charters for the Companys Audit
Committee, Compensation and Management Development Committee and
Nominating and Corporate Governance Committee are available on
the Companys website (www.bowne.com) and are
available in print without charge to any shareholder who
requests them from the Corporate Secretary.

In accordance with SOX and New York Stock
Exchange listing requirements, the Company has adopted a code of
ethics that covers its directors, officers and employees
including, without limitation, its principal executive officer,
principal financial officer, principal accounting officer, and
controller. The code of ethics is posted on the Companys
website (www.bowne.com) and is available in print without
charge to any shareholder who requests it from the Corporate
Secretary.





|         |                       
|-------- | ----------------------
|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 12, 2004, 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 12, 2004, 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 15 to the Consolidated Financial Statements included
in Item 8 herein.






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

Not applicable.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by this Item 14
regarding the Companys principal accounting fees and
services is incorporated herein by reference from the
information provided under the heading Proposal
Two  Appointment of Auditors of the
Companys definitive Proxy Statement anticipated to be
dated April 12, 2004.

80



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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                                                                           |  |                | 40    | 
|Consolidated Statements of Operations 
    Years Ended December 31, 2003, 2002 and 2001               |  |                | 41    | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                       |  |                | 42    | 
|Consolidated Statements of Cash Flows 
    Years Ended December 31, 2003, 2002 and 2001               |  |                | 43    | 
|Consolidated Statements of Stockholders
    Equity  Years Ended December 31, 2003, 2002 and
    2001 |  |                | 44    | 
|Notes to Consolidated Financial Statements                                                             |  |                | 45-77 | 



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | (2) Financial Statement Schedule 
    Years Ended December 31, 2003, 2002 and 2001

|                                                    |  |  |     | 
|--------------------------------------------------- |  |  | --- | 
|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)                                                                                                                    
| | 4.2  |  |  |  |  | Indenture, dated as of September 24, 2003
    among Bowne & Co., Inc. and the Bank of New York
    as Trustee (incorporated by reference to Exhibit 4.2 to
    Bowne & Co., Inc.s Registration Statement on
    Form S-3 filed on October 17, 2003, File
    No. 333-109810)
| | 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 (incorporated by reference
    to Exhibit 10.4 to the Companys annual report on
    Form 10-K for the year ended December 31, 2002)                                                                                                                  
| | 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)                                                              

81



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##### Table of Contents



| |       |  |  |   |  |                                                                                                                                                                                                                                                                                                                             
| | ----- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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)                                      
| | 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 (filed herewith)                                                                                                                                                                                                                                                                                  
| | 10.13 |  |  |  |  | Long-Term Performance Plan (filed herewith)                                                                                                                                                                                                                                                                                 
| | 10.14 |  |  |  |  | Deferred Award Plan (filed herewith)                                                                                                                                                                                                                                                                                        
| | 10.15 |  |  |  |  | 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)                                                                                 
| | 10.16 |  |  |  |  | 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 (incorporated
    by reference to Exhibit 10.14 in the Companys annual
    report on Form 10-K for the year ended December 31,
    2002)                        
| | 10.17 |  |  |  |  | Intercreditor Agreement, dated as of July 2,
    2002, related to First Amendment to Note Purchase Agreements
    (incorporated by reference to Exhibit 10.15 in the
    Companys annual report on Form 10-K for the year ended
    December 31, 2002)                                                                     
| | 10.18 |  |  |  |  | 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)                                                                                           
| | 10.19 |  |  |  |  | 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)                   
| | 10.20 |  |  |  |  | Second Amendment, dated as of March 28,
    2003, to Note Purchase Agreements dated as of January 30,
    2002, related to $75 million Senior Unsecured Notes
    (incorporated by reference to Exhibit 10.18 in the
    Companys quarterly report on Form 10-Q for the period
    ended March 31, 2003)                   
| | 10.21 |  |  |  |  | Intercreditor and Collateral Agency Agreement,
    dated as of March 28, 2003, related to Second Amendment to
    Note Purchase Agreements (incorporated by reference to
    Exhibit 10.19 in the Companys quarterly report on
    Form 10-Q for the period ended March 31, 2003)                                          
| | 10.22 |  |  |  |  | First Amendment, dated as of March 28, 2003,
    to Credit Agreement dated as of July 2, 2002, related to
    $175 million revolving credit facility (incorporated by
    reference to Exhibit 10.20 in the Companys quarterly
    report on Form 10-Q for the period ended March 31,
    2003)                            
| | 10.23 |  |  |  |  | Third Amendment, dated as of September 17,
    2003, to Note Purchase Agreements dated January 30, 2003,
    relating to $75.0 million Senior Notes (incorporated by
    reference to Exhibit 10.1 to Bowne & Co.,
    Inc.s Registration Statement on Form S-3 filed on
    October 17, 2003, File No. 333-109810)        
| | 10.24 |  |  |  |  | Second Amendment, dated as of September 18,
    2003, to Credit Agreement dated as of July 2, 2002, related
    to $175.0 million revolving credit facility (incorporated
    by reference to Exhibit 10.2 to Bowne & Co.,
    Inc.s Registration Statement on Form S-3 filed on
    October 17, 2003, File No. 333-109810)
| | 21    |  |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                 

82



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##### Table of Contents



| |      |  |  |   |  |                                                                                                                                                                                                                             
| | ---- |  |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 23.1 |  |  |  |  | Consent of KPMG LLP, Independent Auditors                                                                                                                                                                                   
| | 23.2 |  |  |  |  | Auditors Report on Schedule, KPMG LLP                                                                                                                                                                                      
| | 24   |  |  |  |  | Powers of Attorney                                                                                                                                                                                                          
| | 31.1 |  |  |  |  | Certification pursuant to section 302 of the
    Sarbanes-Oxley Act of 2002, signed by Robert M. Johnson,
    Chairman of the Board, President and Chief Executive Officer                                                  
| | 31.2 |  |  |  |  | Certification pursuant to section 302 of the
    Sarbanes-Oxley Act of 2002, signed by C. Cody Colquitt,
    Senior Vice President and Chief Financial Officer                                                              
| | 32.1 |  |  |  |  | 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, President and Chief Executive Officer
| | 32.2 |  |  |  |  | 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



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Report dated October 29, 2003, relating to
    the Companys earnings press release for the quarter ended
    September 30, 2003.

83



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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, President
| | and Chief Executive Officer     
| | (Principal Executive Officer)   

Dated: March 15, 2004

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, President
    and Chief Executive Officer
    (and Director) |  | March 15, 2004
|                                              
|                                              
|/s/ C. CODY COLQUITT(C. Cody Colquitt)         |  | Senior Vice President and Chief Financial Officer
    (Principal Financial Officer) |  | March 15, 2004
|                                              
|                                              
|/s/ RICHARD BAMBACH, JR.(Richard Bambach, Jr.) |  | Vice President and Corporate Controller
    (Principal Accounting Officer)          |  | March 15, 2004
|                                              
|                                              
|/s/ CARL J. CROSETTO(Carl J. Crosetto)         |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ DOUGLAS B. FOX(Douglas B. Fox)             |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ GLORIA M. PORTELA(Gloria M. Portela)       |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ H. MARSHALL SCHWARZ(H. Marshall Schwarz)   |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ WENDELL M. SMITH(Wendell M. Smith)         |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ LISA A. STANLEY(Lisa A. Stanley)           |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|(Vincent Tese)                                 |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ HARRY WALLAESA(Harry Wallaesa)             |  | Director                                                                            |  | March 15, 2004
|                                              
|                                              
|/s/ RICHARD R. WEST(Richard R. West)           |  | Director                                                                            |  | March 15, 2004

84



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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, 2003 |                | $ | 16,142     |  |             | $ | 5,017      |  |  | $ | 4,831  |  |  | $ | 16,328 | 
|                                 | 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 | 



---



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

S-1