This was a year of milestones for Bowne. Revenue of $501,369,000 represented a 28% increase over 1995 and 112% growth in the last five years. Our 1996 results underscore that Bowne enhanced its position as the financial printing market leader. In fiscal 1996 Bowne was the printer of choice for 50% of the capital raised through initial public offerings. The major new offerings we handled this past year included the AT&T Lucent Technology and NCR spin-offs, and the Southwest Bell/Pacific Telesis and Bell Atlantic/NYNEX mergers. Past decisions to shut down an aging local production capacity and replace it with a state-of-the-art plant enabled Bowne to take advantage of one of the most active capital markets in recent memory while continuing to grow in the less cyclical mutual funds and commercial printing areas. THE RESULT, RECORD EARNINGS OF $42,503,000, OR $2.42 PER SHARE, AN IMPROVEMENT OF $1.08 PER SHARE (81%) OVER 1995 AND $.37 PER SHARE (18%) ABOVE OUR PREVIOUS 1993 RECORD OF $2.05 PER SHARE. The value of your investment in Bowne stock increased 27% this past year; but it has become all too plain in my first year as chairman that the value of our stock suffers from perceptions that our business is too cyclical and our markets too mature. Thus, even when Bowne earnings improve dramatically (as they have this past year), they are discounted by the anticipation of the next cycle. To reach our two major goals -- to improve shareholder value and to double the size of our business over the next five years -- we must address both the perception and the reality of our business fundamentals. We are committed to reaching both of these goals and have already taken the first major steps toward achieving them. Our record revenue and earnings this year are due to the sound management of our core financial printing, funds printing, and commercial printing businesses. IN THE BODY OF THIS REPORT JIM O'NEIL DISCUSSES THE 1996 ACCOMPLISHMENTS OF OUR CORE BUSINESSES AND OUR UPBEAT VIEW FOR THEIR FUTURE. These businesses experienced strong demand all year long. Even during this period of peak demand for transactional work, we were successful at increasing our level of non-transactional work so that the proportion of our revenue coming from cyclical (transactional) work was reduced to 45% as compared to 50% during the business peak of 1993. We intend to reduce our reliance on cyclical revenue sources to 25% over the next five years. To do this we need to further diversify our businesses and achieve significant growth from new market segments. We have taken strong positive steps to make this happen. In the body of this report we describe the two business segments that we are counting on to tap dynamic new markets and to create growth. In each of these sections you'll be able to judge for yourself the vision and enthusiasm of the aggressive young executives who are leading these efforts for us. During the year we made a number of strategic moves to accelerate our entry into new markets. We announced the formation of Bowne Business Services (BBS) at the beginning of the third quarter. Michael Schlanger, formerly the Sales Manager of Bowne of Detroit, was named President and COO of this new unit. IN THE FIRST QUARTER OF FISCAL 1997 WE ANNOUNCED A JOINT VENTURE WITH WILLIAMS LEA GROUP, LTD., AND THE ACQUISITION OF IDOC. These moves are the foundations for a business unit that will be capable of providing the most comprehensive document creation, management, and distribution services available to the domestic and global markets. These services, which leverage the expertise and technology developed by Bowne in its core business, can be provided either on the customers' premises using the traditional outsourcing model, or off-site, using Bowne's worldwide network. Bowne's reputation for superior service, complex project management and confidentiality, and the relationships established thereby, should permit BBS to develop a new, non-cyclical revenue and profit stream that will be substantial for Bowne in the years ahead. Bowne Digital Services, a new division formed last year, has developed a growing customer base in the mutual fund and health care industries for its customized statement processing business. This division holds great promise of significant growth in the emerging market for individualized laser print statements which permit high speed, affordable customization of customer-specific information. In December, we announced the sale of Baseline Financial Services to Primark Corp. for $40 million, a transaction completed in the first quarter of fiscal 1997. BOWNE OWNED 90% OF BASELINE, AND OUR FIRST QUARTER 1997 FINANCIALS WILL INCLUDE AN AFTER-TAX GAIN OF APPROXIMATELY $20 MILLION. Baseline, which generated $13 million in revenue in fiscal 1996, did not fit our strategic direction. The proceeds of the Baseline sale will be used to help fund our new areas of growth. We have realigned and strengthened our senior management team. In July Denise Fletcher joined us as Chief Financial Officer, and last month John Stone came aboard as Chief Technology Officer. Carl Crosetto has assumed the additional role of Director of Sales, with a specific charge to insure that our existing sales relationships are leveraged effectively by our new businesses. Denise has already made her presence felt in revamping our strategic planning and executive compensation programs to assure that the directions of each business unit and the reward systems for our executives are closely tied to our corporate goals. I have personally spent much of my time this year reacquainting analysts with Bowne. We are now well on our way to reaching key buy-side and sell-side analysts with the story that we are no longer content to remain a highly cyclical financial printer. We have a good story to tell, great opportunities ahead of us and are building a solid track record of doing what we say we'll do to add shareholder value. Our message to analysts, and to you our shareholders, is "Just Watch Us." Bowne is moving into exciting new territory, and I welcome shareholder comments on how we are doing. You may reach me on the Internet at Bowne@Bowne.com. ROBERT M. JOHNSON CHAIRMAN AND CHIEF EXECUTIVE OFFICER