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UNITED STATES

Form 10-K

	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000, or
	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                   to

Commission File No. 1-5842

Bowne & Co., Inc.

(212) 924-5500

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

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

None

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes   No

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

      The aggregate market value of the Common Stock issued and outstanding and held by nonaffiliates of the Registrant, based upon the closing price for the Common Stock on the New York Stock Exchange on March 16, 2001, was $333,965,732. 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 number of shares outstanding of each of the Registrant’s classes of common stock was 33,025,256 shares of Common Stock outstanding as at March 16, 2001.

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:

PART I

Item 1.  Business

      The Registrant was established in 1775, incorporated in 1909, reincorporated in 1968 in the State of New York, and reincorporated again in 1998 in Delaware. (The Registrant and its subsidiaries are hereinafter collectively referred to as the “Company”, “We” or “Our” unless otherwise noted.)

      During the past five years the Company has focused its business on the managing, repurposing and distribution of a client’s information to any audience, through any medium, in any language, anywhere in the world. The Company now offers its customers an integrated way to design and manage their information flows to take advantage of the latest technologies for creating, storing, moving, presenting, and utilizing information in any combination of paper and electronic forms. It manages documents on a client’s site or at its own facilities. It provides business services and solutions for transactional financial, corporate reporting and mutual fund printing, as well as providing digital database management and printing, document management outsourcing, globalization, translation and integrated Internet applications, among others.

      The Company currently operates the following business segments:

      Segment revenues, operating results, identifiable assets and capital spending attributable to the Company’s operations for the calendar years 2000, 1999 and 1998, are shown in Note 15 of the Notes to Consolidated Financial Statements.

Financial Printing

      Transactional financial printing includes registration statements, prospectuses, debt agreements, special proxy statements, offering circulars, tender offer materials and other documents related to corporate financings, acquisitions and mergers. Corporate reporting includes interim reports, regular proxy materials prepared by corporations for distribution to stockholders, Securities and Exchange Commission reports on Form 10-K and other forms, and stock exchange listing applications. Mutual fund printing includes regulatory and shareholder communications such as annual or interim reports, prospectuses, information statements, and marketing-related materials.

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

      The Company provides some commercial printing which consists of annual reports, sales and marketing literature, point of purchase materials, market letters, newsletters and other custom-printed matter.

      The Company also provides language translation of written documents, including highly confidential legal and financial documents.

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      The Company’s international financial printing business provides virtually identical services as those delivered by its domestic operations. International print capabilities are delivered either by the Company or through a number of strategic alliances.

Outsourcing

      By combining a 1998 acquisition, Donnelly Enterprise Solutions Incorporated (DESI), with its own unit, the Company offers outsourcing of document management principally to the financial services and legal communities. Outsourcing includes the on-site management of document-building and reproduction operations at customers’ facilities, off-site backup of those same services, specialized applications of graphics and presentation technologies, desktop publishing, systems management, scanning and coding services and digital file and case management systems. This segment is commonly referred to as Bowne Business Solutions (BBS).

Globalization

      The Company’s globalization services principally focus on the worldwide technology industry providing linguistic and technical adaptation of software, hardware, multimedia products and websites, linguistic/usability testing and verification of end-customer ready products, design, development and systems integration expertise for multi-language web sites and the re-engineering software for use in countries other than the country of original development. This segment is commonly referred to as Bowne Global Solutions (BGS).

Internet Consulting and Development

      The domestic market for the services offered by this segment has been impacted by the collapse of many dot.com businesses, the slowing spending on Internet projects by established companies and an overall lengthening of the sales cycle of Internet consulting. In recognition of this slowdown, management has restructured this segment, decreased its resources, addressed the remaining carrying value of the business and repositioned its remaining business.

      This segment, commonly referred to as Immersant, has been re-focused on opportunities in the market for global web development. Working in partnership with the globalization segment, Immersant has targeted customers who maintain a multi-cultural Internet presence.

      This business manages the customer’s Internet lifecycle that includes: e-business strategy consulting, web content management, creation, design, development and maintenance, useability research and analysis, personalization, and other services. This business provides services principally to the financial services, insurance and digital entertainment and e-learning markets.

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

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

      Although substantial investment in equipment and facilities is required, the Company’s business is principally service-oriented. In all 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 many of its financial printing offices for use by customers while jobs 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 maintains facilities and stations staff at the customers’ own premises. The Company’s globalization activities are conducted in a number of countries around the world. The Company’s Internet consulting activities are conducted in three primary locations. In addition, the Company uses an extensive electronic communications network which facilitates data handling and makes collaboration practicable among customers at different sites.

Competition

      The Company believes that it offers a unique array of information empowerment solutions to its clients. However, competition of the various individual services described above is intense, 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 are factors in this competition. 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.

      In transactional financial, corporate reporting and mutual fund printing, the Company competes directly with a number of other financial printers having the same degree 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. Although there is no published information available to determine its exact share of the total financial printing market, the Company believes it is the largest in terms of sales volume in this field. In addition to its customer base, the Company has experienced competition for sales, customer service and production personnel in financial printing.

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

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

      Finally, with respect to its globalization and Internet service offerings, the Company has a large number of competitors. Some of them have offered their services to the same potential customers for a longer time, but none of them has acquired a dominant market position. Considerable consolidation is occurring presently in these business areas, and some of the organizations making acquisitions in these fields have resources comparable to or greater than those of the Company.

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. Sales 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. The corporate reporting revenue 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

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      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.

      While the globalization segment and the previously discussed services of the financial printing segment are seasonal or cyclical, the Company’s other business segments — outsourcing and Internet consulting — are less cyclical or seasonal.

Research and Development

      The Company maintains a research and development capability to evaluate, 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 develop and install 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 documents. In order to serve the customers of its globalization and Internet services, the Company continually tests new programs and often works directly with its customers in the design and development of new software and other technological products.

Patents and Other Rights

      The Company has no significant patents, licenses, franchises, concessions or similar rights other than certain trademarks. Except for a proprietary computer typesetting and telecommunication system, the Company does not have significant specialized machinery, facilities or contracts which are unavailable to other firms providing the same or similar services to customers. The Company has 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 owns the service marks “Empowering Information” and “Empowering Your Information” and trademarks BowneLink, FundSmith and Immersant.

Sales and Marketing

      The Company employs approximately 360 sales people. In addition to soliciting business from existing and prospective customers, the sales people act as a liaison between the customer and those in charge of service operations. They also provide advice and assistance to customers. The Company regularly advertises in financial newspapers and trade publications and conducts sales promotion by mail and by presentations at seminars and trade shows.

Customers and Backlog of Orders

      The Company has no significant long-term contracts with its customers. During the fiscal year ended December 31, 2000, no customer accounted for 10% or more of the Company’s sales. However, one customer, Microsoft, is significant to the globalization segment. The Company has no backlog, within the common meaning of that term, which is normal throughout the service offerings in which the Company is focused. However, within its financial printing segment, the Company maintains a backlog of customers preparing for initial public offerings (“IPOs”). This IPO backlog is highly dependent on the capital markets.

Employees

      At December 31, 2000, the Company had approximately 8,500 employees. Relations with the Company’s employees are considered to be good. Less than three percent of the Company’s employees are members of various unions. The Company provides pension, profit-sharing, certain insurance and other benefits to most non-union employees.

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Suppliers

      The Company purchases 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 from 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.

Foreign Sales

      The Company conducts foreign operations in Canada, Europe, Latin America, South America and Asia. In addition, the Company has affiliations with certain firms providing similar services abroad. Sales derived from foreign countries other than Canada were approximately 15% of the Company’s total sales in 2000, 13% in 1999 and 11% in 1998. During 2000, 1999 and 1998 sales derived from foreign countries other than Canada totaled $162, $131 and $96 million, respectively. The financial printing segment had $109, $87 and $52 million in these years, respectively. The globalization segment had sales of $52 million in 2000, and $44 million each in 1999 and 1998. Canadian sales were approximately 6% of the Company’s total sales in 2000, 7% in 1999, and 8% in 1998. During 2000, 1999, and 1998 sales derived from Canada totaled $71, $70, and $70 million, respectively.

Item 2.  Properties

      Information regarding the material facilities of the Company, as of December 31, 2000, five of which were leased and ten of which were owned in fee, is set forth below.

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All of the properties described above are well maintained, in good condition and suitable for all presently anticipated requirements of the Company. The majority of the Company’s equipment is owned outright. The outsourcing solutions business leases most of its machinery and equipment over a term of three-five years. Reference is made to Note 13 of the Notes to Consolidated Financial Statements.

Item 3.  Pending 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

      None.

PART II

Item 5.  Market for Registrant’s Common Equity and Related Stockholder Matters

Share Prices

      As of July 1, 1999, the Company’s common stock is traded on the New York Stock Exchange under the symbol “BNE”; prior to this date the Company’s stock traded on the American Stock Exchange. The following is the range of high and low share prices as reported by the New York Stock Exchange and American Stock Exchange and dividends paid per share for calendar 2000 and 1999 by year and quarters.

      The number of holders of record of the Company’s common stock on March 16, 2001 was approximately 1,396.

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Item 6.  Selected Financial Data

FIVE YEAR FINANCIAL SUMMARY

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Cautionary Statement Concerning Forward Looking Statements

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

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

Liquidity and Capital Resources

      The Company’s financial position continues to reflect strong liquidity. On December 31, 2000, the Company had a working capital ratio of 1.74 to 1 and working capital of $133,542. On December 31, 1999, the Company had a working capital ratio of 1.60 to 1 and working capital of $115,749. The increase in working capital was primarily the result of cash generated from operations.

      It is expected that the cash generated from operations, working capital and the Company’s borrowing capacity will be sufficient to finance future acquisitions and capital expenditures, provide for the payment of dividends, provide for the stock repurchase program, and meet the debt service requirements. The Company experiences certain seasonal factors with respect to its borrowing needs; the heaviest period for borrowing is normally the second quarter. The Company’s existing borrowing capacity provides for this seasonal increase.

      At December 31, 2000, capital commitments primarily consisted of the remaining balance to be expended on the Company’s expansion of their New Jersey production facilities of approximately $3 million. It is expected that cash generated from operations, working capital and the Company’s borrowing capacity will be sufficient to finance these capital commitments, as well as our 2001 capital expenditures program. Over the last several years, the Company has had capital expenditures ranging from $40 million to $50 million; 2001 capital expenditures are also anticipated to be within that scope.

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Cash Flows

      The Company had net cash provided by operating activities of $56,652, $96,770, and $101,916 for the years ended December 31, 2000, 1999 and 1998, respectively. The decrease in 2000 reflects the impact of a lower net income of approximately $21 million, an increase in prepaid expenses and other current assets during 2000 as opposed to a decrease during 1999 (accounting for a change of approximately $22 million), and a decrease in accounts payable during 2000 as opposed to an increase in that category during 1999 (accounting for a change of approximately $21 million). The increase in prepaid expenses and other current assets results from a net overpayment of estimated income taxes and equipment deposits awaiting reimbursement under the master lease agreement at December 31, 2000. The lower level of accounts payable results from the decreased sales in the fourth quarter of 2000 when compared to 1999. These are offset by a decrease in accounts receivable (net) during 2000 as opposed to an increase during 1999 (accounting for a change of approximately $27 million). The decrease in accounts receivable at December 31, 2000 from 1999 reflects lower sales volume in the fourth quarter of 2000. The decrease in 1999 from 1998 reflects the impact of a higher level of accounts receivable at year-end 1999 resulting from increased sales levels, partially offset by a decrease in prepaid expenses and an increase in accounts payable and accrued employee compensation.

      Net cash used in investing activities was $44,809, $56,213, and $166,390 for the years ended December 31, 2000, 1999 and 1998, respectively. The decrease in 2000 was primarily a result of decreased capital expenditures, as well as the proceeds recognized from the sale of a subsidiary (see Note 2). The decrease in 1999 was primarily as a result of 1998 acquisitions (in excess of 1999 by approximately $115,000).

      Net cash (used in) provided by financing activities was $(11,999), $(33,900), and $47,629 for the years ended December 31, 2000, 1999 and 1998, respectively. The change in 2000 is a result of higher net borrowings resulting from a lower level of cash provided by operations, partially offset by decreased cash used in investing activities. The change in 1999 was a result of the higher net repayments of debt in 1999, and the fact that higher proceeds from borrowings in 1998 were necessary to finance the Company’s acquisitions.

      During the year ended December 31, 2000, the Company used approximately $43 million dollars to repurchase shares of its common stock, in accordance with the Board of Directors authorization of the Company’s stock repurchase program. These funds were provided through net borrowings during 2000.

Foreign Exchange

      The Company derives a portion of its revenues from various foreign sources. The Company has not experienced significant gains or losses as a result of fluctuations in the exchange rates of the related foreign currencies, primarily denominated in euros, pound sterling and Canadian dollars. To date, the Company has not used foreign currency hedging instruments to reduce its exposure to foreign exchange fluctuations. The Company has a net translation loss of $4,311 in its accumulated comprehensive income section of the Stockholder’s Equity statement for the year 2000. This loss is primarily attributed to the fluctuation in value between the US dollar and the euro, pound sterling and Canadian dollar.

Prospective Accounting Pronouncements

      Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” was issued in June 1998. SFAS 133 standardized the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring recognition of those instruments as assets and liabilities and to measure them at fair value. SFAS 133 was subsequently amended by Statement of Financial Accounting Standards No. 137 (“SFAS 137”), “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of Financial Accounting Standards Board (FASB) Statement 133,” and will now be effective for fiscal years beginning after June 15, 2000. SFAS 133 will therefore be effective for the Company in the year 2001. The adoption of this pronouncement is not expected to have a material effect on the Company’s consolidated financial statements.

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      In June, 2000, the FASB issued Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, which amends SFAS 133 and is to be adopted concurrently with SFAS 133. The new statement addresses a limited number of issues causing implementation difficulties for a large number of entities getting ready to apply SFAS 133. The adoption of this pronouncement is not expected to have a material effect on the Company’s consolidated financial statements.

Impact of the Euro Conversion

      On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing sovereign currencies (“legacy currencies”) and a single currency called the euro. The legacy currencies are scheduled to remain legal tender as denominations of the euro during the transition period from January 1, 1999 to January 1, 2002. Beginning January 1, 2002, euro-denominated bills and coins will be introduced, and by July 1, 2002, legacy currencies will no longer be legal tender.

      The Company has implemented a global financial software solution as part of its overall strategy to standardize and improve its financial reporting systems globally. This system has the capability of being able to report, pay, and receive currencies using the euro as its functional currency. The costs associated with the euro conversion are anticipated to be minimal since this functionality is part of the existing system. Thus, the cost of conversion should not have a material effect on the Company.

Results of Operations

      Historically, the Company has primarily provided financial printing and other related services. Revenues related to transactional financial printing services are affected by the cyclical nature of the capital markets. Over the past few years the Company has expanded its service offerings.

      The Company decided to focus its business on empowering information to become a global market leader in this field by combining superior customer service with appropriate new technologies to manage, repurpose and distribute a client’s information to any audience, through any medium, in any language, anywhere in the world. The Company is investing in building its resources outside the United States to enable it to provide worldwide information empowerment solutions to its global clients. While the Company is expanding and integrating these services inside and outside the United States, the newer information solution operations are anticipated to operate at a loss. We expect to continue to invest outside the United States as the Company builds the information solution offerings.

      Management evaluates the performance of its operating segments separately to monitor the different factors affecting financial results. In addition to measures of operating performance determined in accordance with generally accepted accounting principles, management also uses EBITDA and EBITA to evaluate performance. EBITDA is defined as earnings before interest, income taxes, depreciation and amortization expense. EBITA is defined as earnings before interest, income taxes and amortization expense. Other income and expense and one-time charges are components of EBITDA and EBITA that are generally not used by management to monitor the operating results of a segment. EBITDA and EBITA are measured because management believes that such information is useful in evaluating the results of certain segments relative to other entities which operate within these industries and to its affiliated segments. EBITDA and EBITA are alternatives to and not a replacement measure of operating performance as determined in accordance with generally accepted accounting principles.

      Consistent with its focus on expanding various service offerings to clients and empowering information, the Company made a number of acquisitions in 1998 in the outsourcing, globalization and Internet consulting and development business segments. These acquisitions, along with the resources allocated to integrate these services, had an impact on the results of operations during 2000 and 1999. Revenues (as a percentage of the total Company’s revenues) relating to the financial printing segment represent 76% in 2000, compared to 77% and 82% in 1999 and 1998, respectively.

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Year ended December 31, 2000 compared to Year ended December 31, 1999

     Financial Printing

      Sales increased $60,626, or 8% for the year ended December 31, 2000. The largest class of service in this segment, transactional financial, grew 4% or $15,982 to $441,330 in 2000 sales. During the first six months of the year, this service experienced revenue growth of 22% over the same period in the prior year. Most of the growth is attributed to the robust domestic capital markets during the first four months of the year. Conversely, during the second half of the year this service offering decreased 9% compared to the same period in the prior year. We believe this is consistent with the overall contraction in the market. The international capital markets sustained growth over the entire year and is the primary reason that our international (overseas) revenues, which grew at a 25% rate, grew at a faster rate than our overall revenue growth rate for the segment. We believe that our share of the international transactional financial printing market has grown.

      The domestic capital market has experienced a significant reduction in the number of transactions being successfully completed. In particular, the market for initial public offerings has severely constricted. While we continue to maintain our share of this market, the reduced activity has impacted our revenues particularly in the last six months of 2000. While the market may not necessarily return to its previous level, we don’t believe this decline is permanent; however it is expected to continue into 2001. The resources that the Company commits to the transactional financial market are significant and management continues to balance our resources with these market conditions. During the fourth quarter, the Company responded to the lower levels of activity in the capital markets by reducing its staffing and other operating expenses. A restructuring charge of $2,106 was incurred to implement this program.

      Mutual fund services and digital printing sales increased by $27,508 over the prior year as these groups grew 19% over 1999 for a 2000 total of $173,484. These services continue to be the fastest growing service offerings in the financial printing segment. These services are important because they provide a more stable volume of work than transactional financial and we expect these services to be less cyclical. Most of the work performed for clients in these markets is driven by long term partnerships and supported by contract. While the market for mutual fund printing is relatively stable and mature, the market for our digital services is growing significantly. In the mutual fund market, we continue to build our share of the business while in the digital market, the Company is participating in a growing market.

      Commercial printing revenues increased by $19,529 or 31% over the prior year as a result of the Company’s efforts to maintain pressroom utilization.

      Gross margin contributed by this segment increased by $10,614 while the margin percentage slid two percentage points to 43%. The margins in the transactional financial service were negatively impacted by inconsistent resource utilization due to the volatility of the capital markets. In particular, our utilization declined as the domestic capital markets experienced a significant slowdown during the second half of the year. In addition, the faster growing services of mutual fund and digital printing contributed at a lower marginal rate. The gross margin percentage of mutual fund services remained consistent while digital printing gross margin percentage improved as a result of higher utilization of its productive capacity.

      Selling and administrative expenses increased $11,876, or 5%, to $242,988; however, as a percent of sales, these expenses decreased by approximately one percentage point to 29%. The increase was primarily due to costs directly related to increased sales, such as selling expenses (including commissions) and certain variable administrative expenses. Administrative expenses that are not tied to sales volume decreased as a result of our cost containment programs implemented throughout the second half of the year.

      EBITDA before the restructuring charge of $2,106 decreased $1,262 to $120,450 as a result of the foregoing.

     Outsourcing

      Sales increased $31,793, or 20% for the year ended December 31, 2000. A number of significant new clients were contracted with during 2000. We continue to increase our share of our target market, the

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      Gross margin from this segment increased $3,583 while the margin percentage decreased by approximately two percentage points to 19%. The decrease in margin percentage is attributed in part to contract renewals at lower margin levels due to competitive pricing pressure during the latter part of 1999.

      Selling and administrative expenses increased $2,229 or 9%, but as a percent of sales actually decreased one percentage point, from 16% of sales in 1999 to 15% of sales in 2000. Administrative expenses grew during 2000 as we focused on developing our product offerings in higher value services such as desktop publishing, litigation support and information technology services. This investment is expensed as incurred but is expected to result in overall higher margins as the Company successfully markets these services to both new and existing customers.

      EBITDA increased $1,354 to $8,969 as a result of the foregoing.

     Globalization

      Sales increased by $10,043, or 17% from 1999. Our globalization segment provides two primary services, software localization and web site content management. Our revenue growth in this market was consistent throughout the year except in the first quarter due to two factors: this is typically a seasonally slow quarter, and a large project was delayed by a customer. The content management service focuses on customers who require an ongoing localization of new content for their web-site. The globalization market appears to be growing significantly, and the Company is successfully winning a share of this growth.

      Gross margin increased 35% or $5,248 to $20,251, while the margin percentage increased by three percentage points from 1999 to 29%. This was achieved by the streamlining of certain processes, improving our resource utilization and focusing on our more profitable services and customer contracts.

      Selling and administrative expenses increased $2,343; however, as a percent of sales, these expenses decreased by approximately one percentage point to 32%.

      As a result of the foregoing, the EBITDA loss for the segment decreased $2,904 to a loss of $1,508.

     Internet Consulting and Development

      Sales increased by $3,907, or 31% from 1999. In the first nine months of the year, this segment experienced revenue growth of $3,799 or 39%. The rapid growth of demand for Internet consulting slowed during the third quarter as customers became more deliberate with their spending and the sales cycle lengthened. This slowdown continued throughout the fourth quarter of 2000.

      Gross margin was $2,227, an increase of $1,028 from the prior year, while gross margin percentage increased by approximately four percentage points from 10% in the prior year to 14% in 2000.

      Selling and administrative expenses increased by $8,712 to $23,841. The increase in expense is related to our investment in production management systems, integration and repositioning costs related to our restructuring of this unit, and costs related to the increase in sales.

      The EBITDA loss before restructuring and impairment charges of $17,094 increased by $7,684 to $21,614 in 2000 primarily as a result of the increase in selling and administrative expenses.

      In response to decreased activity in this market, management determined that a reduction in its staffing and related office closings were required. In addition, the carrying value of its intangible assets was deemed impaired. As outlined below, the Company incurred an impairment charge related to its goodwill.

     Other, including Restructuring and Impairment Charges

      In the fourth quarter of 2000, the Company recorded $19,200 in pre-tax restructuring and goodwill impairment charges in connection with the Company’s plans to align its cost structure with customer demand,

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      The restructuring charges totaled $5,540 with the Internet segment recognizing $3,434 and the financial printing segment recognizing $2,106. The restructuring included a reduction in workforce of approximately 100 employees in the Internet consulting and development business and approximately 200 in the financial print group. The restructuring also included the closing of two of Immersant’s offices, including write-downs of property and equipment. These reductions in fixed and variable costs are expected to lead to cost savings in excess of $20 million in 2001.

     Summary

      As a result of the foregoing, overall sales increased by 10% to $1,113,536, an increase of $102,746. Most of the increase was related to the financial printing and outsourcing segments. The increase in sales contributed to a $20,473 growth in gross margin. However, the gross margin percentage decreased by two percentage points to 38%, primarily as a result of our lower margins in the financial print and outsourcing segments.

      Selling and administrative expenses increased $25,161 to $316,298. The increase was due to costs related to increased sales. As a percentage of total sales, these expenses were reduced by one percentage point to 28%.

      Depreciation and amortization expense increased $2,802, or approximately 5%, principally resulting from the expansion of facilities, the acquisition of equipment and additional investments in technology.

      There were $19,200 in restructuring and impairment charges in 2000, as previously explained.

      Operating income was $31,818 for 2000, compared with $58,508 in 1999, a decrease of $26,690 primarily related to the restructuring and impairment charges.

      Interest expense increased by $972, a 15% increase, resulting primarily from higher interest rates in the current year.

      Other expense (net) was $1,531, as compared to other income (net) of $1,010 in the prior year primarily due to an accrual in connection with a matter in litigation.

      The effective overall income tax rate increased from 48% to 70% because the Company incurred a non-deductible goodwill impairment charge and the other permanent differences remained constant while growing as a percentage of the decreased pre-tax income from 1999 to 2000.

      As a result of the foregoing, net income was $7,008 compared to $27,813 for the same period last year, a decrease of $20,805.

Year ended December 31, 1999 compared to Year ended December 31, 1998

     Financial Printing

      Sales increased $84,718, or 12% for the year ended December 31, 1999. The largest class of service in this segment, transactional financial, grew 21% or $73,095 to $425,348 in 1999 sales. Mutual fund services and digital printing sales increased by $32,180 over the prior year as these groups grew 28% over 1998 for a 1999 total of $145,976. Corporate reporting revenues grew at a slower rate than the segment as a whole, and commercial printing revenues decreased.

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      Gross margin contributed by this segment increased by $23,309 while the margin percentage slid two percentage points to 45%. The margins in the transactional financial service remained constant while the faster growing services of mutual fund and digital contributed at a lower marginal rate. The gross margin of mutual fund services grew in proportion to its growth in sales. Digital printing gross margin was negatively impacted by increases in costs as its productive capacity was expanded to meet growing customer demand.

      Selling and administrative expenses increased $38,772, or 20%, to $231,112. The increase was primarily due to costs directly related to increased sales, such as selling expenses including commissions and certain administrative expenses. Administrative expenses also increased as a result of our Year 2000 program, marketing campaign, training, research and development and staffing increases.

      The digital printing unit experienced an increase in selling and administrative expenses due to its growth in sales and the expenses related to the establishment of its production facility. Prior to October 1999, the Company relied on vendors to complete the production of documents.

      EBITDA decreased $15,463 to $121,712 as a result of the foregoing.

     Outsourcing

      Sales increased $78,209, or 95%. This was primarily the result of having the full year impact of the DESI acquisition in 1999. The DESI acquisition was completed on July 1, 1998. Sales increased 22% in the second half of 1999 compared with the second half of 1998.

      Gross margin from this segment increased $16,822 while the margin percentage increased by one percentage point to 21%. The increase in gross margin is attributed to the increase in sales.

      Selling and administrative expenses increased $2,689 or 12%, but as a percent of sales actually decreased 12 percentage points, from 28% of sales in 1998 to 16% of sales in 1999. This is a result of the better leveraging of certain selling and administrative expenses by integrating the DESI acquisition with the Company’s own outsourcing business.

      This segment achieved positive EBITDA of $7,615 in 1999, an increase of $14,133 over the prior year’s EBITDA loss.

     Globalization

      Sales increased by $3,300, or 6% from 1998. Management focused on improving gross margin during 1999; therefore the increase in revenue was smaller than prior periods.

      Gross margin increased 33% or $3,738 to $15,003, while the margin percentage increased by over five percentage points from 1998 to 26%. This was achieved by the streamlining of certain processes and focusing on our more profitable services.

      Selling and administrative expenses decreased $2,968 and decreased seven percentage points as a percent of sales. This is mainly due to staffing reductions.

      As a result of the foregoing, the EBITDA loss for the segment decreased $6,706 to a loss of $4,412.

     Internet Consulting and Development

      Sales decreased by $1,994, or 14% from 1998. Sales volume was affected as attention was taken away from sales and marketing and directed toward integration efforts and strengthening the senior management team.

      Gross margin was $1,199, a decrease of $1,359 from the prior year, while gross margin percentage decreased by almost nine percentage points from 19% in the prior year to 10% in 1999.

      Selling and administrative expenses increased by $1,011, or seven percentage points over the prior year. The increase in expense is related to investment in network integration, training and fixed overhead costs.

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      The EBITDA loss increased by $2,371 to $13,930 in 1999 primarily as a result of the decrease in gross margin and the increase in selling and administrative expenses.

     Summary

      As a result of the foregoing, overall sales increased by 19% to $1,010,790, an overall increase of $163,224. Most of the increase was related to the financial printing and outsourcing segments. The overall increase in sales contributed to a $42,510 growth in gross margin. However, the gross margin percentage on an overall basis went down by two percentage points to 40%, since a greater percentage of overall sales was related to lower margin products as explained above.

      Selling and administrative expenses increased $39,505 to $291,137. The increase was due to costs related to increased sales and other increases explained above. As a percentage of total sales, these expenses were reduced by one percentage point to 29%.

      Depreciation expense increased 20% to $41,104, principally resulting from the expansion of facilities, depreciation related to the new businesses (primarily DESI), and the acquisition of equipment, including computer systems.

      Amortization increased 51% to $11,373, principally resulting from having the DESI acquisition included in results for the full year of 1999 and the full year impact of the shorter amortization period for the Globalization segment.

      There was no purchased in-process research and development or other one-time charges in 1999 as compared to $9,025 in 1998. The 1998 results included $7,200 for purchased in-process research and development (primarily related to the DESI acquisition), and $1,825 relating to the write-off of goodwill and certain assets related to Linguistix, Inc.

      Operating income was $58,508 for fiscal 1999, which was flat when compared to $57,029 for fiscal 1998.

      Interest expense increased by $790, a 14% increase, primarily from borrowings under the revolving credit agreement to finance certain prior year acquisitions.

      Other income decreased by $1,868 due to decreased interest income and lower gains on the sales of marketable securities and other assets.

      The effective overall income tax rate decreased from 50% to 48% because the Company did not have any research and development charges in 1999. The effective income tax rate on pre-tax income before charges for purchased in-process research and development and amortization of intangibles was 39% in each year.

      As a result of the foregoing, net income was $27,813 compared to $27,127 for the same period last year, an increase of $686.

Item 7A:  Market Risk Exposure

      The Company’s market risk is principally associated with trends in the domestic and international capital markets, particularly in the financial print segment and to a limited degree, in the outsourcing segment. This includes trends in the initial public offerings market, an important component of the financial printing segment. The Company also has market risk tied to interest rate fluctuations related to its debt obligations and fluctuations in foreign currency.

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Item 8.  Financial Statements and Supplemental Data

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

      We have audited the accompanying consolidated balance sheets of Bowne & Co., Inc. and subsidiaries as of December 31, 2000, and 1999 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2000. 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 audit.

      We conducted our audit 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 audit provides 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

New York, New York

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BOWNE & CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

See Notes to Consolidated Financial Statements

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BOWNE & CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

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BOWNE & CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS