David J. Shea Chairman, President and Chief Executive Officer
		April 10, 2007

		Cordially,

 

PROXY STATEMENT

The Board of Directors urges you to give instructions to the Company’s representatives to vote on your behalf at the Annual Meeting. If you cannot attend, or you do not wish to vote by a written ballot at the meeting, these Company representatives will act in your place as your proxies, and they will cast your vote in the way you tell them to. The following pages explain how you can give your voting instructions to the Company representatives either using the internet, over the telephone, or by mailing the printed voting instructions card you received.

 

The Board of Directors proposes the following four nominees for election as directors of the Company, and recommends that you vote IN FAVOR OF all four:

 

Carl J. Crosetto

Douglas B. Fox

Marcia J. Hooper

Lisa A. Stanley

 

If you choose the Company representatives to cast your vote, they will vote in favor of the four nominees listed above, unless you tell them to do otherwise.

 

The election of each director requires a plurality of the votes cast at the Annual Meeting. A plurality is any number of shares, which is larger than the numbers cast for competing candidates. You may vote for any or all of the four nominees, but you may not cast more than one vote for any one nominee. For an explanation of how votes will be counted for this proposal, please see “How do we count votes?” on page 4 . If a nominee becomes unable to serve before the meeting begins, the Company representatives may vote your Company shares in favor of a substitute nominee proposed by the Board of Directors.

 

The Company has three classes of directors with staggered terms of three years each so that the term of one class expires at each annual meeting. The Board of Directors has nominated Carl J. Crosetto, Douglas B. Fox, Marcia J. Hooper and Lisa A. Stanley to “Class II.” If they are elected, their terms will expire at the Company’s Annual Meeting in 2010. After the election of four directors at the meeting, there will be a total of 11 members on the Board of Directors of the Company, divided among the three classes. The Board of Directors has determined that nine of the current 12 board members, including three of the four nominees for election as directors, will be “independent” directors as defined by the rules of the New York Stock Exchange.

 

The four nominees already serve as directors of the Company. They have consented to their nomination and agree to continue to serve as directors if the stockholders reelect them at the meeting. On pages 6 to 9 you will find biographies of all the current directors including the four nominees, which we have highlighted. For each director we have included his or her age on the date of the meeting and principal occupation during the last five years. Additional information about the Board of Directors itself and its standing committees begins on page 10.

 

The Board of Directors proposes and recommends that you vote IN FAVOR OF approving the appointment of KPMG LLP as auditors of the Company.

 

If you choose the Company representatives to cast your vote, they will vote in favor of approving the appointment of KPMG LLP as auditors of the Company, unless you tell them to do otherwise.

 

On March 8, 2007, the Board of Directors ratified the Audit Committee’s selection of the independent registered public accounting firm of KPMG LLP to be auditors of the Company for the current fiscal year ending December 31, 2007. KPMG LLP has served as the Company’s auditors since 1998, and is independent with respect to the Company and its subsidiaries. KPMG LLP audits the Company’s financial statements and provides other professional services requested by the Company from time to time. Representatives of KPMG LLP will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives of KPMG LLP will also have an opportunity to respond to appropriate questions from Stockholders at the Annual Meeting. The professional services provided by KPMG LLP and the aggregate fees for those services rendered during the years ended December 31, 2006 and 2005 were as follows:

 

Audit Fees.  The aggregate fees billed for audit services for the years ended December 31, 2006 and 2005 were $1,359,472 and $3,759,580, respectively. Audit services include the audit of the financial statements included in the Company’s annual reports on Form 10-K, the audit of the effectiveness of the Company’s internal control over financial reporting, the reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q, statutory audits of the Company’s foreign subsidiaries, comfort letters to underwriters and lenders, consent letters and other services normally provided by the independent auditor in connection with statutory and regulatory filings. In addition, the aggregate fees billed for audit services for the year ended December 31, 2005 include $1,100,000 for services performed related to the restatement of the Company’s financial statements, which were billed and paid during 2006.

 

Audit-Related Fees.  The aggregate fees billed for audit-related services in the years ended December 31, 2006 and 2005 were $236,920 and $1,796,551, respectively. Audit-related services include the audits and other services related to the sale of Bowne Global Solutions, the audits of the financial statements of the Company’s employee benefit plans, due diligence related to acquisition candidates and consultations concerning financial accounting and reporting standards.

 

Tax Fees.  The aggregate fees billed for tax compliance services in the years ended December 31, 2006 and 2005 were $267,352 and $172,116, respectively. Tax compliance services include the preparation and review of the Company’s domestic and international tax returns and assistance with tax audits. The aggregate fees billed for tax consulting and advisory services in the years ended December 31, 2006 and 2005 were $117,111 and $54,919, respectively. Tax consulting and advisory services include advice and planning related to state, local and foreign taxes.

 

All Other Fees.  There were no other services performed by KPMG LLP during the years ended December 31, 2006 and 2005 that were not included in the above categories.

 

Who may vote?  The record date for the Annual Meeting was April 2, 2007. This means you are entitled to vote if our records show you held one or more shares of Common Stock when business closed on that day. A total of 27,729,663 shares of Common Stock were outstanding and entitled to vote on the record date, and each share of Common Stock is entitled to one vote. The Company has no other voting securities. The voting instructions card enclosed with this booklet shows the number of shares of Common Stock you held on the record date, and you may cast that same number of votes. A list of all stockholders on the record date will be available for inspection at the Company’s executive offices ten days before the meeting.

 

We will not hold the meeting unless a quorum of the stockholders attend in person or appoint the Company representatives or other proxies to vote in their place. Stockholders entitled to vote just over half the number of shares of Common Stock outstanding on the record date (that is, at least 13,864,832 shares of Common Stock) will constitute the necessary quorum.

 

Tickets required.  Because seating will be limited at the Annual Meeting, a stockholder who wishes to attend in person must have a ticket of admission. Each stockholder may request one ticket either by mail addressed to the Corporate Secretary in care of Bowne & Co., Inc. at 55 Water Street, New York, New York 10041 or by e-mail to scott.spitzer@bowne.com. If you forget to bring your admission ticket, you can attend the Annual Meeting only if you are a stockholder on the Company’s records and offer satisfactory identification. If you hold your shares of Common Stock through a broker, bank or nominee, you will need a voting instructions card from your broker as proof of ownership.

 

How to vote shares registered in your own name.  If you owned one or more shares of Common Stock in your own name on the record date, then you are a holder of record and your shares of Common Stock are registered with the Company. This means you may use the voting instructions card enclosed with this booklet to tell the Company representatives how you want them to vote your shares of Common Stock. Be sure to sign, date and mail the card in the postage-paid envelope, which we sent with your card.

 

Or you may send your instructions by internet or by telephone in the United States or by internet if outside the United States, provided such instructions are received no later than the day prior to the day of the Annual Meeting. If you use the internet or telephone, the Company will confirm that we have received your instructions. Whether you use the internet or telephone, you will need the personalized control number we have printed on your voting card.

 

 

Participants in Bowne’s 401(k) Savings Plan on the record date will have the same choice of ways to vote. The Company’s annual report on Form 10-K describes that plan. If participants in Bowne’s 401(k) Savings Plan do not elect to vote by proxy, shares of Common Stock allocated to their Plan account will be voted by the Plan trustee as those shares of Common Stock held by the Plan for which the Plan trustee has received direction from Plan participants.

 

Stockholders who attend the Annual Meeting in person may vote by written ballot at that time. But even if you plan to attend, the Board still urges you to give your voting instructions to the Company representatives before the meeting in case your plans

change. At the meeting you can change or revoke any instructions you gave previously.

 

How to vote shares held by a broker.  If a broker, bank or other nominee holds Common Stock for your benefit, and the shares are not in your own name on the Company’s records, then your shares are “in street name.” In that case, your broker, bank or other nominee will advise you how to vote. Bowne reimburses them for forwarding this booklet and other material to you. If you have not heard from the broker, bank or nominee who holds your stock in street name, please contact them as early as possible. If you attend the meeting in person and want to vote shares held for you in street name, you must bring a written form of proxy from your broker, bank or nominee. It must name you as the sole representative entitled to vote those shares. Be sure to give the form to the Corporate Secretary of the Company before voting starts.

 

How will the representatives vote for you?  Whether you mail your instructions or send them by internet or telephone, the Company representatives will vote your shares of Common Stock exactly as you tell them to. If you do not indicate how you want your shares of Common Stock voted, the Company representative will vote in the way the Company’s Board of Directors recommends. If there is an interruption or adjournment of the meeting before we complete the agenda, the Company representatives may still vote your shares of Common Stock when the meeting resumes. If a broker, bank or other nominee holds your shares of Common Stock in street name, they will normally ask for your instructions and vote your shares of Common Stock accordingly. If you give instructions to a broker, bank or nominee, they will tell the Company representatives to vote in the way you instruct.

 

How to revoke voting instructions.  You may change or revoke your voting instructions at any time before the stockholders vote at the Annual Meeting. To revoke or change voting instructions you have given, you must tell the Corporate Secretary of the Company in writing before the stockholders vote. If your proxy is not properly revoked, we will vote your shares as indicated by your most recent valid proxy. Of course, you may come to the Annual Meeting in person and vote your shares of Common Stock by written ballot at that time. If you want to vote in person, be sure to revoke in writing any voting instructions you gave before the meeting begins.

 

How do we count votes?  Voting at the Annual Meeting will be confidential. The Bank of New York, the Company’s registrar and transfer agent, will count all the votes. Whether you choose the Company representatives to vote for you or you attend the meeting in person, your shares of Common Stock will count in determining whether we have the necessary quorum, even if you decide to abstain from voting or to vote against one or both of the proposals. Likewise, shares of Common Stock represented at the meeting by a broker, bank or other nominee will be counted in determining whether there is a quorum, regardless of whether you vote or abstain. But if a stockholder fails to vote or chooses to abstain from voting, his or her shares of Common Stock will not count as votes for or against the proposals. This means that the unvoted shares of Common Stock will not affect the outcome of the voting.

 

If you give no instructions.  The New York Stock Exchange has determined that the proposal to elect directors is “routine” under the applicable rules. This means that brokers, banks and other nominees will be able to vote shares of Common Stock they hold for you in street name even if you have not given instructions on the proposal. On the tenth day before the meeting, unless you have specified otherwise, your broker, bank or nominee will then direct the Company representatives to vote your shares in favor of electing the four nominees. Accordingly, the Board of Directors urge you to give instructions to your broker, bank or nominee on a timely basis.

Who pays for this solicitation?  The Company will pay the cost of solicitating your voting instructions. Employees and agents of the Company may solicit by personal interview or by any other means of communication including mail, fax, e-mail and

telephone. These persons do not receive additional compensation for these services. The Company reimburses brokers, banks and other nominees for expenses they incur in forwarding copies of this booklet and other Company material to stockholders and in gathering their voting instructions. The Company has retained the proxy-soliciting firm of D. F. King & Co., Inc. to assist in this solicitation for a fee that will not exceed $12,000, plus out-of-pocket expenses.

Other business at the meeting.  The Company does not know of any business to be presented at the Annual Meeting besides the proposals to elect four directors and to approve the appointment of KPMG LLP to be auditors of the Company for the fiscal year ending December 31, 2007. If other business comes before the meeting and is proper under Delaware law, the Company representatives will use their discretion in casting all the votes they are entitled to cast, except those votes for which they have contrary written instructions.

About this proxy statement.  The Company’s management prepared this booklet and began sending it to stockholders on or about April 10, 2007. In addition, the proxy statement, annual report and Form 10-K are available on the Company’s website (www.bowne.com).

 

When you give us your voting instructions, you may also indicate whether you want to receive Company materials by means of the internet in the future. Until the Company notifies you otherwise, enrolling to receive your documents by means of the internet will not remove your name from our regular mailing lists.

 

Some words have special meanings when we use them in this booklet. The terms “Company” and “Bowne,” as well as the words “we,” “us” and “our,” refer to Bowne & Co., Inc., a Delaware corporation.

 

The Company representatives are the two people (David J. Shea and Scott L. Spitzer) chosen to vote in your place as your proxies at the Annual Meeting, or anyone else they choose to be their substitutes. We refer to the New York Stock Exchange as the “Exchange.” Finally, the terms “common stock,” “stock” and “shares” all mean the Company’s Common Stock, par value $.01 per share, which trades on the Exchange.

Webcast of the meeting.  Stockholders who are unable to attend the meeting in person may follow it live on the internet. Beginning on or about May 22, 2007, the Company intends to post information on our website (www.bowne.com) about how this webcast will work. To follow the meeting live on the internet, stockholders must register electronically before the meeting begins by following the on-line instructions.

Results of the voting.  After the Annual Meeting, the results of the voting will be available on our website (www.bowne.com), together with a transcript of the meeting and an archive copy of the webcast.

 

 

 

Note:

 

The Board and its Committees

 

The Board of Directors.  Periodically throughout the year, the Board of Directors and its standing committees meet to direct and oversee management of the Company. The Board of Directors held seven meetings during 2006. In addition, the committees of the Board met a total of 16 times and took action without formal meetings by written consents when appropriate. Board members also share information and exchange views with the Chairman and with each other informally and in executive sessions of non-management directors and separate executive sessions of independent directors following Board meetings on matters that concern the Company and its stockholders. Mr. Schwarz, the Company’s Presiding Director, chairs these executive sessions.

How directors are chosen.  The Nominating and Corporate Governance Committee (the “Committee”) is responsible for assisting the Board in identifying individuals qualified to become Board members and recommending director nominees to the Board for each annual meeting of stockholders. It is the Committee’s policy to consider candidates recommended by stockholders (see the description of the procedure under the heading “Communications with the Board” on page 11), Company management, other Board members or any interested person. The same criteria the Committee uses for evaluating director nominees will be used to evaluate candidates recommended by stockholders. The Committee considers the qualifications of candidates based upon its charter and the Company’s corporate governance guidelines. The Committee selects individuals as director nominees who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment and who would be most effective, in conjunction with the other members of the Board of Directors, in collectively serving the long-term interests of the stockholders. The Committee has authority to retain search firms to assist in identifying and evaluating director candidates and to approve fees and retention terms for such advisors, but has not done so in connection with the selection of the four nominees for election as director listed on pages 6 to 9. The Committee did not receive any recommendations for nominees from a shareholder or group of shareholders that beneficially owned more than 5% of the Company’s common stock for at least one year. The Committee recommended the four nominees for election as directors. Stockholders may also nominate Board candidates at the Annual Meeting, and we have described the procedure for this, with the advance notice required, under the heading “Proposals and nominations by stockholders” on page 43.

Corporate Governance Information.  The Company’s corporate governance guidelines, the charters of the Nominating and Corporate Governance Committee, the Audit Committee and the Compensation and Management Development Committee, the Company’s Code of Ethics and the Related Party Transactions Policy are available on the Company’s website (www.bowne.com) and in print to any shareholder or other person upon request. Requests should be sent to Scott L. Spitzer, Senior Vice President, General Counsel and Corporate Secretary, Bowne & Co., Inc., 55 Water Street, New York, New York 10041.

Director Independence.  It is the Board of Directors’ objective that at least a majority of the Board of Directors should consist of independent directors. For a director to be considered independent, the Board of Directors must determine that the director does not have any direct or indirect material relationship with the Company. The Board of Directors maintains categorical standards to assist it in determining director independence, which are consistent with the Exchange listing rules. The categorical standards are part of our corporate governance guidelines and are set forth on the Company’s website (www.bowne.com). The Board of Directors has determined that the following nine directors satisfy the Exchange’s independence requirements and Bowne’s categorical standards as described above: Mr. Fox, Ms. Hooper, Mr. Murphy,

Ms. Portela, Mr. Schwarz, Mr. Smith, Ms. Stanley, Mr. Tese and Mr. West.

Executive Certifications.  The Company has submitted to the Exchange the annual Chief Executive Officer certification required by the rules of the Exchange. The Company also submitted to the Securities and Exchange Commission the certifications required under Section 302 and 906 of the Sarbanes-Oxley Act as exhibits to its quarterly reports on Form 10-Q and Annual Report on Form 10-K for fiscal 2006.

Communications with the Board.  Interested parties who want to communicate with the Chairman, the Presiding Director, or with the non-management directors as a group, or a stockholder who wants to communicate with the Board of Directors, individual Board members or a board committee including the Nominating and Corporate Governance Committee to recommend a candidate, should address their communications to the Board of Directors, the Board members or the Board committee, as the case may be, and send them c/o Scott L. Spitzer, Senior Vice President, General Counsel and Corporate Secretary, Bowne & Co. Inc., 55 Water Street, New York, New York 10041. The Corporate Secretary will forward all such communications directly to such Board members. If the communication is a stockholder recommendation for Board of Directors membership, it must be in writing and must identify the proposer. It must also be accompanied by detailed information about the proposed nominee and that person’s consent to have his or her name put in nomination and agreement to serve, if elected. It must also be received in a timely manner and otherwise comply with the Company’s By-Laws. See the description of the procedure under the heading “Proposals and nominations by stockholders” on page 43.

Committees of the Board.  The Board of Directors has four standing committees. The principal functions and current membership of each committee is as follows:

 

 

 

Compensation and Management Development Committee interlocks and insider participation.  No member of the Compensation and Management Development Committee was an officer or employee of the Company or any of its subsidiaries during fiscal year 2006 or was formerly an officer of the Company or any of its subsidiaries.

 

Participation at meetings.  During fiscal year 2006 each member of the Board of Directors participated in at least 75% of the Board of Director and committee meetings which he or she was entitled to attend. The Company’s corporate governance guidelines state that directors are expected to attend the Annual Meeting of Stockholders. All of the directors attended the previous year’s Annual Meeting of Stockholders.

 

Compensation of directors.  Directors who are employees of the Company (currently, Mr. Shea) receive no fees for Board and committee service. Except as described below with respect to Mr. Crosetto, each non-employee director received during 2006 an $85,000 annual retainer payable in quarterly installments following each fiscal quarter. This amount was increased for 2007 by $35,000. The Presiding Director receives an additional annual retainer of $25,000 payable in quarterly installments following each fiscal quarter. Non-employee members of the Audit Committee receive an additional retainer of $10,000 per year, or $20,000 in the case of the

chairman of that committee. Non-employee members of the Executive Committee receive an additional retainer of $8,000 per year, or $16,000 in the case of the chairman of that committee. The members of the Nominating and Corporate Governance Committee as well as the non-employee members of the Compensation and Management Development Committee receive an additional retainer of $5,000 per year, or $10,000 in the case of the chairman of the committee. Directors who are not employees also receive a fee of $1,000 for each Board meeting attended. When directors take action by written consent without a formal meeting, they receive no compensation for that service.

 

In connection with Mr. Crosetto’s retirement as an executive of the Company in 2003, the Company signed a two-year consulting agreement with Mr. Crosetto. The consulting agreement was renewed in 2005 for one year ending December 31, 2006 and again in 2006 for a two-year term ending December 31, 2008. Pursuant to the renewed consulting agreement, Mr. Crosetto continues as a member of the Board and provides the Company and its affiliates with assistance in sales and marketing and with certain other projects. In consideration of these services and non-competition provisions, Mr. Crosetto receives $255,000 in annual consulting fees and reimbursement for reasonable business-related expenses. The consulting agreement also provides that the consulting fees are in lieu of Board retainers and fees.

 

The Company encourages its Board members to hold substantial equity interests by requiring each director to defer at least $50,000 of the annual Board of Directors retainer, including for 2007 the entire amount of the $35,000 retainer increase, and by permitting each director, on an annual basis, to elect voluntary deferral of some or all of the remaining fees and retainers. Directors may choose either non-qualified stock options or Deferred Stock Units (“DSUs”) in place of cash, as long as they notify the Company of their choice before the year begins. For 2006, six of the directors made voluntary deferrals of some or all of their compensation. The Stock Plan for Directors governs these tax-free deferrals of compensation.

 

DSUs represent the right to receive a like number of shares of common stock at a future date, subject to distribution rules. They earn the equivalent of the Company’s cash dividends, which are converted into more DSUs, but they do not confer voting rights. The Company further encourages deferral by adding a 20% match to any Board of Directors and committee compensation that a director voluntarily defers, but not that portion of the annual Board of Directors retainer which he or she must defer. The fair market value of the Company’s Common Stock based on the average of high and low stock prices on the day before and the two days following the quarterly earnings call with investors is the value the Company uses in converting Board of Directors compensation for retainer payments or attendance fees earned during a calendar quarter into DSUs. When a non-employee director retires from the Board of Directors, the Company will issue him or her shares from the corporate treasury equal in number to the DSUs accrued through the retirement date. The Company normally distributes these shares in two installments within fifteen months following the director’s retirement.

 

A director may choose to convert Board of Director compensation into stock options, rather than receiving it as cash or DSUs. In that case, the fair market value of the Company’s common stock based on the average of high and low stock prices on the day before and the two days following the quarterly earnings call with investors will determine the value the Company uses for the conversion. The dollar figure to which the Company applies this conversion value will be three times the amount of compensation the director wants to defer, after adding the Company’s 20% match mentioned earlier, to the extent that a particular deferral is voluntary. The Company believes that multiplication by three adjusts appropriately for the difference in the value of a stock option and a DSU. The Company will then formally

grant the resulting number of options to the director as of the last trading day of each quarter. These options, subject to a one year vesting requirement, become exercisable on the first anniversary of the formal grant, and expire on the tenth anniversary. If the director exercises his or her options by paying the fixed exercise price, the Company will issue the resulting shares of Common Stock.

 

As a further measure to increase equity participation by the Board of Directors and better align the directors’ interests with those of other stockholders, a new non-employee director who joins the Board of Directors receives an award of DSUs equivalent in market value to $30,000 for Board membership. This one-time award will vest over the director’s first four years of Board service, and the Company will then issue the corresponding common stock when the director retires from Board service.

 

The Company has stock ownership guidelines that are designed to increase linkage between shareholders and non-employee directors, as well as senior executives, through an expected level of ownership and retention of stock within five years. Shares credited toward meeting the ownership guidelines include all shares of Common Stock owned outright and DSUs and exclude stock option grants.

 

Finally, during 2006 the Company had a Matching Gifts Program for non-employee directors. Under this program, the Company matches a director’s qualified charitable contributions up to $5,000 each year. This program has been discontinued for 2007. The Company also reimburses reasonable travel expenses, which its directors incur in attending Board of Directors and committee meetings and fees and expenses in connection with director continuing education.

Notes:

 

 

 

The Audit Committee of the Board of Directors (the “Committee”) assists the Board in fulfilling its responsibility to relevant constituencies, including stockholders and potential stockholders of the Company, regarding internal controls, corporate accounting practices, reporting practices, and the quality and integrity of the financial reports of the Company. The Committee also maintains free and open communication among the Board, the Company’s financial management, including its Chief Financial Officer and its Director of Internal Audit, other Company executives, including its General Counsel, and its independent registered public accountants, KPMG LLP (the “auditors”). Company management has primary responsibility for the financial statements, internal control over financial reporting, and for the Company’s compliance with legal and regulatory requirements. The auditors are responsible for auditing the Company’s financial statements, expressing an opinion as to their conformity with accounting principles generally accepted in the United States, and annually auditing management’s assessment of the effectiveness of internal control over financial reporting as well as the effectiveness of internal control over financial reporting. It is the Committee’s responsibility to monitor and oversee the performance of these responsibilities and to report to the full Board of Directors.

 

Our Board of Directors has determined that each member of the Committee is an “independent director” as defined in the Listing Standards of the Exchange and the Company’s corporate governance standards. In addition, our Board of Directors has determined that Douglas B. Fox, Stephen V. Murphy, and Wendell M. Smith are “audit committee financial experts,” as defined by Securities and Exchange Commission rules.

 

The Committee reviewed and discussed the audited financial statements for fiscal 2006 with the Company’s auditors, with management, and with the entire Board of Directors. The Committee also examined with the auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (“Communication with Audit Committee,” as amended). In addition, the Committee has received from the auditors the letter and written disclosures respecting fiscal 2006, which are required by Independence Standards Board Standard No. 1 (“Independence Discussions with Audit Committees”), and has discussed with them their independence from the Company and its management. Furthermore, the Committee considered and determined that the auditors’ non-audit services to the Company were consistent with the guidelines established to ensure auditor independence.

 

Based upon our reviews and discussions referred to above, the Committee recommended to the Board of Directors, and the Board agreed, that the audited financial statements for fiscal 2006 be included in the Company’s annual report on Form 10-K for the year ended December 31, 2006, for filing with the Securities and Exchange Commission.

 

This report by the Committee is not to be deemed filed under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, and is not to be incorporated by reference into any other filing of the Company under those statutes except to the extent that the Company may expressly refer to this report for incorporation by reference in a particular instance.

 

The undersigned, being all the members of the Audit Committee, submit this report to the Company’s stockholders.

 

Douglas B. Fox, Chairman

Stephen V. Murphy

Wendell M. Smith

Lisa A. Stanley

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

 

Consistent with Security and Exchange Commission policies regarding auditor independence, the Audit Committee pre-approves all audit and non-audit services provided by the independent auditors prior to the engagement of the independent auditors with respect to such services. The Chairman of the Audit Committee, who is an independent director, has been delegated the authority by the Committee to pre-approve the engagement of the independent auditors if the fees for the service are estimated to be less than $50,000, unless the cumulative amount of fees for previously approved services exceeds 30% of the projected annual audit service fees, in which case pre-approval by the entire Audit Committee is required. Each quarter, the Audit Committee reviews the services provided by the independent auditor during the previous quarter as well as the services that were pre-approved by the Chairman of the Audit Committee during the quarter. All services provided by the Company’s independent auditor in 2006 and 2005 were pre-approved by the Audit Committee or its chairman in accordance with the Company’s policy.

 

AUDIT SERVICES AND FEES

 

The professional services provided by KPMG LLP and the aggregate fees for those services rendered during the years ended December 31, 2006 and 2005 were as follows:

 

Audit Fees.  The aggregate fees billed for audit services for the years ended December 31, 2006 and 2005 were $1,359,472 and $3,759,580, respectively. Audit services include the audit of the financial statements included in the Company’s annual reports on Form 10-K, the audit of the effectiveness of the Company’s internal control over financial reporting, the reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q, statutory audits of the Company’s foreign subsidiaries, and other services normally provided by the independent auditor in connection with statutory and regulatory filings. In addition, the aggregate fees billed for audit services for the year ended December 31, 2005 includes $1,100,000 for services performed related to the restatement of the Company’s financial statements, which were billed and paid during 2006.

 

Audit-Related Fees.  The aggregate fees billed for audit-related services in the years ended December 31, 2006 and 2005 were $236,920 and $1,796,551, respectively. Audit-related services include the audits and other services related to the sale of Bowne Global Solutions, audits of the financial statements of the Company’s employee benefit plans, due diligence related to acquisition candidates and consultations concerning financial accounting and reporting standards.

 

Tax Fees.  The aggregate fees billed for tax compliance services in the years ended December 31, 2006 and 2005 were $267,352 and $172,116, respectively. Tax compliance services include the preparation and review of the Company’s domestic and international tax returns and assistance with tax audits. The aggregate fees billed for tax consulting and advisory services in the years ended December 31, 2006 and 2005 were $117,111 and $54,919, respectively. Tax consulting and advisory services include advice and planning related to state, local and foreign taxes.

 

All Other Fees.  There were no other services performed by KPMG LLP during the years ended December 31, 2006 and 2005 that were not included in the above categories.

 

Securities ownership of certain beneficial owners.  The Company does not know of any individual who is the beneficial owner of more than 5% of the Company’s Common Stock that was outstanding on the record date for the Annual Meeting. The only institutional investors known to have held more than 5% of the Company’s Common Stock on that date are set forth in the following table which shows each firm’s percentage of shares actually outstanding on the record date. We took this information from the most recent reports on Schedule 13G, as filed for each such firm with the Securities and Exchange Commission before the record date for the Annual Meeting.

 

 

Notes:

 

Stock ownership of management.  The following table shows the number of beneficial owners of the Company’s common stock for each member of the Board of Directors, including the four current nominees for election to the Board, as of the record date for the Annual Meeting. The table also shows the beneficial ownership of the Company’s Named Executive Officers (defined on page 32), excluding C. Cody Colquitt, on the record date. Mr. Colquitt’s employment with the Company terminated in May 2006. The table also includes the aggregate number of shares owned beneficially, as a group, by 19 directors and corporate officers. The following table assumes that an individual beneficially owns any shares which he or she may acquire by exercising options which are exercisable within 60 days after the record date, by converting stock equivalents or by withdrawing from an employee benefits plan, even if that individual has not yet made the exercise, conversion or withdrawal of the stock.

 

No individual listed in the following table beneficially owned more than 1% of the common stock outstanding on the record date. The number of shares listed in the following table as beneficially owned for all directors and officers as a group is 7.8% of the common stock outstanding on the record date.

 

Notes:

 

 

The Compensation and Management Development Committee the (“Compensation Committee”) has overall responsibility for approving and evaluating the director and executive officer compensation plans, policies and programs of the Company. Members of the Compensation Committee are appointed by the Board, on the recommendation of the Nominating and Corporate Governance Committee. Compensation Committee members may be removed and replaced by the Board.

 

In 2006 the Compensation Committee consisted of four directors — Vincent Tese, Chairman; Gloria M. Portela; H. Marshall Schwarz and Harry Wallaesa. Mr. Wallaesa resigned from the Board and the Compensation Committee in March 2006 and was not replaced on the Compensation Committee. All four directors have extensive management and/or Board experience in managing, overseeing, and/or researching in the fields of employment and/or executive compensation. As determined by the Board, all four directors meet the independence requirements of the Exchange and any other legal requirements for the proper administration of the Company’s compensation plans and programs, including requirements under the Federal securities laws and the Internal Revenue Code of 1986, as amended. In addition, each Compensation Committee member is neither a current nor former employee of the Company.

 

The Compensation Committee operates under a charter, which is posted in the “Corporate Governance” section of the Company’s website (www.bowne.com). The Compensation Committee Charter was approved by the Board of Directors on November 20, 2003 and was most recently reviewed and updated on March 8, 2007.

 

The Compensation Committee’s authority and responsibilities include the following:

 

 

 

 

 

In 2006 the Compensation Committee met four times. With the exception of one meeting, all meetings were regularly scheduled to coincide with Board meetings. The Compensation Committee Chairman and the Company’s Senior Vice President, Human Resources determined the agenda for each meeting. Compensation Committee members generally received agendas and discussion materials several days in advance, to provide them with time for adequate review and preparation for the meetings.

 

In 2006 the Compensation Committee engaged Buck Consultants as a consultant to advise the Compensation Committee. The Compensation Committee provides guidelines which give direction to the consultant, and delegate certain interaction with the consultant to the Company’s Senior Vice President, Human Resources. Services provided by the consultant included competitive compensation benchmarking of executive officer positions, industry research on competitive design of compensation and employment programs, presentation and analysis of long-term incentive design alternatives, and other technical advice. The consultant did not provide recommendations on compensation decisions for individual executive officers.

 

At the Compensation Committee’s request, from time to time members of management attend portions of Compensation Committee meetings. During 2006 they included the Chairman and Chief Executive Officer; President and Chief Operating Officer; Senior Vice President and Chief Financial Officer; Senior Vice President, General Counsel and Corporate Secretary; and Senior Vice President, Human Resources.

 

On an annual basis, the Senior Vice President, Human Resources presents to the Compensation Committee a summary of the Company’s Management Continuity System including performance evaluations and development plans for each of the Company’s senior executive officers and a review of the talent profile of the Company.

 

In addition, on an annual basis the Compensation Committee reviews and approves increases or changes to each element of the total compensation package of each individual executive officer, with the exception of the Chairman and Chief Executive Officer and the President and Chief Operating Officer. The Compensation Committee Chairman presents recommendations for the Chairman and Chief Executive Officer and the President and Chief Operating Officer for review by the Compensation Committee. The Compensation Committee’s recommendations are then presented to the independent Board members for approval.

 

The 2006 review included comparisons to competitive levels of compensation based on peer groups as approved by the Compensation Committee, as well as year-over-year comparisons. The Compensation Committee concluded that total compensation levels, as well as individual elements of compensation, were reasonable for all executive officers in light of Company performance, business unit performance, individual performance, and competitive practice.

 

At each meeting in 2006 the Compensation Committee held an executive session. No members of management, consultants, or other outsiders attended these executive sessions. Among other topics, discussions and decisions regarding performance, succession and compensation of the Chairman and Chief Executive Officer and the President and Chief Operating Officer took place during these executive sessions.

 

The Compensation Committee took the following key actions at its meetings in 2006:

 

 

 

 

The Compensation Committee has reviewed the compensation discussion and analysis, discussed it with management and recommends its inclusion in the Annual Report and this proxy statement.

 

Key objectives of the Company’s executive compensation programs are as follows:

 

 

Principal components of ongoing compensation for our executive officers include the following:

 

 

The Company believes that its executive compensation policies, plans and programs advance the objectives listed above and adhere to high standards of corporate governance.

 

The Company’s executive compensation programs have four key objectives described above in the Executive Summary. To accomplish these objectives, the Company’s executive compensation programs are based on the following guiding principles:

 

 

 

To help inform the Compensation Committee’s decisions and monitor the Company’s executive compensation programs, each year the Compensation Committee commissions a benchmarking study of compensation levels for the executive officer positions. As in previous years, the benchmarking study was conducted by the Committee’s independent compensation consultant. Comparisons were made to executive compensation levels at 11 publicly traded companies generally viewed as comparable in size and industry. These include: ADVO, Inc., Banta Corporation, Cadmus Communications Corporation, Cenveo, Inc., Consolidated Graphics, Inc., Deluxe Corporation, The Dun & Bradstreet Corporation, John H. Harland Company, Paxar Corporation, The Standard Register Company, and Valassis Communications, Inc. The Compensation Committee also considers data obtained by the Compensation Committee’s independent compensation consultant from a general industry sample of similarly sized companies, particularly for positions that must be competitive with employers across a wide spectrum of industries. The study indicated that:

 

 

 

The following section provides details on each of the Company’s executive compensation programs. It demonstrates how these programs — individually and in total — accomplish the objectives established for them and follow the guiding principles.

 

Base Salary Program.  Base salary represents on average approximately one-third of an executive officer’s total compensation package. This approach is consistent with industry practice, as demonstrated by the competitive benchmarking commissioned by the Compensation Committee.

 

In 2006 the Compensation Committee (and, in the case of Messrs. Kucera and Shea, the independent Board members) approved the following base salary increases for each Named Executive Officer:

 

 

Annual Incentive Plan.  The Company’s AIP is formula-based and designed to reward executive officers based on the following:

 

 

The financial factor is based on net income, EBIT for FC and EBITDA for MBC for several reasons. They are stable measures of the Company’s operating cash flow, are key measures in the Company’s planning and budgeting processes, are measures that are regularly monitored in the Company’s management reporting, and are easily calculated for both the total Company and for each of its business units. Threshold, target, and maximum levels of respective net income, EBIT and EBITDA for use in the AIP calculations were approved by the Compensation Committee during the first quarter of 2006 based on the Company’s 2006 budget and on historical Company and peer performance.

 

Strategic initiatives are quantifiable measures of operating performance that are aligned with the Company’s operating and strategic plans and are critical to the Company’s success. For FC, the 2006 strategic initiatives are related to efficiencies of the composing platform and the customer service organization. In 2006, MBC’s strategic initiatives are related to the integration of Bowne Enterprise Solutions and Vestcom. The selected

strategic initiatives are approved for each business unit by the Compensation Committee based on the strategic and operating plans for the business unit and on recommendation of the Chief Executive Officer. Strategic initiatives for the Chief Executive Officer and President are reviewed and approved by the Compensation Committee.

 

The financial factors and strategic initiatives for a fiscal year are approved by the Compensation Committee in February of that fiscal year, and are based on the Company’s strategic and operating plans approved by the Board of Directors in December of the prior year. The Compensation Committee reviews and approves (and, in the case of Messrs. Kucera and Shea, the independent Board members) the target AIP awards for executive officers, including all Named Executive Officers, in December of the prior fiscal year.

 

The Compensation Committee then confirms the fiscal year results against the financial and strategic targets previously established and approves payments of the AIP awards during the first quarter of the following year, after completion of the Company’s audited financial statements and assessment of strategic initiatives.

 

Each Named Executive Officer has a threshold, target, and maximum AIP award as approved by the Compensation Committee (and, in the case of Messrs. Kucera and Shea, the independent Board members) in December of the prior fiscal year, which is reported in the “Non-equity incentive plan compensation” column of the Grants of Plan Based Awards table.

 

For 2006 performance the Compensation Committee approved the following AIP awards for each Named Executive Officer, which were paid in March 2007:

 

 

These incentive formulas directly link each Named Executive Officer’s incentive payment to the financial performance of the Company and/or the business unit for which the Named Executive Officer has principal responsibility, and to strategic initiatives that are critical to the Company’s overall success. Also, these awards are intended to be fully deductible expenses on the Company’s tax returns.

 

Long-Term Equity Incentive Plan.  The Compensation Committee, Board and shareholders approved a new LTEIP during 2006. The LTEIP rewards progress against the Company’s current strategic plan. Further, since the awards are denominated in RSUs and settled in shares of Bowne stock, the plan rewards the creation of shareholder value and assists in the accumulation of significant equity stakes for participating executives.

 

Under the LTEIP, executives, including the Chief Executive Officer and all other Named Executive Officers, were granted a targeted number of RSUs during 2006. The aggregate number of RSUs granted in 2006 to all executives was approximately 532,500 shares. The RSUs are convertible into shares of Bowne stock at the end

of a three-year performance period (covering the years 2006 — 2008), based on the Company’s average Return on Invested Capital (ROIC) during the performance period. The actual number of shares which are awardable in the first quarter of 2009 will range between 0 (for average ROIC performance that is less than the pre-determined threshold level) and two times the target RSUs (for average ROIC performance that exceeds a pre-determined maximum level).

 

If the Company’s average ROIC during the first two years of the performance period (2006 — 2007) exceeds the pre-determined maximum level, then the awards would be accelerated and settled in the first quarter of 2008. The Company chose ROIC as the principal metric for the LTEIP because it comprises both growth in profitability and capital efficiency and is a primary driver of shareholder value.

 

The Chief Executive Officer and each of the Named Executive Officers other than Mr. Colquitt received a grant of RSUs under the LTEIP during 2006. These awards were based on a median level of competitive long-term incentive grants. Because the grants represent a three-year period, and no subsequent grants (except to new hires or in connection with promotions) will be made until the end of the performance period (at the end of 2008, or at the end of 2007 if the average ROIC exceeds the pre-determined maximum in 2006 — 2007) the grants were made based on three times the median level of competitive long-term incentive grants.

 

The Compensation Committee (and, in the case of Messrs. Kucera and Shea, the independent Board members) approved all awards to the Chief Executive Officer and other Named Executive Officers and approved the threshold, target, and maximum levels of ROIC based on the Company’s strategic plan, and historical and peer analysis. The number of shares to be issued at the threshold, target, and maximum levels of average ROIC for the Chief Executive Officer and each Named Executive Officer are reported in the “Estimated future payouts under equity incentive plans” columns of the Grants of Plan-Based Awards table. Awards under the LTEIP are included in the Outstanding Equity Awards at Fiscal Year End table and are intended to be fully tax-deductible by the Company.

 

Mr. Kucera’s LTEIP award was settled with 40,000 shares of Bowne stock, approximately one third of his original three year grant, in March 2007. The LTEIP award was vested and payable due to Mr. Kucera’s retirement on December 31, 2006. No further awards under the LTEIP will be made to Mr. Kucera. The remaining RSUs were returned to the available pool of shares authorized under the 1999 Incentive Compensation Plan.

 

Restricted Stock and Stock Option Grants.  The Company also made grants of both qualified and non-qualified stock options during 2006. Stock options provide an incentive to create shareholder value and reward executives’ sustained service and performance. They also assist in the accumulation of significant equity stakes for participating executives.

 

The Compensation Committee (and, in the case of Mr. Shea, the independent Board members) approved all stock option grants, the number of which is disclosed in the “All other option awards: number of securities underlying options” column, and the exercise prices of which are disclosed in the “Exercise or base price of option awards” column of the Grants of Plan-Based Awards table. All grants, other than for the President and Chief Operating Officer, were made based on recommendations made by the President and Chief Operating Officer and were at the median of pre-established grant guidelines for each Named Executive Officer that represent the competitive market for their positions and responsibilities. Options become exercisable at the rate of 25% of the underlying shares on each of the first through fourth anniversaries of the grant date.

 

All stock option grants are made with exercise prices that are equal to the Fair Market Value (“FMV”) (as defined on page 34) of Bowne stock on the date of grant. The grant dates of the grants correspond to pre-determined meetings of the Compensation Committee and Board, respectively, during which the awards are approved. Compensation realized from the exercise of non-qualified stock options is intended to be fully tax-deductible by the Company.

 

The Company also periodically grants shares of restricted stock to selected executives. Restricted shares are intended to reward continued service with the Company, attainment of superior performance, and/or as part of hiring packages. They also assist in the accumulation of significant equity positions for participating executives. Restrictions on restricted shares typically lapse with respect to one-third of the underlying shares on each of the first through third anniversaries of the grant date. Mr. Shea received a grant of restricted shares as recommended by the Compensation Committee and approved by the independent members of the Board in the fourth quarter of 2006 in recognition of his promotion to the position of Chief Executive Officer effective January 1, 2007. His grant is reported in the “All other stock awards: number of shares of stock or units” column of the Grants of Plan-Based Awards table, as well as in the Outstanding Equity Awards at Fiscal Year End table.

 

Stock Ownership Guidelines.  The Company has established stock ownership guidelines for senior executives (including the Chief Executive Officer and all other Named Executive Officers) as recommended by the Compensation Committee and approved by the Board effective January 1, 2004. The objective of the guidelines is to complement the Company’s various equity incentive plans in creating a linkage between shareholders and senior executives through the accumulation of a significant equity stake in the Company. The guidelines are enumerated as a specified number of shares for the Chief Executive Officer (250,000 shares) and other Named Executive Officers (46,000 shares). Shares credited toward meeting the ownership guidelines include all shares owned outright, DSUs granted under prior incentive plans, restricted shares and shares held in the benefit plans on behalf of the executives. Stock options and RSUs are not credited toward the guidelines. Periodically, the Compensation Committee reviews each executive and member of the Board’s progress toward attainment of the guidelines.

 

Benefits and Executive Perquisites.  It is the Company’s policy to provide limited executive perquisites and special benefits, most of which are business-related. The Chief Executive Officer and the Named Executive Officers participate in the Company’s tax-qualified 401(k) Saving Plan, on the same basis as all other U.S.-based full-time employees. The Chief Executive Officer and most of the other Named Executive Officers participate in the Company’s Pension Plan on the same basis as all other U.S. based full-time employees. The Chief Executive Officer and other Named Executive Officers also participate in a Supplemental Executive Retirement Plan which is intended to provide benefits that cannot be provided under the tax-qualified plans due to limits on compensation under the Internal Revenue Code, and to provide competitive retirement benefits to executives who joined the Company at mid-career. The various pension plans are discussed in more detail, and benefits for the Chief Executive Officer and each Named Executive Officer are included in the Pension Benefits table.

 

The Chief Executive Officer and other Named Executive Officers also receive an auto allowance or the use of a company provided car, which benefit is also provided to a wider group of executives in the Company. In addition, the Company provides business-related perquisites in the form of an annual executive health examination and payment of membership fees in a country club to some of the Named Executive Officers which is used for both personal and business functions.

 

All amounts related to perquisites for Named Executive Officers are disclosed in the “All other compensation” column of the Summary Compensation table, along with details on their valuations.

 

Termination Protection Agreements.  The Company has Termination Protection Agreements (“TPAs”) with the Chief Executive Officer and other Named Executive Officers (as well as a wider group of executives and key employees). The TPAs are designed to:

 

 

A more detailed description of the benefits payable under the TPAs, as well as estimated payments that would be paid to the Chief Executive Officer and other Named Executive Officers if a change-in-control related termination had occurred on the last business day of 2006, are included following the other tabular disclosures below.

 

The Company does not have any specified termination plans or policies related to terminations not in connection with a change in control, nor does it have employment agreements in place for the Chief Executive Officer or any of its other Named Executive Officers.

 

In connection with Mr. Colquitt’s termination from the Company in May 2006, the Company and Mr. Colquitt entered into a separation and release agreement. Under the agreement, Mr. Colquitt received or will receive $600,000 in separation payments in installments until March 15, 2007 and medical, dental and vision COBRA coverage through May 1, 2007 at the same employee contribution rate as charged to an active employee, outplacement benefits and the value of a company car whose ownership was transferred to Mr. Colquitt.

 

In making executive compensation decisions, the Compensation Committee is mindful of the impact of regulatory requirements on those decisions. In particular, regulatory requirements affect the Compensation Committee’s decisions in the following ways:

 

 

 

The Company and its Compensation Committee regularly consider ways to improve the ability of its total compensation program to meet the objectives established for it. The Company believes that its executive compensation programs are reasonable, appropriate, and in the best interests of shareholders. Key reasons for this conclusion include the following:

 

 

The table below summarizes the total compensation paid or earned by each of the executive officers of the Company whose name appear in the table (“Named Executive Officers”) for the fiscal year ended December 31, 2006. The Company has not entered into any employment agreements with any of the Named Executive Officers. When setting the total compensation for each of the Named Executive Officers, the Compensation Committee reviews total compensation which includes the executive’s current cash compensation (base salary and annual incentive awards) and equity-based compensation.

 

Amounts listed under column (e), “Non-Equity Incentive Plan Compensation” were determined by the Compensation Committee at its March 8, 2007 meeting in accordance with previously approved financial and strategic goals established in February 2006. The awards were paid on March 14, 2007.

 

Based on the FMV of equity awards granted to Named Executive Officers in 2006 and the base salary of the Named Executive Officers, “Salary” accounted for approximately 30% of the total compensation of the Named Executive Officers. Because the table below reflects less than the full fiscal year salary for individuals who were not employed by the Company for the full fiscal year and because the value of certain equity awards included below is based on the amounts recognized in 2006 under FAS 123(R) rather than the fair value of shares granted in 2006, this percentage may not be able to be derived using the amounts reflected in the table below.

 

Mr. Colquitt terminated employment with the Company in May 2006 and the amounts listed in column (g) below include amounts paid in 2006 pursuant to the severance agreement between the Company and Mr. Colquitt.

 

Notes:

 

 

 

(i) An auto allowance paid monthly to two of the Named Executive Officers. In 2006, Mr. Kucera and Mr. Penders each received $12,000.

 

(ii) The cost of the automobiles owned by the company that are attributable to the personal use of Named Executive Officers. The cost for Mr. Shea’s car was $40,694, the cost for Mr. Penders’ car was $30,794, and the cost for Ms. Cummiskey’s car was $21,677. Mr. Penders purchased a car in December 2006. Previously, he received a monthly car allowance. The amounts shown for Mr. Shea and Ms. Cummiskey’s cars are the full cost of the cars and have not been reduced by the amounts Mr. Shea and Ms. Cummiskey paid personally.

 

(iii) Any employee who waives medical coverage under the Company’s medical plan receives a $500 payment in lieu of the coverage. The payment may be received in cash or is contributed to the employee’s flexible spending account. Ms. Cummiskey is the only Named Executive Officer who received this payment in 2006.

 

(iv) Mr. Bambach was given a Company paid one week vacation in recognition of his significant contributions for services rendered as interim Chief Financial Officer during 2006. The value of the partial payment for the trip and the grossed up taxes on this payment are shown in this column.

 

(v) Mr. Penders received a loan from the Company in May 2001 for the membership fees for joining a country club. The amount shown in this column is the amount of the loan forgiven for 2006 and the taxes grossed up on such payment.

 

(vi) Matching contributions allocated to each of the Named Executive Officers pursuant to the Company’s 401(k) Savings Plan and the excess benefit under the Deferred Award Plan are described in the section titled “2006 Non-Qualified Deferred Compensation” on page 39. For 2006, the Named Executive Officers received an ERISA excess benefit in the following amounts:  Mr. Kucera, $28,290; Mr. Shea, $19,963; Mr. Colquitt, $14,632; and Mr. Penders, $12,562.

 

(vii) The cost of annual executive health examinations provided to the key senior executives of the Company on a voluntary basis. Messrs. Kucera, Penders and Colquitt participated in the executive health exam program in 2006.

 

(viii) The cost to the Company of club membership provided to Messrs. Shea and Penders. The annual cost of Mr. Shea’s club in 2006 was $5,382 and the annual cost for Mr. Penders’ club was $7,633 in 2006. Both of the clubs are used for business and personal purposes.

 

(ix) The payments under the separation agreement for Mr. Colquitt. The cost of severance payments was $443,654, the cost of his outplacement was $25,000 and the value of an automobile whose ownership was transferred to Mr. Colquitt was $13,918.