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UNITED STATES

Form 10-K

[X]	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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 [X]  No [   ]

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

      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 20, 2000, was $490,733,231. 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 36,084,679 shares of Common Stock outstanding as at March 20, 2000.

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,” unless otherwise noted.)

      During the past few years the Company has been re-focused on “Empowering Your Information,” a term used to define 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 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 our clients’ 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, integrated Internet applications, globalization, translation and document management outsourcing, among others. Prior to this, the Company’s focus was principally on financial printing and certain types of commercial printing. Management believes this transition will allow the Company to leverage the document management and information management technologies it has traditionally employed into a variety of new business solutions for its customers worldwide. Management believes that the expanded business solutions complement the Company’s core business, as well as one another.

      Consistent with its new focus, the Company currently operates the following business lines:

	Financial Printing — Consisting of transactional financial, corporate reporting, mutual fund, commercial and digital printing.
	Outsourcing — Consisting of document management solutions primarily for the legal and financial communities.
	Globalization (previously designated as localization) — Consisting of translation, localization and content reengineering of software and technology products.
	Internet Consulting and Development — Consisting of integrated Internet applications primarily for the financial services sector.

      Segment revenues, operating results and identifiable assets attributable to the Company’s operations for the calendar years 1999, 1998 and 1997, are shown in Note 15 of the Notes to Consolidated Financial Statements.

Financial Printing

      Transactional financial printing includes registration statements, tax-exempt offering circulars, prospectuses, debt agreements, special proxy statements, tender offer materials and other documents related to corporate financings, acquisitions and mergers. Corporate reporting includes interim reports and 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 stockholder 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 or digitally via EDGAR or Internet formats. One of the Company’s newer printing solution offerings, digital printing, digital database management, 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, healthcare providers, insurance companies and others that manage 401(k) and other retirement plans, and employers which offer multiple benefit options to their employees.

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

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

Outsourcing

      By combining a 1998 acquisition, Donnelly Enterprise Solutions Incorporated (DESI), in the outsourcing field with its own unit serving that market, the Company offers outsourcing of document management to the financial services and legal communities. Outsourcing includes the on-site management of document-building and reproduction operations at the facilities of customers, off-site backup of those same services, specialized applications of graphics and presentation technologies, desktop publishing, systems management, and digital file and case management systems.

Globalization

      The Company’s globalization services, which the Company began offering in 1996, principally focus on the worldwide software industry by localizing and re-engineering software for use in countries other than the country of original development. During the first quarter of 2000, the Company has hired an advisor to explore opportunities to unlock the value of this business.

Internet Consulting and Development

      In 1997, the Company began an Internet consulting business. This business manages the customer’s Internet lifecycle that includes: consulting, creation and design, development, maintenance and useability, technology, and other services. The business is focused on the financial services and dot.com business to business 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:

      The Company has facilities to serve customers throughout the United States, Canada, Europe, Latin America and Asia.

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

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      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 as well as outsourcing centers. The Company’s globalization activities are conducted in a number of countries around the world. The Company’s Internet consulting activities are conducted in six 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 no other company offers the same array of information empowerment solutions for their 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 and 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 financial printers, transfer agents, banks and other 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 is believed to have acquired a dominant market position. Considerable consolidation is going on 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 in that area 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 sufficient to meet maximum work loads.

      While the previously discussed services of the financial printing segment are seasonal or cyclical, the Company’s other business segments are less cyclical or seasonal. Furthermore, mutual fund printing, commercial printing and digital printing are not considered to be cyclical or seasonal.

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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, telecommunication 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 localization 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 telecommunications 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 such as BowneLink and FundSmith.

Sales and Marketing

      The Company employs approximately 330 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, 1999, 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.

Employees

      At December 31, 1999, the Company had approximately 7,700 employees. Relations with the Company’s employees are considered to be good. A very small portion 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.

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 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 and Asia. In addition, the Company has affiliations with certain firms providing similar services abroad. Sales derived from foreign

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      Information regarding the material facilities of the Company, as of December 31, 1999, four of which were leased and ten of which were owned in fee, is set forth below.

All of the properties described above are well maintained, in good condition and suitable for all presently anticipated requirements of the Company. A majority of the Company’s equipment is owned outright. The facility in Carlstadt, NJ became operational in October 1999 and is dedicated to the Company’s digital printing unit. 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.

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      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.

      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 1999 and 1998 by year and quarters, adjusted for the 1998 2-for-1 stock split.

      The number of holders of record of the Company’s common stock on March 20, 2000 was approximately 1,440.

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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. Such 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:

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

Liquidity and Capital Resources

      The Company’s financial position continues to reflect strong liquidity. On December 31, 1999, the Company had a working capital ratio of 1.60 to 1 and working capital of $115,749. On December 31, 1998, the Company had a working capital ratio of 1.72 to 1 and working capital of $115,426. In conjunction with the Company’s emphasis on working capital management, working capital was used to acquire long term assets and pay down debt.

      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 and capital expenditures, provide for the payment of dividends, provide for the stock repurchase program, and meet the debt service requirements. The Company has certain seasonal factors with respect to its borrowing needs; the heaviest period for borrowing is normally the second quarter.

Cash Flows

      The Company had net cash provided by operating activities of $96,770, $101,916, and $58,035 for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in 1999 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. The increase from 1997 to 1998 included the impact of improved accounts receivable collections, an increase in accounts payable and certain non-cash items, partially offset by reduced net income.

      Net cash used in investing activities was $56,213, $166,390, and $35,498 for the years ended December 31, 1999, 1998 and 1997, respectively. The decrease in 1999 was primarily as a result of 1998 acquisitions

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      Net cash (used in) provided by financing activities was $(33,900), $47,629, and $(5,988) for the years ended December 31, 1999, 1998 and 1997, respectively. 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.

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. To date, the Company has not used foreign currency hedging instruments to reduce its exposure to foreign exchange fluctuations.

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 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.

Impact of the Euro Conversion

      On January 1, 1999, 11 of the 15 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 is in the process of implementing 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 a delivered system.

      Thus, the cost of conversion should not have a material effect on the Company.

Year 2000 Transition

      Through the date of this report, the Company has not experienced any significant difficulties with its worldwide computer systems as a result of the transition from 1999 to 2000. The transition is not expected to have any material impact in 2000.

      The Company initiated a project in 1997 to evaluate the potential impact of the Year 2000 computer problems on its business. The project included an analysis of all of the Company’s computer systems and suppliers and the development of a plan to make any changes required to essential systems and deploy any necessary software.

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      The Company continued its program to minimize the impact of the Year 2000 problem by addressing internal computer systems and other intelligent equipment deployed globally across all of its business units. With the aid of third party service providers, we inventoried all components critical to the continued operation of all of our facilities and support functions.

      The on-going changes, replacement or retirement of non-compliant inventoried items was monitored and completed on schedule in accordance with the structured program designed to achieve full Year 2000 compliance in 1999. As we entered the closing stages of our Year 2000 compliance program, we continued to test our mission critical production and operational systems to ensure that they remained compliant. In preparation for the Year 2000 transition, we provided 24-hour coverage from December 31, 1999 through January 4, 2000 in our Year 2000 command data center, which covered all the Company’s sites. Additionally, in the first quarter of 2000, we ran a back-up and rollover for the leap year processing and continue to monitor critical reports.

      Bowne was sensitive to the Year 2000 well being of its key suppliers. We instituted a program to manage the business risks posed by the potential inability of our key suppliers and service providers to properly respond to their own Year 2000 issues by contacting them to inquire as to their Year 2000 compliance. Responses received indicated a high level of Year 2000 compliance at these companies. Although we have not incurred Year 2000 problems to date, we can not be assured that the systems of companies with which we do business are Year 2000 compliant. Therefore, we have developed contingency plans for each of these critical business partner risks and will continue to monitor their status.

      The Company estimate of the total cost related to our Year 2000 program is approximately $8 million, of which $7.4 million has been incurred from inception through December 31, 1999. Of the total estimated costs, approximately $2.4 million has been capitalized for new equipment and software. Spending for the Year 2000 program is being funded through operating cash flows. These costs do not include normal system upgrades and replacements.

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 cyclical conditions 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. “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 1999 and 1998. Management plans to continue to invest in all business segments. Revenues (as a percentage of the total Company’s revenues) relating to the financial printing segment represent 77% in 1999, compared to 82% and 92% in 1998 and 1997, respectively.

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      The decline in 1999 from 1998 in EBITDA and EBITA in the financial printing segment is primarily due to increased sales of the lower margin classes of service within this segment and an increase in selling and administrative expenses. Positive EBITDA from the Company’s outsourcing segment was achieved in 1999 primarily as the result of the acquisition of DESI in July 1998. This acquisition not only produced an increase in revenue from 1998, but also allowed the outsourcing segment to better leverage certain selling and administrative expenses through its integration with the Company’s previous outsourcing business. Outsourcing achieved a profit on an EBITA basis; however, the improvement was less than the EBITDA improvement due to the increased depreciation expense as a result of the DESI acquisition.

      The EBITDA loss from the globalization segment was substantially reduced mainly due to staffing reductions and the streamlining of certain processes. The EBITDA loss related to the Company’s Internet consulting and development segment continued to increase, as a result of reduced revenues and certain integration and restructuring costs.

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

     Financial Printing

      Sales increased $84,110, or 12%. The largest class of service in this segment, transactional financial, grew 19% 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.

      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 $77,484, 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.

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     Globalization

      Sales increased by $3,392, 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 $1,762, or 13% 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. Recruiting costs were also significant in comparison to the prior year as a result of staff turnover and putting senior management in place.

      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.

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      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.

Year ended December 31, 1998 compared to Year ended December 31, 1997

     Financial Printing

      Sales increased $37,393, or 6%. The largest class of service in this segment, transactional financial, decreased 5% or $17,164 to $356,491 in 1998 sales. Mutual fund services and digital printing and other sales increased by $44,826 over the prior year as these groups grew 48% over 1997 for a 1998 total of $139,118.

      Gross margin contributed by this segment increased by $17,547 while the margin percentage was unchanged at 47%. The increase in gross margin is attributed to the increase in sales.

      Selling and administrative expenses increased 13% to $192,340. The increase was partially due to costs directly related to increased sales, such as selling expenses and certain administrative expenses. Other administrative expenses increased as a result of research and development expenses and increased staffing.

      EBITDA decreased $4,045 to $137,175 as a result of the foregoing.

     Outsourcing

      Sales increased $69,682. This was a result of the acquisition of DESI in July 1998.

      Gross margin from this segment increased $14,973 while the margin increased by nine percentage points to 20%.

      Selling and administrative expenses increased $10,571 or 86%, but as a percent of sales actually decreased 77 percentage points, from 105% of sales in 1997 to 28% of sales in 1998. This resulted principally from better leveraging of certain selling and administrative expenses by integrating the DESI acquisition with the Company’s existing outsourcing business.

      An EBITDA loss of $6,518 was generated by this segment in 1998, a decrease of $4,402 over the prior year’s EBITDA loss. This was primarily due to the acquisition of DESI.

     Globalization

      Sales increased by $13,943, or 34% from 1997. Significant acquisitions were made in the first quarter of 1997 that contribute to this increase. Sales increased 23% in the last 9 months of 1998 compared with the same period in 1997.

      Gross margin increased $1,231, while the margin percentage decreased by four percentage points from 1997. The increase is attributed to the increase in sales.

      Selling and administrative expenses increased $4,445, but decreased three percentage points as a percent of sales.

      As a result of the foregoing, the EBITDA loss for the segment increased $3,215 to a loss of $11,118.

     Internet Consulting and Development

      Sales increased by $9,901 from 1997. Sales volume increased as a result of acquisitions made during 1998.

      Gross margin was $2,558, an increase of $1,334 from the prior year, while gross margin percentage decreased by almost 18 percentage points from 37% in the prior year.

      Selling and administrative expenses increased by $11,661. The increase is primarily attributed to the acquisitions made during 1998.

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      The EBITDA loss increased by $10,327 to $11,559 in 1998 primarily as a result of the operating losses of the companies acquired during 1998.

     Summary

      As a result of the foregoing, overall sales increased by 18% to $847,566, an overall increase of $130,919. Most of the increase was related to the financial printing and outsourcing segments. The overall increase in sales contributed to a $35,085 growth in gross margin. However, the gross margin percentage on an overall basis went down by three percentage points to 42%, since a greater percentage of overall sales was related to lower margin segments.

      Selling and administrative expenses increased $48,270 to $251,632. The increase was due to costs related to increased sales and increases in staff. As a percentage of total sales, these expenses were increased by one percentage point to 30%.

      Depreciation expense increased 23% to $34,375, primarily due to the expansion of facilities, acquisition of equipment, and depreciation associated with the new businesses.

      Amortization increased by $5,873 to $7,551, primarily due to the acquisition of the new businesses (particularly DESI for the second half of 1998).

      Purchased in-process research and development and other one-time charges increased by $2,034. This was a result of increased purchased in-process research and development charges of $4,200 (primarily related to the DESI acquisition) and a decrease in one-time charges of $2,166 related to the new acquisitions. In 1998, one-time charges of $1,825 were related to the write-off of goodwill and certain assets related to Linguistix, Inc.

      Operating income was $57,029 for fiscal 1998, compared to $84,505 for fiscal 1997. Excluding the costs associated with purchased in-process research and development and other charges, income from operations would have been $66,054 as compared to $91,496 for the year ended December 31, 1997, or a 28% decrease.

      Interest expense increased by $3,871 primarily from borrowings under the revolving credit agreement to finance acquisitions, primarily DESI.

      During the first quarter of 1997, the Company realized a pre-tax gain of $35,273 as a result of the sale of Baseline, Inc. The net of tax effect of this item was $20,005.

      Other income increased $422 due to gains from the sale of marketable securities.

      The effective overall income tax rate increased from 42% to 50% due to increased nondeductible purchased in-process research and development charges as well as increased amortization of intangibles. The effective income tax rate on pre-tax income before charges for purchased in-process research and development and amortization of intangibles decreased from 41% to 39% due to the change in the geographic distribution of pre-tax income from jurisdictions with higher rates to those with lower tax rates.

      As a result of the foregoing, net income was $27,127 compared to $69,543 for the same period last year.

Item 7A:  Market Risk Exposure

      The Company’s market risk is principally associated with trends in the equity markets for capital market transactions, 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, 1999 and 1998 and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended. 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. The accompanying consolidated financial statements of Bowne & Co., Inc. and subsidiaries as of and for the year ended December 31, 1997, were audited by other auditors whose report thereon dated March 4, 1998, expressed an unqualified opinion on those statements.

      We conducted our audit in accordance with generally accepted auditing standards. 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 1999 and 1998 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, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.

	KPMG LLP

New York, New York

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Consolidated Financial Statements

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BOWNE & CO., INC. AND SUBSIDIARIES