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SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number 1-5842

Bowne & Co., Inc.

(212) 924-5500

Not Applicable

     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, and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The Registrant had 33,618,848 shares of Common Stock outstanding as of May 9, 2003.

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PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements

BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Condensed Consolidated Financial Statements.

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Condensed Consolidated Financial Statements.

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Condensed Consolidated Financial Statements.

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BOWNE & CO., INC. AND SUBSIDIARIES

See Notes to Condensed Consolidated Financial Statements.

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BOWNE & CO., INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      The financial information as of March 31, 2003 and for the three-month periods ended March 31, 2003 and 2002 has been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the consolidated financial position, results of operations and of cash flows for each period presented have been made on a consistent basis. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the Company’s annual report on Form 10-K and consolidated financial statements. Operating results for the three months ended March 31, 2003 may not be indicative of the results that may be expected for the full year.

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

Note 3.     Stock-Based Compensation

      The Company has several stock-based employee compensation plans, which are described more fully in Note 9 to the Company’s annual report on Form 10-K for the year ended December 31, 2002. The Company accounts for those plans using the intrinsic method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net (loss) income and (loss) earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

      These pro forma amounts may not be representative of future results since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

years. The fair value for these options was estimated at the date of grant using the Black-Scholes model with the following weighted-average assumptions:

      In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as originally provided by SFAS No. 123 “Accounting for Stock-Based Compensation”. Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosure in both the annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results. The transitional requirements of SFAS 148 are effective for all financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure portion of this statement in the fourth quarter of 2002. The application of the disclosure portion of this standard had no impact on our consolidated financial position or results of operations. The FASB recently indicated that they will require stock-based employee compensation to be recorded as a charge to earnings beginning in 2004. The Company will continue to monitor the progress on the issuance of this standard as well as evaluate its position with respect to current guidance.

      Inventories of $32,456 at March 31, 2003 included raw materials of $8,341, and work-in-process of $24,115. At December 31, 2002, inventories of $19,555 included raw materials of $6,255 and work-in-process of $13,300.

      Shares used in the calculation of basic earnings per share are based on the weighted-average number of shares outstanding, and for diluted earnings per share after adjustment for the assumed conversion of all potentially dilutive securities. Basic and diluted loss per share is calculated by dividing the net loss by the weighted-average number of shares outstanding during each period. The incremental shares from assumed conversion of all potentially dilutive securities are not included in the calculation of diluted loss per share since their effect would have been antidilutive. The weighted average diluted shares outstanding for the three months ended March 31, 2003 and 2002 excludes the dilutive effect of approximately 4,467,108 and 1,096,269 options, respectively, since such options have an exercise price in excess of the average market value of the Company’s common stock during the respective period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company classifies its investments in marketable securities as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. At March 31, 2003, the cost of marketable securities exceeded fair value by $8. At December 31, 2002 the fair value of marketable securities exceeded cost by $864. The net unrealized (loss) gain, after deferred taxes, was $(5) and $519 at March 31, 2003 and December 31, 2002, respectively.

      The cumulative foreign currency translation adjustment was $5,040 and $1,520 at March 31, 2003 and December 31, 2002, respectively.

      Accumulated other comprehensive income, net also includes a loss of $1,994 at both March 31, 2003 and December 31, 2002, respectively, related to the Company’s additional minimum pension liability.

Note 7.     Goodwill and Intangible Assets

      The changes in the carrying amount of goodwill for the quarter ended March 31, 2003 are as follows:

      Goodwill increased $1,878 in 2003, primarily as a result of the change in foreign currency rates used to translate balances into U.S. dollars at quarter end, and adjustments to preliminary purchase price allocations made in prior periods to goodwill recorded in the outsourcing and globalization segments.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Amortization expense related to identifiable intangible assets was $946 and $430 for the three months ended March 31, 2003 and 2002, respectively. Estimated annual amortization expense for the years ended December 31, 2003 through December 31, 2007 is shown below:

Note 8.     Debt

      On July 2, 2002, the Company completed its $175 million unsecured three-year revolving credit facility. During the three months ended March 31, 2003, the average interest rate on this line of credit approximated 4%. The purpose of the revolving credit agreement is for general corporate purposes, including acquisitions. Amounts outstanding under this agreement are classified entirely as long-term debt of $97,000 and $64,000 at March 31, 2003 and December 31, 2002, respectively.

      On February 6, 2002, the Company completed a $75 million private placement of senior unsecured notes with several institutional lenders. The private placement consisted of $25 million 6.9% senior notes due January 30, 2007, $28 million 7.31% senior notes due January 30, 2012, and $22 million 7.85% senior notes due January 30, 2012. The proceeds from the private placement were used to pay down a portion of the Company’s former revolving credit facility at that time. This amount is classified as long-term debt on the balance sheet as of March 31, 2003 and December 31, 2002. Interest is payable every six months. At its option, the Company may pre-pay all or part of the senior unsecured notes in an amount equal to the principal amount plus accrued interest plus a make-whole payment determined in accordance with the note agreement.

      The terms of the senior unsecured notes and revolving credit agreement provide certain limitations on additional indebtedness, sale and leaseback transactions, asset sales and certain other transactions. Additionally, the Company is subject to certain financial covenants based on its results of operations. The senior unsecured notes and revolving credit agreement are guaranteed by substantially all of the Company’s subsidiaries.

      Due to the continued economic downturn and impact on the Company’s business, the revolving credit agreement and senior unsecured notes were amended in March 2003 to modify certain financial covenant requirements and definitions. Under the terms of the amendments, the Company will be required to meet revised leverage and fixed charge coverage ratios from the first quarter of 2003 through the first quarter of 2004. These financial covenant requirements will revert back to the previously existing covenant levels beginning in the second quarter of 2004. The new covenants are less restrictive than the previously existing covenants. The Company was in compliance with all loan covenants as amended as of March 31, 2003, and based upon its current projections, the Company believes it will be in compliance with the revised quarterly loan covenants throughout fiscal year 2003. In the event that actual results do not approximate forecasted results, management believes it could execute contingency plans to mitigate such effects. Such plans include additional cost reductions, asset sales, or seeking additional alternative financing. While the Company believes that it could obtain any requisite additional financing, there can be no assurance that such financing would be available on a timely basis or on acceptable terms.

      In consideration for the amendments, the Company has agreed to provide accounts receivable as collateral. The collateral will be shared proportionately between the parties to the revolving credit agreement and the senior unsecured notes. In addition, interest rates charged under the revolving credit agreement have increased to LIBOR plus 125-325 basis points depending on certain leverage ratios as defined in the credit

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

agreement, compared to LIBOR plus 105-200 basis points under the previously existing covenants. Interest rates charged under the senior unsecured notes have increased by 25 basis points during the amendment period and a subsequent period during which the Company must meet the original covenant requirements. The Company paid an amendment fee to approving lenders and other costs aggregating approximately $1.1 million, which will be amortized to interest expense over the period covered by the amendment.

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

      The Company’s Canadian subsidiary has a $10 million Canadian dollar credit facility that had an outstanding balance of $3,160 Canadian dollars (US$2,147) at March 31, 2003. The Company has issued a guarantee of up to $6 million Canadian dollars related to this credit facility, which would require payment by the Company in the event of default on payment.

Note 9.     Synthetic Lease

      The Company has a synthetic lease for printing equipment in the United States and Canada funded through a master lease agreement administered by a commercial bank. The lease had an original expiration date in April 2003 and was recently extended to May 19, 2003. The equipment under the existing lease had an aggregate residual value of approximately $16.3 million at March 31, 2003. The Company is in the process of replacing a portion of the existing agreement with a new synthetic lease facility. The equipment under this new facility has a fair value of approximately $12.7 million. The Company expects to purchase the remaining equipment under the old agreement at the residual value of approximately $3.3 million. The new facility is expected to have a term of four years, with expected minimum lease payments of approximately $1.4 million in 2003, $2.5 million in 2004, 2005, and 2006 and $1.0 million in 2007. At the end of this new facility, the Company would have the option of purchasing the equipment at the estimated residual value of approximately $6.0 million.

Note 10.     Discontinued Operations

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

      The discontinued operations had net liabilities (including accrued restructuring and discontinuance costs) of $2,177 and $2,745 at March 31, 2003 and December 31, 2002, respectively.

      The balance in accrued restructuring and discontinuance costs represents the estimated remaining costs to exit this operation, as well as the remaining previously recorded restructuring costs. Prior to the second quarter of 2001, this accrual had been reflected as part of the Company’s overall restructuring accrual. The activity in accrued restructuring and discontinuance costs through March 31, 2003, including additions and payments made on that accrual, is summarized below.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Prior to the fourth quarter of 2002, restructuring activities were accounted for under EITF 94-3, which required that a liability associated with restructuring activities be recognized in the period that management commits to a restructuring plan. During the fourth quarter of 2002, the Company adopted SFAS 146, which requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Certain charges that did not meet the liability recognition criteria under SFAS 146 will be recognized in future periods as the plan is implemented. The planned restructuring activities primarily relate to additional office closings in the financial printing and globalization segments, headcount reductions in all segments, and the integration of Berlitz GlobalNet’s (“GlobalNet”) operations into BGS. The Company’s restructuring activities are summarized below.

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

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

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

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$0.7 million of non-cash asset impairment charges, and were included as part of restructuring and integration expenses in the consolidated statements of operations during the quarter ended December 31, 2002.

      During the first quarter of 2003, the Company continued its cost reduction efforts announced in the fourth quarter of 2002, which included additional workforce reductions, the closing of a portion of the London financial printing customer service center, and the continued integration of GlobalNet’s operations with BGS. These actions resulted in restructuring, integration and asset impairment charges totaling $5,192 in the first quarter of 2003.

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

      The activity related to these accruals through March 31, 2003, including additions and payments made, are summarized below.

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

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

      The payments made on that accrual are summarized below.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

      The payments made on that accrual are summarized below.

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

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

	Financial Printing — transactional financial printing, corporate reporting, mutual fund printing, commercial printing and digital printing, and electronic delivery of personalized communications.
	Outsourcing — outsourcing services such as document processing and management, information technology, and litigation support services, primarily for the legal and financial communities. This segment is commonly referred to as Bowne Business Solutions (BBS). The results for the outsourcing segment include the operating results of DecisionQuest from its date of acquisition, December 4, 2002.

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	Globalization — outsourced globalization solutions, including technical writing and content creation, terminology and content management, and localization and translation services. This segment is commonly referred to as Bowne Global Solutions. The results for the globalization segment include the operating results of GlobalNet from its date of acquisition, September 27, 2002.

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

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

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