United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-14850
DEVON GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 03-0212800
(State of Incorporation) (I.R.S. Employer Identification Number)
281 Tresser Boulevard, Suite 501, Stamford, Connecticut 06901-3227
(address of principal executive offices)
Registrant's telephone number, including area code (203) 964-1444
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Class on which registered
Common Stock, $.01 par value, NASDAQ
7,278,817 outstanding as of June 2, 1995
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K [x].
As of June 2, 1995, the market value of the registrant's common stock
held by nonaffiliates of the registrant was approximately $148,231,000.
Portions of the following documents are incorporated by reference in
the form 10-K as indicated:
Part of 10-K
Document into which incorporated
1995 Annual Report to Shareholders of Devon Group, Inc. Parts I, II and IV
Proxy Statement relative to the 1995 Annual Meeting of Parts I, II and III
Shareholders of Devon Group, Inc.
<PAGE>
PART I
Item 1 Business
General
Devon Group, Inc. is a diversified graphic arts company that
provides the following services and products: advertising and
editorial production, conventional and digital photography,
interactive multimedia, computerized typesetting, composition, color
separation, printing, binding, and related services to corporate,
retail, advertising, and publishing customers, and
publishing/distribution of posters, art reproductions, original art,
greeting cards, notecards, calendars, and related products.
The Company was incorporated in Delaware in 1962 and between 1968
and 1982 traded on the American Stock Exchange. The Company was
acquired in 1982 by a group of investors, including management. In
August 1986 the Company affected an initial public offering of its
common stock, issuing 2,500,000 shares at $18 per share and now trades
over the counter on the National Association of Securities Dealers
Automated Quotation System (NASDAQ).
The Company's Black Dot Graphics, Inc. subsidiary is one of the
nation's leading suppliers of pre-press services in design,
copywriting, photography, editorial development, computer text
preparation, separation and management of color images, and finished
page output. Black Dot provides high-quality services through its
internally developed applications software and the integration of
traditionally separate pre-press services. The acquisition by Black
Dot of Ahrens Interactive, Inc., an experienced developer of
interactive multimedia, expands its traditional pre-press offerings.
Sales attributable to Black Dot were $108,630,000, $87,707,000, and
$76,692,000 in fiscal 1995, 1994, and 1993, respectively. The
Company's Graftek Press, Inc. subsidiary provides high-quality color
printing, binding, and related services to the publishers of trade and
special-interest magazines as well as commercial printing services to
a variety of customers, primarily advertisers. Sales attributable to
Graftek were $53,037,000, $47,622,000, and $48,481,000, in fiscal
1995, 1994, and 1993, respectively. Devon Publishing Group is one of
the nation's largest publishers of posters, prints, original artwork,
greeting cards, notecards, calendars, and related products. Sales
attributable to Devon Publishing Group were $64,015,000, $55,511,000,
and $46,825,000 in fiscal 1995, 1994, and 1993, respectively. Sales
to Sears, the Company's largest customer, accounted for 20.5% and
21.7% of total sales in fiscal 1995 and 1994, respectively.
Pre-Press Services
Pre-press services include creative and editorial design services,
electronic preparation and management of type and color images, and
final composition on photosensitive, magnetic, or optical media. Such
media is then used by the Company's customers to make offset printing
plates and gravure cylinders or to store digital information for
future reference. These services are performed for commercial
customers (advertising and financial materials, newspaper inserts, and
retail, industrial, and commercial catalogs, directories, buyers'
guides, annual reports, and brochures) and publishers (textbooks,
tradebooks, magazines, directories, and encyclopedias).
Various types of computers are used to compose type and graphics
which are output via lasers onto film or photosensitive paper. The
Company believes that Black Dot, through the development of its own
internally developed applications software, has a
<PAGE>
distinct competitive advantage in its ability to compose type and
create fonts and graphics to meet customer demands. Black Dot also has
the expertise to adapt the configuration of its computer hardware to
meet the requirements of its customers. The Company believes that
Black Dot is a leader in the industry in the ability to transform data
generated by its customers' computers into data which can then be
readily used in Black Dot's type and graphics composition systems.
Black Dot's internally developed applications software is fully
transportable to any computer that possesses a "C" compiler. The
Company believes that Black Dot is also a leader
in PostScript expertise for both PC and Macintosh-based systems where
its customized extension software is used to increase the efficiency of
desktop production.
Color separation services separate original artwork, photographs, or
film transparencies into the four primary printing colors (yellow,
magenta, cyan, and black) and output the image on either film, magnetic
media, or optical media. These are used to prepare the printing plates
for offset printing, the cylinders employed in the gravure printing
process, or to store digital information for future reference. Black
Dot uses Hell electronic laser color scanners to digitize the primary
colors into the correct format for recall by the Hell Chromacom page-
assembly system or the Mac-based assembly system. These systems
utilize a high-resolution color monitor to enable an operator to
perform all page-assembly functions and necessary color corrections and
alterations.
As subsidiaries of Black Dot, Ambrosi & Associates, Inc., ABD Group,
Inc., and Meridian Retail, Inc. (a division which commenced operations
in late December 1993) offer fully integrated advertising production
services including creative design work, copywriting, and photography
to key accounts in Chicago, Troy, and other major U.S. cities. Using a
variety of computer-based systems, operating efficiencies are achieved
by completing the linkage from creation to printed products. These
services are performed for retail customers and include newspaper
inserts, pre-print circulars, and catalogs.
Publishers Services Incorporated (a subsidiary of Black Dot)
specializes in the design and editorial development of pupils'
textbooks, teachers' manuals, workbooks, and other ancillary textbook
materials primarily for the school market.
Ahrens Interactive, Inc. (a new subsidiary of Black Dot acquired in
January 1995) is a developer of interactive multimedia products and
services for the corporate, retail, advertising, and publishing
markets.
Black Dot markets its services primarily to commercial customers and
publishers through its direct salesforce which at March 31, 1995
consisted of 140 persons, 43 in field sales and 97 in support
functions, including customer service.
Services to retail advertising customers of Black Dot, including
Sears and Kmart, represent a significant component of Black Dot's total
revenues. The loss of any of Black Dot's significant retail
advertising customers or a significant change in their advertising
strategies could have a material adverse effect on the Company. The
Company believes that Black Dot's relations with all of its retail
advertising
customers are excellent as evidenced by the willingness of those
customers to store significant amounts of their retail advertising art
with Black Dot and by their choice of Black Dot as the provider of
substantially all of their newspaper advertising (ROPs and inserts)
production needs.
<PAGE>
Item 1 Business, Continued
Printing Services
The Company's Graftek subsidiary provides magazine manufacturing
services primarily in connection with the printing, binding, and
distribution operations of trade and special-interest magazines and
related work. Graftek also engages in
commercial printing. Trade and special-interest magazine publishers
generally contract for their printing for a three-to-five-year period.
At March 31, 1995 Graftek's magazine list included 105 titles, 82% of
which were under contract with 35 publishers. Graftek specializes in
printing runs ranging from 50,000 to 350,000 copies. The Company's
current capacity is approximately 130,000,000 magazine copies per
year. Graftek's equipment includes:
Press Equipment
Quantity Description
3 Harris M-300 nine-unit press, press speed up to
1,200 feet per minute
1 Harris M-1000A nine-unit press, press speed up to
1,200 feet per minute
1 Harris M-300 five-unit web offset press, press
speed up to 1,200 feet per minute
2 Harris M-200 six-unit web offset press, press
speed up to 1,000 feet per minute
1 Planeta six-color sheet-fed press with coating
tower
1 Miller six-color perfecting sheet-fed press
2 Heidelberg two-color sheet-fed press
4 Single color sheet-fed, offset press
Bindery and Mailing Equipment
Quantity Description
2 Perfect binding lines
5 Selective saddle binding lines with in-line
mailing and inside/outside ink-jet system
1 Selective perfect binding line with in-line
mailing and inside/outside ink-jet system
1 Polybag mailing line
1 Inline/offline polybag mailing line
4 Free-standing mailing lines
Graftek also maintains equipment which is used for pre-press and
platemaking work associated with printing. The Company believes that
Graftek's equipment is state of the art.
Graftek's services are primarily sold to publishers of trade and
special-interest magazines by a direct salesforce which, at March 31,
1995, consisted of 42 persons, 13 in field sales and 29 in support
functions, including customer service.
Publishing
Devon Publishing Group is one of the nation's largest publishers of
posters, prints, original artwork, greeting cards, notecards,
calendars, and related
<PAGE>
Item 1 Business, Continued
products. Formed during fiscal 1989, Devon Publishing Group is
composed of four divisions: Portal Publications, Ltd., acquired in
April 1970; The Winn Devon Art Group, Ltd., which combines The Winn
Art Group, acquired in April 1988, and Devon Editions which was formed
in April 1989; Portal Publications, Ltd. (U.K.), which
commenced operations in September 1993; and Portal Aird Publications
Pty. Ltd., a 50%-owned distributor located in South Australia acquired
in April 1994.
Portal's product lines include posters, art reproductions,
notecards, greeting cards, calendars, and related products. The
product selection is extensive, with appeal to a broad spectrum of
customers. The company believes that its marketing strategy of
offering a broad line of products at moderate prices enables it to
sell to a large and stable customer base. Since Portal's product
lines are intended to be carried by its customers for many years, it
believes that its in-store service program is critical to its selling
success. The Winn Devon Art Group carries a premium quality product
line which consists of original art and monoprints (original work
produced by an artist using a printing technique), limited-edition
prints, and an upscale poster line. Winn products are sold primarily
to galleries, designers, and institutional customers requiring premium
quality art while the upscale poster line is directed at the market
segment between that of Portal and Winn Devon's premium quality
products. Portal Publications, Ltd. (U.K.) is primarily a fulfillment
and distribution center for Portal's product lines in the U.K., while
Portal Aird Publications Pty. Ltd. is a key distributor in Australia.
Portal purchases the rights to publish photographs and artwork which
are either in the artist's stock or are commissioned specifically for
Portal's products. Images are also obtained from the public domain
primarily through photo libraries. Commissioned works are assigned to
a Portal art director for creation of a product that can be marketed
through Portal's distribution network. Winn Devon's images are
provided primarily by artists, many of whom are under contract, or
licensed from museums. Devon Publishing Group also distributes
posters and prints of other publishers. Devon Publishing Group's
current titles approximate 3,350 art prints and posters, 1,800 limited-
edition prints, 400 notecards, 80 calendars, and 700 greeting cards.
Portal's products are printed by a number of companies which are
selected based upon their quality, ability to deliver, and price.
Both domestic and foreign printers are utilized. Foreign printers do
the printing for Portal's calendar line and selected card lines.
After Portal's products are printed, they are delivered to its
warehouse facility in Hayward, California for distribution. Posters
and prints are shipped shrink-wrapped, rolled, or flat depending upon
customer orders. Customer orders are consolidated at the warehouse
facility and shipped directly to
the customers. Winn Devon utilizes several domestic and foreign
printers to meet its printing requirements. One-of-a-kind art,
monoprints, and a portion of the limited-edition art are provided by
outside artists. Winn Devon's products are shipped from the Seattle
warehouse, or sold in showrooms.
Portal's products are sold to customers such as gift shops,
bookstores, import stores, department stores, card shops, framers, and
other specialty-type stores by both independent, multiline
representatives and Portal-employed sales personnel. Winn Devon's
products are sold principally to fine art galleries and interior
designers. They are also sold directly to certain institutional
customers (e.g. hotel chains). The products are sold by company
representatives operating out of
<PAGE>
Item 1 Business, Continued
two company showrooms and by independent representatives throughout
the remainder of the country. In fiscal 1995 approximately 52% of
Devon Publishing Group's sales were made by company-employed sales
personnel with independent, multiline representatives and house
accounts providing 34% and 14%, respectively. At March 31, 1995 Devon
Publishing Group had a salesforce of 82 employee representatives and
74 independent, multiline representatives as well as 50 company
employees in sales support functions, including customer service.
Devon Publishing Group had export sales of $5,760,000, $4,470,000,
and $3,761,000 in fiscal 1995, 1994, and 1993, respectively. Such
sales accounted for approximately $457,000, $371,000, and $292,000 of
pretax operating profits in fiscal 1995, 1994, and 1993, respectively.
These sales were made to various countries including Argentina,
Australia, Belgium, Canada, Denmark, France, Germany, Holland, Italy,
Japan, New Zealand, Norway, Spain, Sweden, Switzerland, and the United
Kingdom. In addition, Devon Publishing Group has licensing agreements
with publishers and distributors in Australia, Holland, Japan,
Switzerland, and the United Kingdom. Related royalties in fiscal 1995
were approximately $289,000, approximately 35% of which were from the
United Kingdom.
Backlog
At March 31, 1995 and 1994, Devon Group, Inc. in its entirety had a
backlog of unfinished work aggregating approximately $14,900,000 and
$11,400,000, respectively, almost all of which was attributable to
Black Dot's operations. Generally, the Company's backlog work is
completed within a six-month period.
Sources and Availability of Materials
The Company purchases a number of different materials such as paper,
ink, film, and plates. In the case of Devon Publishing Group, it
contracts out most of its printing requirements. The Company believes
many alternative sources of materials and printing services are
available. The Company has not experienced any difficulty in
obtaining adequate supplies of materials or printing services and does
not anticipate any difficulty in obtaining materials or printing
services in the future.
Competition
The graphic arts industry is one of the most geographically
dispersed industries in the United States. Competition in the graphic
arts industry is intense. The principal methods of competition are
performance, quality, reliability, service, and price, and the Company
believes it competes effectively on all these bases. The Company
competes directly with a number of graphic arts companies, some of
which have greater financial resources than the Company.
Employees
At March 31, 1995 the Company employed approximately 1,900 persons,
127 of whom were covered by a collective bargaining contract relating
to Portal's Hayward warehouse. The bargaining unit is not affiliated
with any union. The Company has not experienced any work stoppage in
over 16 years and believes its employee relations are satisfactory.
<PAGE>
Item 1 Business, Continued
Acquisitions
In fiscal 1995 the Company acquired Ahrens Interactive, Inc. and a
50% interest in Portal Aird Publications Pty. Ltd. In fiscal 1993 the
Company acquired selected assets and assumed liabilities of Publishers
Services Incorporated. Information regarding these acquisitions
appears in Note 4 of "Notes to Consolidated Financial Statements" in
the accompanying Annual Report to Shareholders, which information is
incorporated by reference in this report.
Item 2 Properties
The following tables set forth certain information relating to the
Company's principal facilities:
Owned Facilities
Location Operating Unit Principal Use
Crystal Lake, Illinois Black Dot Computer
typesetting, composition,
color separation, office,
and storage facilities
Chicago, Illinois Black Dot Photography facility
Freeport, Illinois Black Dot Computer
typesetting, composition,
color separation, and
office facilities
Omaha, Nebraska Black Dot Color separation
and office facilities
Chicago, Illinois Black Dot Computer
typesetting, composition,
and office facilities
Orlando, Florida Black Dot Computer
typesetting, composition,
and office facilities
Lincoln, Nebraska Black Dot Color separation
and office facilities
Woodstock, Illinois Graftek Press Warehousing
and office facilities
Crystal Lake, Illinois Graftek Press Magazine
printing and office facilities
Elkhorn, Wisconsin Graftek Press Magazine
printing and office facilities
Carpentersville, Illinois Graftek Press Printing
and office facilities
Leased Facilities
Location Operating Unit Principal Use
Stamford, Connecticut Corporate Administrative
offices and corporate
headquarters
<PAGE>
Item 2 Properties, Continued
Leased Facilities
(continued)
Location Operating Unit Principal Use
New York, New York Corporate Administrative offices
Chicago, Illinois Black Dot Creative design,
copywriting, and
photography facilities
Chicago, Illinois Black Dot Interactive
multimedia development
and office facilities
Troy, Michigan Black Dot Creative design,
copywriting, and
photography facilities
Hayward, California Devon Publishing Group Warehousing, office, and
distribution facilities
Seattle, Washington Devon Publishing Group Warehousing, office, and
distribution facilities
Corte Madera,California Devon Publishing Group Administrative and art
publication facilities
Tucker, Georgia Devon Publishing Group Framing facility
Los Angeles, California Devon Publishing Group Showroom and framing
facilities
Seattle, Washington Devon Publishing Group Showroom and framing
facilities
Cheltenham, England Devon Publishing Group Warehousing, office, and
distribution facilities
The Company believes that its facilities are adequate for its
present needs and that its properties are in good condition, well-
maintained, and suitable for their intended uses.
Item 3 Legal Proceedings
The Company, in the ordinary course of business, is contingently
liable on pending lawsuits and claims. Based upon advice from legal
counsel, management believes that these pending items will not have a
material effect on the Company's consolidated financial position or
results of operations.
Item 4 Submission of Matters to a Vote of Security Holders
None
<PAGE>
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters
The approximate number of equity security holders of record at March
31, 1995 and 1994 was as follows:
1995 1994
Common Stock, $.01 par value 132 131
Based on previous communications with banks and securities dealers
who hold the Company's stock in "street" name for individuals, the
Company estimates that the number of holders of its common stock
exceeds 500.
Additional information regarding markets and market prices is
included in the accompanying Annual Report to Shareholders, which
information is incorporated by reference in this Report.
Item 6 Selected Financial Data
The "Selected Financial Data" appearing on page 30 of the
accompanying Annual Report to Shareholders is incorporated by
reference in this Report.
Item 7 Management's Discussion and Analysis of Results of Operations
and Financial Condition
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" appearing on pages 31 and 32 of the accompanying
Annual Report to Shareholders is incorporated by reference in this
Report.
Item 8 Financial Statements and Supplementary Data
The consolidated financial statements and the related notes thereto,
together with the report thereon of KPMG Peat Marwick LLP dated May 4,
1995, appearing on pages 33 through 43 of the accompanying Annual
Report to Shareholders are incorporated by reference in this Report.
Item 9 Changes in and disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10 Directors and Executive Officers of the Registrant
The biographical information relating to the Company's Directors is
included under "Election of Directors" in the Proxy Statement relating
to the Company's Annual Meeting of Shareholders, which information is
incorporated by reference in this Report.
Executive Officers of the Registrant
Served As
Name Title Age Officer Since
Marne Obernauer, Jr. Chairman and Chief Executive
Officer 51 1975
John W. Dinzole President and Chief Operating
Officer 67 1969
Marne Obernauer Chairman of the Executive
Committee of the Board
of Directors 76 1971
Bruce K. Koch Executive Vice President,
Operations and Finance and
Chief Financial Officer 48 1980
Mr. Marne Obernauer, Jr., Chairman and Chief Executive Officer of
the Company, is the son of Marne Obernauer, Chairman of the Executive
Committee of the Board of Directors.
Each of the executive officers of the Company is elected by the
Board of Directors for a one-year term.
All executive officers have been actively engaged in the business of
the Company for more than five years.
Item 11 Executive Compensation
Information relative to Executive Compensation is included under
"Remuneration of Directors and Officers" in the Proxy Statement
relating to the Company's Annual Meeting of Shareholders, which
information is incorporated by reference in this Report.
Item 12 Security Ownership of Certain Beneficial Owners and Management
Information relative to Security Ownership of Certain Beneficial
Owners and Management is included under "Stockholders Entitled to Vote
and Shares Outstanding" in the Proxy Statement relating to the
Company's Annual Meeting of Shareholders, which information is
incorporated by reference in this Report.
Item 13 Certain Relationships and Related Transactions
Not applicable.
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
Consolidated financial statements of the Company and its
subsidiaries and the related notes thereto, together with the
report thereon of KPMG Peat Marwick LLP, dated May 4, 1995, appearing
on pages 33 through 43 of the accompanying Annual Report to Shareholders
are incorporated by reference in this Report.
Form 10-K
Page No.
2. Financial Statement Schedules
Independent Auditors' Report F-1
Schedule II - Valuation and qualifying accounts F-2
All other schedules are omitted, as the required information is
inapplicable or is set forth in the consolidated financial
statements or notes thereto.
3. Exhibits
Exhibit 22 - Subsidiaries of the Registrant F-3
Exhibit 23 - Consent of Independent Auditors F-4
All other exhibits are omitted, as the required information is
inapplicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DEVON GROUP, INC.
By S/Marne Obernauer, Jr.
Marne Obernauer, Jr.
Chairman and Chief Executive Officer, Director
Date: June 27, 1995
Pursuant to the requirement of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
S/Marne Obernauer, Jr.
Marne Obernauer, Jr.
Chairman and Chief Executive Officer, Director
Date: June 27, 1995
S/John W. Dinzole
John W. Dinzole
President and Chief Operating Officer, Director
Date: June 27, 1995
S/Bruce K. Koch
Bruce K. Koch
Executive Vice President, Operations and Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: June 27, 1995
S/Robert H. Donovan
Robert H. Donovan
Senior Vice President, Finance and Treasurer
(Principal Accounting Officer)
Date: June 27, 1995
<PAGE>
S/Robert S. Blank
Robert S. Blank
Director
Date: June 27, 1995
S/William G. Gisel
William G. Gisel
Director
Date: June 27, 1995
S/Thomas J. Harrington
Thomas J. Harrington
Director
Date: June 27, 1995
S/Marne Obernauer
Marne Obernauer
Chairman of the Executive Committee, Director
Date: June 27, 1995
S/Edward L. Palmer
Edward L. Palmer
Director
Date: June 27, 1995
<PAGE>
<TABLE>
Selected Financial Data for Five Years Devon Group, Inc.
<CAPTION>
Years ended March 31, 1995 1994 1993 1992 1991
($ in thousands except per share data)
Operations
<S> <C> <C> <C> <C> <C>
Sales $225,682 $190,840 $171,998 $143,035 $141,344
Income from continuing operations $ 19,301 $ 13,210 $ 10,262 $ 4,947 $ 2,994
Income (loss) from discontinued
operations 2,206 - - - (15,062)
Net income (loss) $ 21,507 $ 13,210 $ 10,262 $ 4,947 $(12,068)
Per Share Data
Income (loss) per common share:
Continuing operations $ 2.64 $ 1.83 $ 1.43 $ .69 $ .42
Discontinued operations .30 - - - (2.11)
Net income (loss) $ 2.94 $ 1.83 $ 1.43 $ .69 $ (1.69)
</TABLE>
<TABLE>
Financial Position
<CAPTION>
<S> <C> <C> <C> <C> <C>
Working capital $ 43,190 $ 29,952 $ 8,128 $ 26,091 $ 19,747
Total assets 133,436 122,556 107,528 103,958 97,106
Long-term debt 2,402 13,923 2,344 33,562 42,252
Stockholders' equity 88,153 65,587 51,802 40,744 35,797
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations: Fiscal 1995 Compared to Fiscal 1994:
Sales increased $34,842,000, or 18.3%, compared to fiscal 1994
with each of the Company's subsidiaries contributing to this
growth. A significant portion of this increase came from the pre-
press business where revenues increased $20,923,000, or 23.9%.
Most of the pre-press revenue increase was related to higher
levels of creative, design, photographic, and composition
services provided to retail advertising customers which included
a full year's results for Meridian Retail, Inc. as well as
increased volume with existing customers. Results for the
current period at the pre-press business have also been favorably
affected by increased typography and color separation revenues
primarily relating to the magazine and catalog sectors. At the
publishing subsidiary, strong sales of Portal Publications' card,
matted product, apparel, and calendar lines, as well as an
increase in The Winn Devon Art Group's line of upscale posters
and higher-end fine art, resulted in increased revenues of
$8,504,000, or 15.3%. In the magazine printing business, the
addition of new magazine titles and nonrecurring work for both
existing and new customers resulted in increased volume of
$5,415,000, or 11.4%, despite continued pricing pressures and
nominal growth in page count.
Gross profit increased $17,289,000 in fiscal 1995 to $89,840,000,
39.8% of sales compared to 38.0% the prior year. The gross
profit margin improved at the pre-press subsidiary primarily due
to the combination of significantly higher production levels,
which resulted in more operating leverage, and production
efficiencies. The publishing subsidiary benefited from improved
operating leverage and a reduction in inventory obsolescence
charges. These savings were partially offset by a modest
increase in paper-related material costs. At the printing
subsidiary, the impact of lower repair and maintenance costs was
partially offset by increased material costs.
Selling, general, and administrative expenses decreased to 25.4%
of sales versus 26.2% for the prior year. The improvement
reflects lower selling expenses as a percentage of sales at each
subsidiary and is primarily due to the publishing and pre-press
subsidiaries where much of their increased volume was non-
commissionable. General and administrative expenses were also
reduced as a percentage of sales primarily due to the absence of
costs incurred related to the start up of Meridian Retail, Inc.
in December 1993 and costs incurred in renegotiating the
Company's revolving credit facility.
Interest expense was $676,000 in fiscal 1995 compared to $869,000
in fiscal 1994, while interest income increased to $163,000 from
$18,000. The decrease in interest expense is primarily due to
reduced levels of debt, partially offset by an increase in the
cost of borrowed funds. The increase in interest income reflects
earnings from short-term investments. The Company repaid all
borrowings under its bank line of credit during fiscal 1995.
The effective income tax rate was 41.0% in fiscal year 1995
compared to 40.9% for the prior year. The fiscal 1994 effective
rate reflects the Company's adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"
during the first quarter of fiscal 1994. (See note 5 to
consolidated financial statements.)
As a result of a significant increase in operating income and
lower net interest expense, income from continuing operations
increased $6,091,000 to $19,301,000. The current fiscal year and
fourth quarter also include net income of $2,206,000 from
discontinued operations due to the favorable resolution of
<PAGE>
certain liabilities that were recorded in fiscal 1991 related to
the discontinuance of financial printing operations.
Fiscal 1994 Compared to Fiscal 1993:
Sales increased $18,842,000, or 11.0%, compared to fiscal 1993
reflecting increases at the pre-press and publishing
subsidiaries, partially offset by a small decrease in the
printing business. Revenues at the pre-press business increased
$11,015,000, or 14.4%, due primarily to increased work for
textbook publishers and retail advertising customers. The
addition of Meridian Retail, Inc., a new division which commenced
operations in late December 1993, contributed to increased
creative, design, and photographic services provided to retail
advertising customers. Each of the publishing subsidiary's
businesses grew versus fiscal 1993. Portal's strong sales of
wall decor prints and cards, coupled with an increase in The Winn
Devon Art Group's line of upscale posters and higher sales of
framed product at Regency House, produced an $8,686,000, or
18.5%, increase in revenues. Printing sales decreased $859,000,
or 1.8%, reflecting the continued effect of page count reductions
and pricing pressures, partially offset by growth in commercial
printing revenues at Carlith Printing, Inc.
Gross profit increased $8,369,000 in fiscal 1994 to $72,551,000,
38.0% of sales compared to 37.3% for the prior year. The gross
profit margin increased at the pre-press and publishing
subsidiaries primarily due to the dynamics of certain costs which
remained fixed despite increased volume. The aforementioned
pricing pressures and an increase in repair and maintenance costs
resulted in a decline in the gross profit margin at the printing
subsidiary.
Selling, general, and administrative expenses decreased to 26.2%
of sales compared to 26.5% for the prior year. This improvement,
also, is primarily due to costs which remained fixed or did not
increase at a rate comparable to the increase in revenues.
Partially offsetting this improvement were increases in royalty,
commission, and compensation-related expenses at the publishing
subsidiary as well as higher advertising expenditures and the
costs associated with the start up of Meridian Retail, Inc. in
December 1993 at the pre-press business.
Interest expense was $869,000 in fiscal 1994 compared to
$1,749,000 in fiscal 1993 primarily due to the reduced levels of
debt.
The effective income tax rate was 40.9% in fiscal 1994 compared
to 41.0% in fiscal 1993. The change in fiscal 1994 results from
the Company's adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," during the
first quarter of fiscal 1994. (See note 5 to consolidated
financial statements.)
As a result of an increase in income from operations and lower
interest expense, net income increased $2,948,000, or 28.7%, to
$13,210,000.
<PAGE>
Liquidity and Capital Resources:
At March 31, 1995 the Company's debt to equity ratio was .03 to 1
compared to .21 to 1 at March 31, 1994 and .36 to 1 at March 31,
1993. The decreases in fiscal 1995 and 1994 were primarily due
to reductions in debt of $11,521,000 and $4,921,000,
respectively, coupled with an increase in profitability over each
of the prior year periods.
The Company generated cash from continuing operations of
$34,440,000 in fiscal 1995, $19,318,000 in fiscal 1994, and
$21,864,000 in fiscal 1993. In fiscal 1995 these funds were used
primarily to reduce debt and fund capital expenditures. The
excess was used for short-term, low-risk investments. In fiscal
1994 and 1993 funds were used primarily to reduce debt and for
capital expenditures.
Capital expenditures of approximately $10,600,000 are planned for
fiscal 1996 generally for new equipment to expand/enhance
operations and maintain the Company's technological leadership.
In March 1995, the Company's Board of Directors authorized the
purchase of up to 700,000 shares of its outstanding common stock
in the open market from time to time. Management anticipates
that existing cash and cash equivalents and cash generated by
operations will provide sufficient funding for these purposes.
Operating cash flows can be supplemented, if required, through
utilization of the Company's $35,000,000 bank credit facility.
Excess cash will be invested in short-term, low-risk investments.
<PAGE>
<TABLE>
Consolidated Statements of Income Devon Group, Inc.
<CAPTION>
Years ended March 31, 1995 1994 1993
($ in thousands except per share data)
<S> <C> <C> <C>
Sales $225,682 $190,840 $171,998
Operating costs and expenses:
Cost of sales 135,842 118,289 107,816
Selling, general, and administrative 57,228 49,935 45,607
Income from operations 32,612 22,616 18,575
Interest income 163 18 21
Interest expense (676) (869) (1,749)
Other income, net 615 575 546
Income from continuing operations
before income taxes 32,714 22,340 17,393
Provision for income taxes 13,413 9,130 7,131
Income from continuing operations 19,301 13,210 10,262
Income from discontinued operations 2,206 - -
Net income $ 21,507 $ 13,210 $ 10,262
Income per common share:
Continuing operations $ 2.64 $ 1.83 $ 1.43
Discontinued operations .30 - -
Net income $ 2.94 $ 1.83 $ 1.43
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets Devon Group, Inc.
<CAPTION>
March 31, 1995 1994
($ in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,965 $ 1,606
Receivables, less allowance for doubtful
accounts of $1,852 in 1995 and $1,342 in 1994 32,272 37,465
Inventories, at lower of cost or market:
Raw materials 2,390 2,237
Work-in-process 13,774 10,857
Finished goods 2,685 3,040
Total inventories 18,849 16,134
Deferred income tax benefit 3,385 2,741
Prepaid expenses and other current assets 4,781 3,863
Total current assets 76,252 61,809
Property, plant, and equipment, net 52,430 55,727
Deferred charges and other assets 1,179 1,271
Excess of cost over fair value of net assets acquired 3,575 3,749
$133,436 $122,556
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 311 $ 25
Accounts payable 8,920 10,610
Accrued expenses 11,406 8,679
Accrued compensation 8,907 8,335
Income taxes 3,518 4,208
Total current liabilities 33,062 31,857
Long-term debt, excluding current installments 2,091 13,898
Deferred and other compensation 5,205 5,061
Deferred income taxes 4,925 6,153
Stockholders' equity:
Common stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,203,817 shares
in 1995 and 8,114,817 in 1994 82 81
Additional paid-in capital 32,471 31,413
Retained earnings 66,975 45,468
99,528 76,962
Less: 875,000 shares of common stock held
in treasury, at cost (11,375) (11,375)
Total stockholders' equity 88,153 65,587
$133,436 $122,556
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows Devon Group, Inc.
<CAPTION>
Years ended March 31, 1995 1994 1993
($ in thousands)
<S> <C> <C> <C>
Operating activities:
Income from continuing operations $ 19,301 $ 13,210 $ 10,262
Adjustments to reconcile income to net
cash provided by continuing operations:
Depreciation and amortization 10,984 9,997 9,451
Provision for doubtful accounts 1,084 695 797
Loss on disposal of facility 415 - -
Changes in assets and liabilities, net of the
effects from purchases and dispositions of
subsidiaries:
Receivables 4,027 (9,883) (4,838)
Inventories (3,136) (2,333) 156
Deferred charges and other assets (179) 1,808 (1,456)
Accounts payable (1,650) 3,154 (200)
Accrued expenses 2,750 1,511 966
Accrued compensation 572 1,433 2,844
Income taxes 2,000 (519) 4,554
Deferred income taxes (1,872) (258) (687)
Deferred and other compensation 144 503 15
Net cash provided by continuing operations 34,440 19,318 21,864
Net cash provided (used) by
discontinued operations (2) 10 (16)
Net cash provided by operating activities 34,438 19,328 21,848
Investing activities:
Capital expenditures (7,418) (16,300) (7,268)
Payments for purchases of subsidiaries,
net of cash acquired (516) - (123)
Net cash used in investing activities (7,934) (16,300) (7,391)
Financing activities:
Proceeds from long-term borrowings 12,129 22,000 14,000
Payments of long-term debt (23,850) (26,921) (28,718)
Proceeds from the exercise of stock 576 330 625
options and other
Net cash used in financing activities (11,145) (4,591) (14,093)
Net increase (decrease) in cash and 15,359 (1,563) 364
cash equivalents
Cash and cash equivalents, beginning of year 1,606 3,169 2,805
Cash and cash equivalents, end of year $ 16,965 $ 1,606 $ 3,169
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity Devon Group, Inc.
<CAPTION>
Additional
Common Paid-in Retained Treasury
Years ended March 31, 1995, Stock Capital Earnings Stock Total
1994, and 1993
($ in thousands)
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1992 $ 80 $ 30,043 $ 21,996 $ (11,375) $ 40,744
Exercise of stock options 1 795 - - 796
Net income - - 10,262 - 10,262
Balances at March 31, 1993 81 30,838 32,258 (11,375) 51,802
Exercise of stock options - 575 - - 575
Net income - - 13,210 - 13,210
Balances at March 31, 1994 81 31,413 45,468 (11,375) 65,587
Exercise of stock options
and other 1 1,058 - - 1,059
Net income - - 21,507 - 21,507
Balances at March 31, 1995 $ 82 $ 32,471 $ 66,975 $ (11,375) $ 88,153
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Years ended March 31, 1995, 1994, and 1993
1 Summary of Significant
Accounting Policies
(a) Basis of Presentation: The consolidated financial statements
reflect the operations of the Company and its subsidiaries, all of
which are wholly-owned except for Portal Aird Publications Pty. Ltd.
("Portal Aird") and The Aztech Chas P. Young Company ("ACPY").
Effective December 18, 1990, the Company announced its intention to
withdraw from the financial printing business and a reserve was
established to provide for the related costs of the discontinuance.
During the fourth quarter of fiscal 1995, due to the favorable
resolution of certain liabilities that were recorded in fiscal 1991
related to the discontinuance of the financial printing business, net
income of $2,206,000 was recorded. All significant intercompany
transactions are eliminated in consolidation. Prior years' financial
statements have been reclassified, where applicable, to conform to the
March 31, 1995 presentation.
(b) Property, Plant, and Equipment: The Company provides for
depreciation and amortization of property, plant, and equipment
principally by use of the straight-line method over estimated useful
lives or lease terms, as applicable. Significant improvements are
capitalized, while repairs and maintenance are expensed as incurred.
(c) Excess of Cost Over Fair Value of Net Assets Acquired: The excess
of cost over fair value of net assets of companies acquired is
amortized on a straight-line basis over periods of 15 or 25 years.
The Company periodically evaluates the recoverability of goodwill by
assessing whether the unamortized amount can be recovered over its
remaining life through undiscounted cash flows.
(d) Federal and State Income Taxes: The Company and its subsidiaries
file a consolidated Federal income tax return. Effective April 1,
1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." This statement
requires the asset and liability method of accounting for deferred
income taxes, which applies enacted statutory tax rates to the
differences between the carrying amounts of assets and liabilities on
the financial statements and their respective tax bases. The effect
of subsequent changes in enacted tax rates will be reflected in the
period of change.
Prior to April 1, 1993, items of income and expense which were
recognized in different time periods for financial reporting purposes
and for purposes of computing income taxes currently payable gave rise
to deferred income taxes which were reflected in the consolidated
financial statements.
(e) Inventories: Inventories are stated at the lower of cost or
market, using the first-in, first-out (FIFO) method.
(f) Cash and Cash Equivalents: For purposes of the consolidated
statements of cash flows, the Company considers all cash funds and
short-term investments with original maturities of three months or
less to be cash equivalents.
<PAGE>
2 Business
Devon Group, Inc. is a diversified graphic arts company that provides
the following services and products: advertising and editorial
production, conventional and digital photography, interactive
multimedia, computerized typesetting, composition, color separation,
printing, binding, and related services to corporate, retail,
advertising, and publishing customers, and publishing/distribution of
posters, art reproductions, original art, greeting cards, notecards,
calendars, and related products.
During the years ended March 31, 1995, 1994, and 1993, sales to the
Company's largest customer amounted to $46,206,000, $41,413,000, and
$38,169,000, respectively.
3 Stockholders' Equity
In fiscal 1995 and 1994, 89,000 and 54,500 stock options,
respectively, were exercised at prices between $5.00 and $16.75 per
share (see Note 11). In March 1995, the Company's Board of Directors
authorized the purchase of up to 700,000 shares of its outstanding
common stock in the open market from time to time. Through March 31,
1995, no shares were acquired by the Company.
4 Acquisitions and Dispositions
In fiscal 1995, the Company acquired Ahrens Interactive, Inc.
("Ahrens"), and a 50% interest in Portal Aird. Ahrens, which is
located in Chicago, Illinois, is a developer of interactive multimedia
products and services for the corporate, retail, advertising, and
publishing markets. Located in Adelaide, South Australia, Portal Aird
is a distributor of cards, stationery, and related products. This
investment is accounted for using the equity method. During the third
quarter of fiscal 1995 the Company sold the publishing subsidiary's
contract art and framing operation located in Decatur, Georgia. The
sale resulted in a charge of $415,000 which is included in "Other
income, net" on the accompanying consolidated statements of income.
In fiscal 1993, the Company acquired selected assets and assumed
liabilities of Publishers Services Incorporated, a business which
provides editorial design and production services to book publishers.
All of the aforementioned acquisitions were accounted for as
purchases. The cumulative excess of cost over the fair value of net
assets acquired (goodwill) was recorded on the consolidated balance
sheets. Goodwill amortization charged to operations for the years
ended March 31, 1995, 1994, and 1993 was $207,000, $209,000, and
$207,000, respectively.
<PAGE>
5 Income Taxes
As discussed in Note 1, the Company adopted SFAS No. 109, "Accounting
for Income Taxes," as of April 1, 1993. The cumulative effect of this
change had no significant impact on the Company's financial
statements.
The income tax provisions for the years ended March 31, 1995, 1994,
and 1993 follow:
($ in thousands) Current Deferred Total
1995 Federal $12,816 $(1,435) $11,381
State 2,469 (437) 2,032
Total $15,285 $(1,872) $13,413
1994 Federal $ 7,649 $ (167) $ 7,482
State 1,739 (91) 1,648
Total $ 9,388 $ (258) $ 9,130
1993 Federal $ 6,119 $ (494) $ 5,625
State 1,699 (193) 1,506
Total $ 7,818 $ (687) $ 7,131
The income tax provisions vary from the amounts which would have been
computed by applying the applicable U. S. statutory Federal income tax
rate to income before taxes. The primary reasons for the differences
between the expected and effective rates are as follows:
($ in thousands) 1995 1994 1993
Pretax Pretax Pretax
Amount Income % Amount Income % Amount Income %
Computed "expected"
tax expense $11,450 35.0 $7,819 35.0 $5,914 34.0
Increase in taxes
resulting from:
State income taxes, net
of Federal income tax
benefit 1,321 4.0 1,071 4.8 994 5.7
Other 642 2.0 240 1.1 223 1.3
$13,413 41.0 $9,130 40.9 $7,131 41.0
<PAGE>
The actual amounts of income taxes paid during the years ended March
31, 1995, 1994, and 1993 were $13,288,000, $9,792,000, and $6,046,000,
respectively.
The tax effects of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities at March 31, 1995 and
1994 are presented below:
($ in thousands) 1995 1994
Deferred tax assets:
Deferred compensation $ 2,873 $ 2,923
Inventory 1,502 1,493
Other 1,716 1,532
Total deferred tax assets 6,091 5,948
Deferred tax liabilities:
Accelerated depreciation (6,895) (8,681)
Other (736) (679)
Total deferred tax liabilities (7,631) (9,360)
Net deferred tax liability $(1,540) $(3,412)
The Company believes that no valuation allowance is necessary for
deferred tax assets. This determination is based on the Company's
estimate that it is more likely than not that future taxable income
will be sufficient to offset the expenses to which the deferred tax
assets relate.
The significant components of deferred income tax expense for the year
ended March 31, 1993 are as follows:
($ in thousands) 1993
Deferred compensation $ (307)
Accelerated depreciation (234)
Inventory (30)
Other, net (116)
$ (687)
6 Income Per Share
Income per common share is computed on the basis of weighted average
shares outstanding during the year adjusted for common stock
equivalents on the assumption that dilutive stock options were
exercised at the beginning of the year with applicable proceeds used
to purchase treasury stock at the average market price. The weighted
average number of common shares included in this calculation for the
years ended March 31, 1995, 1994, and 1993 were 7,303,231, 7,210,534,
and 7,192,079, respectively.
<PAGE>
7 Property, Plant, and Equipment
A summary of property, plant, and equipment at March 31, 1995 and
1994, at cost, follows:
($ in thousands) 1995 1994
Land $ 1,939 $ 1,870
Buildings and improvements 23,253 21,740
Leasehold improvements 3,421 3,250
Furniture, fixtures, and equipment 93,403 90,379
122,016 117,239
Less accumulated depreciation and amortization 69,586 61,512
Net property, plant, and equipment $ 52,430 $ 55,727
8 Long-term Debt
The following is a summary of long-term debt at March 31, 1995 and
1994:
($ in thousands) 1995 1994
Revolving credit facility (a) $ - $ 11,700
6.5% IDA bond (b) 900 900
Miscellaneous notes payable (c) 1,502 1,323
2,402 13,923
Less current installments 311 25
$ 2,091 $ 13,898
Annual maturities of long-term debt for the next five fiscal years are
as follows: 1996, $311,000; 1997, $101,000; 1998, $92,000; 1999,
$92,000; and 2000, $92,000. Interest paid for the years ended March
31, 1995, 1994, and 1993 was $649,000, $968,000, and $2,186,000,
respectively.
(a) Effective July 20, 1993 the Company entered into a $35,000,000
credit agreement. The revolving credit facility extends for four
years, is unsecured, and provides interest rate options no less
favorable than prime and generally based upon a competitively bid
"auction" rate. The Company pays fees equal to .125% on the total and
.125% on the unused portion of the revolving credit facility. At
March 31, 1995 the Company had no outstanding balance under the
agreement.
(b) The 6.5% IDA bond is payable in full on August 1, 2004 and is
secured by real estate.
(c) The Company has various acquisition-related notes payable at
interest rates ranging from 7.5% to 10.0%. Certain of these notes are
payable to current employees of the Company who were owners of
acquired businesses.
<PAGE>
9 Lease Commitments
At March 31, 1995, minimum rental payments due under operating leases
were as follows: 1996, $2,338,000; 1997, $1,916,000; 1998,
$1,221,000; 1999, $302,000. No payments are due after 1999.
Total rental expense for the years ended March 31, 1995, 1994, and
1993 was $3,027,000, $2,498,000, and $2,450,000, respectively.
Most of the Company's leases are for facilities and provide that the
Company pay taxes, maintenance, insurance, and certain other operating
expenses applicable to the leased properties. Management expects
that, in the normal course of business, leases which expire will be
renewed or replaced by other leases.
10 Profit Sharing, Pension, and Bonus Plans
The Company has three profit sharing plans covering substantially all
employees who meet eligibility requirements. Amounts contributed to
these plans are at the discretion of the appropriate subsidiary's
Board of Directors. Amounts charged to operations during the years
ended March 31, 1995, 1994, and 1993 totaled $1,999,000, $1,525,000,
and $1,723,000, respectively.
The Company and its subsidiaries maintain various pension plans
covering substantially all employees who meet the plans' eligibility
requirements. Benefits accrue and are vested based on compensation
levels and years of service. The amounts charged to operations for
all such plans combined for the years ended March 31, 1995, 1994, and
1993 were $484,000, $447,000, and $491,000, respectively. One of
these plans is funded. The projected benefit obligations of this plan
exceed the fair value of assets by $73,000, and the net periodic
pension cost for fiscal 1995 was $156,000.
The Company has various bonus plans covering key corporate and
subsidiary personnel. The amounts charged to operations under all
bonus plans for the years ended March 31, 1995, 1994, and 1993 were
$4,206,000, $3,487,000, and $3,118,000, respectively.
<PAGE>
11 Stock Option Plans
The Company has two stock option plans which provide for the grant of
nonqualified stock options to employees and certain directors. As of
March 31, 1995, 532,000 options were outstanding with exercise prices
ranging from $5.00 to $16.75 per share with 71,000 exercisable. A
total of 215,000 options are available for future grants. Pursuant to
the terms of the option agreements, options are exercisable in
increments over five- or ten-year periods. A total of 747,000 shares
are reserved for issuance under the option plans.
The tables below summarize stock option activity and options
outstanding for the years ended March 31, 1995, 1994, and 1993:
Option Activity 1995 1994 1993
Options outstanding, beginning of year 621,000 395,500 515,000
Options granted - 280,000 -
Options exercised (89,000) (54,500) (59,500)
Options expired - - (60,000)
Options outstanding, end of year 532,000 621,000 395,500
Recap of Options Outstanding at March 31, 1995 1994 1993
$ 5.00 Exercise price 182,000 250,000 296,500
$10.63 Exercise price 12,000 16,000 16,000
$12.25 Exercise price 60,000 75,000 83,000
$16.75 Exercise price 278,000 280,000 -
532,000 621,000 395,500
12 Contingent Liabilities
The Company, in the ordinary course of business, is contingently
liable on pending lawsuits and claims. Based upon advice from legal
counsel, management believes such pending items will not have a
material effect on the Company's consolidated financial position or
results of operations.
<PAGE>
13 Quarterly Financial Information (unaudited)
The quarterly results for the years ended March 31, 1995 and 1994 are
summarized below:
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
($ in thousands except per share data)
1995
Sales $49,222 $58,584 $61,505 $56,371 $225,682
Gross profit 19,376 24,930 24,599 20,935 89,840
Income from continuing operations 3,722 5,920 5,741 3,918 19,301
Income from discontinued operations - - - 2,206 2,206
Net income $ 3,722 $ 5,920 $ 5,741 $ 6,124 $ 21,507
Income per common share: (1)
Continuing operations $ .51 $ .81 $ .78 $ .54 $ 2.64
Discontinued operations - - - .30 .30
Net income $ .51 $ .81 $ .78 $ .84 $ 2.94
1994
Sales $43,652 $47,552 $49,343 $50,293 $190,840
Gross profit 16,113 19,338 19,105 17,995 72,551
Net income 2,355 3,949 3,499 3,407 13,210
Income per common share (1) .33 .55 .48 .47 1.83
(1) Per share amounts for each quarter are computed independently; and, due
to the computation formula, the sum of the four quarters may not equal
the year.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Devon Group, Inc.:
We have audited the accompanying consolidated balance sheets of Devon
Group, Inc. and subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Devon
Group, Inc. and subsidiaries as of March 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended March 31, 1995 in conformity with generally accepted
accounting principles.
S/KPMG Peat Marwick LLP
Stamford, Connecticut
May 4, 1995
<PAGE>
Management's Report
The preparation, integrity, and objectivity of Devon Group, Inc.'s
consolidated financial statements and the maintenance of a sound system of
internal controls are the responsibilities of the management of the
Company. The consolidated financial statements, which necessarily include
amounts based on the judgment of management, were prepared in conformity
with generally accepted accounting principles appropriate in the
circumstances.
The Company's management believes that the system of internal controls is
effective and appropriately designed to reasonably assure that the books
and records properly reflect the transactions of the Company in accordance
with management's authorizations, and that assets are protected against
improper use. The system is augmented by written policies, programs of
external and internal audits, and qualified management under an
organizational structure that provides for delegation of authority and
segregation of responsibility. Recommendations resulting from both
internal and external audits are given due consideration in constantly
monitoring and improving internal controls.
The Board of Directors, through the Audit Committee, consisting entirely of
outside directors, meets periodically with management and the independent
auditors to determine that each is properly discharging its
responsibilities. To ensure independence, the auditors and management
charged with internal audit responsibility have free access to the Audit
Committee.
S/Marne Obernauer, Jr. S/ Bruce K. Koch
Marne Obernauer, Jr. Bruce K. Koch
Chairman and Chief Executive Officer Executive Vice President,
Operations and Finance and
Chief Financial Officer
<PAGE>
Market Price of Common Stock
The Company's stock is traded on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) under the symbol "DEVN." The
following table sets forth the high and low sales prices of the Company's
common stock for the periods indicated:
Years ended March 31, 1995 1994
Fiscal Quarter
First Quarter 20 1/2 - 18 19 - 13 1/2
Second Quarter 24 1/2 - 18 3/4 17 3/4 - 14
Third Quarter 29 3/4 - 23 1/2 19 3/4 - 15 1/2
Fourth Quarter 30 1/2 - 22 21 5/8 - 16 1/2
The approximate number of record holders of common stock at March 31, 1995
was 132. Based on previous communications with banks and securities
dealers who hold the Company's stock in "street" name for individuals, the
Company estimates that the number of holders of its common stock exceeds
500.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Devon Group, Inc.
Under date of May 4, 1995, we reported on the consolidated balance
sheets of Devon Group, Inc. and subsidiaries as of March 31, 1995 and
1994, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period
ended March 31, 1995, as contained in the 1995 annual report to
shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-
K for the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying
index under Item 14(A)2 on page 11 of this document. This financial
statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
S/KPMG Peat Marwick LLP
Stamford, Connecticut
May 4, 1995
F-1
<PAGE>
<TABLE>
DEVON GROUP, INC. AND SUBSIDIARIES
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1995
($ in thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at
DESCRIPTION Beginning of Charged to Costs Charged to Other Deductions Balance at End
Period and Expenses Accounts of Period
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1993
Allowance for doubtful accounts $ 877 $ 797 $ 53 (2) $ 530 (1) $1,197
Reserve for obsolete inventory $ 814 $ 965 $ - $ 712 $1,067
Year ended March 31, 1994
Allowance for doubtful accounts $1,197 $ 695 $ - $ 550 (1) $1,342
Reserve for obsolete inventory $1,067 $ 556 $ - $ 315 $1,308
Year ended March 31, 1995
Allowance for doubtful accounts $1,342 $1,084 $ - $ 574 (1) $1,852
Reserve for obsolete inventory $1,308 $1,391 $ - $ 879 $1,820
(1) Uncollectible accounts written off, net of recoveries.
(2) Balance of acquired subsidiary at date of acquisition.
</TABLE>
F-2
<PAGE>
Exhibit 22
Subsidiaries of the Registrant
The following subsidiaries of the Company and subsidiaries of such
subsidiaries of the Company are included in the consolidated
financial statements of the Company, excluding those of the
discontinued operations.
Percentage Voting
Securities Owned
Organized Under by its Immediate
the Laws of Parent
Black Dot Graphics, Inc. Illinois 100.0
Orent GraphicArts, Inc. Nebraska 100.0
Typo-Graphics, Inc. Florida 100.0
Ambrosi & Associates, Inc. Delaware 100.0
ABD Group, Inc. Illinois 100.0
Meridian Retail, Inc. Nebraska 100.0
Publishers Services Incorporated Delaware 100.0
Ahrens Interactive, Inc. Delaware 100.0
Graftek Press, Inc. Delaware 100.0
Elkhorn Webpress, Inc. Wisconsin 100.0
Carlith Printing, Inc. Delaware 100.0
Portal Publications, Ltd. Delaware 100.0
The Winn Art Group, Ltd. Washington 100.0
Portal Publications, Ltd. (U.K.) United Kingdom 100.0
Aird Imports Pty. Ltd. Australia 50.0
F-3
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors and Shareholders
Devon Group, Inc.
We consent to incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-47939, 33-50060, and 33-75060) of
Devon Group, Inc. of our reports dated May 4, 1995, relating to the
consolidated balance sheets of Devon Group, Inc. and subsidiaries as
of March 31, 1995 and 1994 and the related consolidated statements of
income, stockholders' equity, and cash flows and related schedule for
each of the years in the three-year period ended March 31, 1995, which
reports are included or incorporated by reference in the March 31,
1995 annual report on Form 10-K of Devon Group, Inc.
S/KPMG Peat Marwick LLP
Stamford, Connecticut
June 27, 1995
F-4
<PAGE>
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