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, 1996
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
7,383,317 outstanding as of June 7, 1996
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 7, 1996, the market value of the registrant's common stock
held by nonaffiliates of the registrant was approximately $164,573,000.
Portions of the following documents are incorporated by reference in
the form 10-K as indicated:
Part of 10-K
Document into which incorporated
1996 Annual Report to Shareholders of Devon Group, Inc. Parts I, II, and IV
Proxy Statement relative to the 1996 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 Group subsidiary is one of the nation's
leading suppliers of pre-press and other publishing services. These
services include creative design, photography, copywriting, editing,
color separations, page composition, image management, video
production, interactive multimedia, and facility management. Black
Dot Group provides high-quality services through off-the-shelf and
internally developed applications software and the integration of
traditionally separate pre-press services. The acquisition of Proof
Positive/Farrowlyne Associates, Inc., a provider of editorial and
creative services to the publishing industry, primarily in the
educational sector, places Black Dot Group in the creative end of
educational materials and textbook publishing. The acquisition of
Nobart, Inc., a full-service design, art, photography, and production
studio, adds increased capacity to serve a broader retail and catalog
customer base. Sales attributable to Black Dot Group were
$126,190,000, $108,630,000, and $87,707,000 in fiscal 1996, 1995, and
1994, respectively. The Company's Graftek Press, Inc. subsidiary
provides high-quality color printing, binding, and distribution to
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 $54,531,000,
$53,037,000, and $47,622,000, in fiscal 1996, 1995, and 1994,
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 $68,252,000, $64,015,000, and $55,511,000
in fiscal 1996, 1995, and 1994, respectively. Sales to Sears and
Kmart, the Company's two largest customers, together accounted for
33.4%, 29.3%, and 23.6% of total sales in fiscal 1996, 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 film or electronic 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 electronic media. The Company
believes that Black Dot Group,
<PAGE>
Item 1 Business, Continued
through the enhancement of off-the-shelf software or its own internally
developed applications software, has a distinct competitive advantage
in its ability to compose type and create fonts and graphics to meet
customer demands. Black Dot Group also has the expertise to adapt the
configuration of its computer hardware and software to meet the
requirements of its customers. The Company believes that Black Dot
Group is a leader in the industry in the ability to transform data
generated by customers into data which can then be readily used in
Black Dot Group's type and graphics composition systems. Black Dot
Group's internally developed applications software is fully
transportable to any computer that possesses a "C" compiler. The
Company believes that Black Dot Group 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 or
electronic 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 Group uses various electronic laser color scanners, including Hell,
to digitize the primary colors into the correct format for page-
assembly on PC- or Mac-based systems. 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 Group, Ambrosi & Associates, Inc., ABD
Group, Inc., Meridian Retail, Inc., and Nobart, Inc. (a new subsidiary
of Black Dot Group acquired in March 1996) 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, catalogs,
collateral material, and in-store signage.
Proof Positive/Farrowlyne Associates, Inc. (a new subsidiary of Black
Dot Group acquired in August 1995) specializes in the design and
editorial development of pupils' textbooks, teachers' manuals,
workbooks, videos, and other ancillary educational materials primarily
for the school market.
Ahrens Interactive, Inc. is a developer of interactive multimedia
products and services along with internet development for the
corporate, retail, advertising, and publishing markets.
Black Dot Group markets its services primarily to commercial
customers and publishers through its direct salesforce which at March
31, 1996 consisted of 160 persons, 43 in field sales and 117 in support
functions, including customer service.
Services to retail advertising customers of Black Dot Group,
including Sears and Kmart, represent a significant component of Black
Dot Group's total revenues. The loss of any of Black Dot Group'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 Group'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 Group and by their choice
of Black Dot Group as the provider of substantially all of their
newspaper advertising (ROPs and inserts) production needs. In
addition, five-year contract extensions were recently negotiated with
the Company's two major retail clients, Sears and Kmart.
<PAGE>
Item 1 Business, Continued
Printing Services
The Company's Graftek subsidiary provides magazine manufacturing
services primarily in connection with the printing, binding, and
fulfillment 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, 1996 Graftek's magazine list
included 117 titles, 83% of which were under contract with
42 publishers. Graftek specializes in magazine printing runs ranging
from 50,000 to 250,000 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 In-line/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,
1996, consisted of 39 persons, 10 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 products. Formed during fiscal 1989, Devon
Publishing Group is composed of four divisions: Portal Publications, Ltd.,
acquired in April 1970; The Winn Devon Art
<PAGE>
Item 1 Business, Continued
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 higher quality product line
which consists of an upscale poster line, limited edition prints, and
original art and monoprints. Winn Devon's upscale poster line is directed
at the market segment between that of Portal and Winn Devon's higher quality
products while its other offerings are sold primarily to galleries,
designers, and institutional customers requiring higher quality art.
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 2,950 art prints and posters, 1,150 limited
edition prints, uniques, and monoprints, 700 notecards, 100 calendars,
and 900 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, which are consolidated at the warehouse facility and
shipped directly to them. 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.
Portal's products are sold to customers such as gift shops,
bookstores, import stores, department stores, multistore chains, 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, interior
designers, and directly to certain institutional customers (e.g. hotel
chains) by both company and independent multiline representatives. In
fiscal 1996 approximately 56% of Devon Publishing Group's sales were
made by company-employed sales personnel with independent, multiline
representatives and house accounts providing 27% and 17%,
respectively. At March 31, 1996 Devon Publishing Group had a
salesforce of 97 employee representatives and 56 independent,
multiline representatives as well as 26 company employees in sales
support functions, including customer service.
<PAGE>
Item 1 Business, Continued
Devon Publishing Group had export sales of $6,904,000, $5,760,000,
and $4,470,000 in fiscal 1996, 1995, and 1994, respectively. Such
sales accounted for approximately $601,000, $457,000, and $371,000 of
pretax operating profits in fiscal 1996, 1995, and 1994, 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 1996 were approximately $368,000, approximately 40% of which
were from the United Kingdom.
Backlog
At March 31, 1996 and 1995, Devon Group, Inc. in its entirety had a
backlog of unfinished work aggregating approximately $17,300,000 and
$14,900,000, respectively, almost all of which was attributable to
Black Dot Group'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, 1996 the Company employed approximately 2,050 persons,
124 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 17 years and believes its employee relations are satisfactory.
Acquisitions
In fiscal 1996 the Company acquired Proof Positive/Farrowlyne
Associates, Inc., and Nobart, Inc. In fiscal 1995 the Company
acquired Ahrens Interactive, Inc. and a 50% interest in Portal Aird
Publications Pty. Ltd. 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.
<PAGE>
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 Group Computer typesetting,
composition, color
separation, office, and
storage facilities
Chicago, Illinois Black Dot Group Photography facility
Freeport, Illinois Black Dot Group Color separation and office
facilities
Omaha, Nebraska Black Dot Group Color separation and office
facilities
Chicago, Illinois Black Dot Group Computer typesetting,
composition, and office
facilities
Orlando, Florida Black Dot Group Computer typesetting,
composition, and office
facilities
Lincoln, Nebraska Black Dot Group Color separation and office
facilities
Woodstock, Illinois Graftek Press Warehousing, fulfillment,
and office facilities
Crystal Lake, Illinois Graftek Press Magazine printing and office
facilities
Elkhorn, Wisconsin Graftek Press Magazine printing,
fulfillment, and
office facilities
Carpentersville, Illinois Graftek Press Printing, fulfillment,
and office facilities
Leased Facilities
Location Operating Unit Principal Use
Stamford, Connecticut Corporate Administrative
offices and corporate
headquarters
New York, New York Corporate Administrative
offices
Chicago, Illinois Black Dot Group Creative design,
copywriting, and
photography facilities
<PAGE>
Chicago, Illinois Black Dot Group Interactive multimedia
development and office
facilities
Troy, Michigan Black Dot Group Creative design,
copywriting, and
photography facilities
New York, New York Black Dot Group Creative design,
copywriting, and
photography facilities
Miami, Florida Black Dot Group Creative design,
copywriting, and
photography facilities
Evanston, Illinois Black Dot Group Editorial and creative
facilities
Hayward, California Devon Publishing Group Warehousing, office, and
distribution facilities
Seattle, Washington Devon Publishing Group Warehousing, office, and
distribution facilities
Corte Madera, Calif. Devon Publishing Group Administrative and art
publication facilities
Heath, Ohio Devon Publishing Group Sales office
Miami, Florida Devon Publishing Group Sales office
Cheltenham, England Devon Publishing Group Warehousing, office, and
distribution facilities
Tucker, Georgia Devon Publishing Group Framing facility
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, 1996 and 1995 was as follows:
1996 1995
Common Stock, $.01 par value 127 132
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.
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 through 33 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 8,
1996, appearing on pages 34 through 44 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 52 1975
John W. Dinzole President and Chief Operating
Officer 68 1969
Marne Obernauer Chairman of the Executive
Committee of the Board
of Directors 77 1971
Bruce K. Koch Executive Vice President,
Operations and Finance and
Chief Financial Officer 49 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 8, 1996,
appearing on pages 34 through 44 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 21 - 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, 1996
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, 1996
s/John W. Dinzole
John W. Dinzole
President and Chief Operating Officer, Director
Date: June 27, 1996
s/Bruce K. Koch
Bruce K. Koch
Executive Vice President, Operations and Finance
and Chief Financial Officer
(Principal Financial Officer)
Date: June 27, 1996
s/Robert H. Donovan
Robert H. Donovan
Senior Vice President, Finance and Treasurer
(Principal Accounting Officer)
Date: June 27, 1996
<PAGE>
s/Robert S. Blank
Robert S. Blank
Director
Date: June 27, 1996
s/William G. Gisel
William G. Gisel
Director
Date: June 27, 1996
s/Thomas J. Harrington
Thomas J. Harrington
Director
Date: June 27, 1996
s/Marne Obernauer
Marne Obernauer
Chairman of the Executive Committee, Director
Date: June 27, 1996
s/Edward L. Palmer
Edward L. Palmer
Director
Date: June 27, 1996
<PAGE>
<TABLE>
Selected Financial Data for Five Years Devon Group, Inc.
<CAPTION>
Years ended March 31, 1996 1995 1994 1993 1992
($ in thousands except
per share data)
Operations
<S> <C> <C> <C> <C> <C>
Sales $248,973 $225,682 $190,840 $171,998 $143,035
Income from continuing operations $ 24,031 $ 19,301 $ 13,210 $ 10,262 $ 4,947
Income from discontinued
operations - 2,206 - - -
Net income $ 24,031 $ 21,507 $ 13,210 $ 10,262 $ 4,947
Per Share Data
Income per common share:
Continuing operations $ 3.27 $ 2.64 $ 1.83 $ 1.43 $ .69
Discontinued operations - .30 - - -
Net income $ 3.27 $ 2.94 $ 1.83 $ 1.43 $ .69
</TABLE>
<TABLE>
Financial Position
<CAPTION>
<S> <C> <C> <C> <C> <C>
Working capital $ 66,575 $ 43,190 $ 29,952 $ 8,128 $ 26,091
Total assets 156,426 133,436 122,556 107,528 103,958
Long-term debt 2,113 2,402 13,923 2,344 33,562
Stockholders' equity 112,958 88,153 65,587 51,802 40,744
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Sales:
Fiscal 1996 sales increased by $23,291,000, or 10.3%, compared to
fiscal 1995, and fiscal 1995 sales increased by $34,842,000, or
18.3%, compared to fiscal 1994, with each of the Company's
subsidiaries contributing to these increases.
Pre-press
Overall revenues for Black Dot Group increased $17,560,000, or
16.2%, in fiscal 1996 due primarily to increased creative,
design, photographic, and composition services provided to retail
customers. Increased sales resulting from acquisitions made by
Black Dot Group late in fiscal 1995 and during fiscal 1996 were
partially offset by a decrease in textbook-related revenues.
Black Dot Group recently signed five-year contract extensions
with its two major customers, Sears and Kmart. Such extensions
include certain price concessions which will be phased in over
the next two years. The Company hopes to at least partially
mitigate the impact of these reductions on future earnings
through improved operating efficiencies. In fiscal 1995,
revenues increased $20,923,000, or 23.9%. Most of this increase
was also related to higher levels of creative, design,
photographic, and composition services provided to retail
advertising customers which, in fiscal 1995, included a full
year's results for Meridian Retail, Inc. as well as increased
volume with existing customers. Results for fiscal 1995 at the
pre-press business had also been favorably affected by increased
typography and color separation revenues primarily relating to
the magazine and catalog sectors.
Publishing
Devon Publishing Group's sales increased $4,237,000, or 6.6%, in
fiscal 1996 versus the prior year, reflecting an increase at
Portal Publications, a decline at The Winn Devon Art Group, and
the absence of revenues from Regency House which was sold during
the third quarter of fiscal 1995. At Portal, sales of cards were
especially strong aided by the introduction of Easter and
Mother's Day lines and the continued success of the boxed and
blank lines which have benefited from the Anne Geddes imagery.
Matted product sales also increased while sales of Portal's core
poster product line approximated the prior year. In fiscal 1995,
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%.
Printing
Graftek's sales increased $1,494,000, or 2.8%, in fiscal 1996
primarily due to increased paper sales and despite continued
pricing pressures and nominal growth in page count. During fiscal
1995, 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%.
Gross Profit:
Gross profit increased by $10,136,000 for the fiscal year ended
March 31, 1996 to $99,976,000, or 40.2%, as a percentage of sales
compared to 39.8% for the prior year. Gross profit margins at
both the pre-press and printing subsidiaries were virtually
unchanged, while margins at the Company's publishing subsidiary
<PAGE>
improved, reflecting a reduction in inventory obsolescence
charges, material costs, and improved operating leverage as a
result of increased volume. Gross profit increased $17,289,000 in
fiscal 1995 to $89,840,000, 39.8% of sales compared to 38.0% in
fiscal 1994. The gross profit margin improved at the pre-press
subsidiary as significantly higher production levels 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:
Selling, general, and administrative (SG&A) expenses as a
percentage of sales were 24.9% for the fiscal year ended March
31, 1996 versus 25.4% for the prior year. This improvement is
primarily due to an increase in noncommissionable sales at each
of the Company's subsidiaries, partially offset by expenses
related to DigiZINE, a retail magazine on CD-ROM released during
the third quarter of fiscal 1996, and an increase in incentive
compensation expense at the pre-press subsidiary. SG&A expenses
decreased in fiscal 1995 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 the
increased volume was noncommissionable. 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 Income (Expense):
Net interest income was $752,000 in fiscal 1996 compared to net
interest expense of $513,000 and $851,000 in fiscal 1995 and
1994, respectively. During fiscal 1996 interest income increased
to $964,000 from $163,000 reflecting higher levels of short-term
investments. Interest expense was $212,000 in fiscal 1996
compared to $676,000 in fiscal 1995 reflecting the repayment of
all borrowings under the Company's bank line of credit during the
fourth quarter of fiscal 1995. 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.
Other Income, net:
Other income, net for fiscal 1995 included a charge of $415,000
related to the sale of the publishing subsidiary's contract art
and framing operations. Excluding this charge, other income, net
increased during the fiscal year ended March 31, 1996 due to the
advantageous sale of scrap paper at the printing subsidiary
during a period when paper prices were dramatically affected by
shortages.
Income Taxes:
The effective income tax rate was 40.0% in fiscal 1996, 41.0% in
fiscal 1995, and 40.9% in fiscal 1994.
<PAGE>
Net Income:
As a result of increased operating, interest, and other income,
and reduced interest expense versus the prior year, income from
continuing operations increased $4,730,000, or 24.5%, to
$24,031,000 in fiscal 1996. During fiscal 1995, 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 fourth quarter of fiscal 1995 also includes
net income of $2,206,000 from discontinued operations due to the
favorable resolution of certain liabilities that were recorded in
fiscal 1991 related to the discontinuance of financial printing
operations.
Liquidity and Capital Resources
At March 31, 1996 the Company's debt to equity ratio was .02 to 1
compared to .03 to 1 at March 31, 1995 and .21 to 1 at March 31,
1994. The decrease in fiscal 1995 was primarily due to a
reduction in long-term debt of $11,521,000 reflecting the
repayment of all borrowings under the Company's bank line of
credit during the fourth quarter of fiscal 1995.
The Company generated cash from operations of $25,549,000,
$34,438,000, and $19,328,000 in fiscal 1996, 1995, and 1994,
respectively. Despite increased net income in fiscal 1996, cash
generated declined versus the prior year reflecting an increase
in working capital requirements. Such increased working capital
requirements were primarily due to higher levels of accounts
receivable in the pre-press and publishing subsidiaries
attributable to both increased sales volume and the timing of
payments. In fiscal 1996, cash provided by continuing operations
was primarily used to fund capital expenditures, acquire Proof
Positive/Farrowlyne Associates, Inc. and Nobart, Inc., and
purchase 50,000 shares of treasury stock, with the balance
invested in short-term, low-risk investments. In fiscal 1995,
these funds were used primarily to reduce debt and fund capital
expenditures, with the balance used for short-term, low-risk
investments.
Capital expenditures of approximately $13,000,000 are planned for
fiscal 1997 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. Under this authorization, 50,000 shares were
purchased during the first quarter of fiscal 1996. Management
anticipates that existing cash and cash equivalents and cash
generated by operations will provide sufficient funding for its
purposes. Operating cash flows can be supplemented, if required,
through utilization of the Company's $35,000,000 bank credit
facility. Excess cash will be invested in short-term, low-risk
investments.
<PAGE>
<TABLE>
Consolidated Statements of Income Devon Group, Inc.
<CAPTION>
Years ended March 31, 1996 1995 1994
($ in thousands except per share data)
<S> <C> <C> <C>
Sales $248,973 $225,682 $190,840
Operating costs and expenses:
Cost of sales 148,997 135,842 118,289
Selling, general, and administrative 62,011 57,228 49,935
Income from operations 37,965 32,612 22,616
Interest income (expense), net 752 (513) (851)
Other income, net 1,335 615 575
Income from continuing operations
before income taxes 40,052 32,714 22,340
Provision for income taxes 16,021 13,413 9,130
Income from continuing operations 24,031 19,301 13,210
Income from discontinued operations - 2,206 -
Net income $ 24,031 $ 21,507 $ 13,210
Income per common share:
Continuing operations $ 3.27 $ 2.64 $ 1.83
Discontinued operations - .30 -
Net income $ 3.27 $ 2.94 $ 1.83
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets Devon Group, Inc.
<CAPTION>
March 31, 1996 1995
($ in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 27,749 $ 16,965
Receivables, less allowance for doubtful
accounts of $2,477 in 1996 and $1,852 in 1995 39,629 32,272
Inventories, at lower of cost or market:
Raw materials 2,726 2,390
Work-in-process 15,115 13,774
Finished goods 2,486 2,685
Total inventories 20,327 18,849
Deferred income tax benefits 3,430 3,385
Prepaid expenses and other current assets 6,079 4,781
Total current assets 97,214 76,252
Property, plant, and equipment, net 51,522 52,430
Deferred charges and other assets 1,111 1,179
Excess of cost over fair value of net assets acquired 6,579 3,575
$156,426 $133,436
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 110 $ 311
Accounts payable 9,439 8,920
Accrued expenses 9,963 11,406
Accrued compensation 9,493 8,907
Income taxes 1,634 3,518
Total current liabilities 30,639 33,062
Long-term debt, excluding current installments 2,003 2,091
Deferred and other compensation 6,413 5,205
Deferred income taxes 4,413 4,925
Stockholders' equity:
Common stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,304,317 shares
in 1996 and 8,203,817 in 1995 83 82
Additional paid-in capital 34,538 32,471
Retained earnings 91,006 66,975
125,627 99,528
Less: 925,000 shares of common stock held
in treasury, at cost, at March 31, 1996
and 875,000 at March 31, 1995 (12,669) (11,375)
Total stockholders' equity 112,958 88,153
$156,426 $133,436
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows Devon Group, Inc.
<CAPTION>
Years ended March 31, 1996 1995 1994
($ in thousands)
<S> <C> <C> <C>
Operating activities:
Income from continuing operations $ 24,031 $ 19,301 $ 13,210
Adjustments to reconcile income to net
cash provided by operating activities:
Depreciation and amortization 11,192 10,984 9,997
Provision for doubtful accounts 890 1,084 695
Loss on disposal of facility - 415 -
Changes in assets and liabilities, net of the
effects from purchases and disposition of
subsidiaries:
Receivables (7,854) 4,027 (9,883)
Inventories (1,186) (3,136) (2,333)
Deferred charges and other assets (1,215) (179) 1,808
Accounts payable 519 (1,650) 3,154
Accrued expenses (1,443) 2,748 1,521
Accrued compensation 586 572 1,433
Income taxes (622) 2,000 (519)
Deferred income taxes (557) (1,872) (258)
Deferred and other compensation 1,208 144 503
Net cash provided by operating activities 25,549 34,438 19,328
Investing activities:
Capital expenditures (8,879) (7,418) (16,300)
Payments for purchases of subsidiaries,
net of cash acquired (5,109) (516) -
Net cash used in investing activities (13,988) (7,934) (16,300)
Financing activities:
Purchase of treasury stock (1,294) - -
Proceeds from long-term borrowings - 12,129 22,000
Payments of long-term debt (289) (23,850) (26,921)
Proceeds from the exercise of stock options 806 576 330
and other
Net cash used in financing activities (777) (11,145) (4,591)
Net increase (decrease) in cash and cash 10,784 15,359 (1,563)
equivalents
Cash and cash equivalents, beginning of year 16,965 1,606 3,169
Cash and cash equivalents, end of year $ 27,749 $ 16,965 $ 1,606
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, 1996, Stock Capital Earnings Stock Total
1995, and 1994
($ in thousands)
<S> <C> <C> <C> <C> <C>
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
Purchase of treasury stock - - - (1,294) (1,294)
Exercise of stock options
and other 1 2,067 - - 2,068
Net income - - 24,031 - 24,031
Balances at March 31, 1996 $ 83 $ 34,538 $ 91,006 $ (12,669) $ 112,958
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Years ended March 31, 1996, 1995, and 1994
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). All significant intercompany transactions are
eliminated in consolidation. Prior years' financial statements have
been reclassified, where applicable, to conform to the March 31, 1996
presentation.
(b) Use of Estimates: The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
(c) 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.
Depreciation is computed based on the following useful lives:
buildings (20 to 45 years), building improvements (5 to 15 years),
leasehold improvements (1 to 9 years), and furniture, fixtures, and
equipment (3 to 11 years).
(d) 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.
(e) Federal and State Income Taxes: The Company and its subsidiaries
file a consolidated Federal income tax return. The provision for
income taxes, as determined using the liability method, includes
deferred taxes resulting from temporary differences in income for
financial and tax purposes. Such temporary differences primarily
result from differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes. The cumulative effect on deferred taxes of changes in the
corporate income tax rate is recognized as an adjustment to income tax
expense.
(f) Inventories: Inventories are stated at the lower of cost or
market, using the first-in, first-out (FIFO) method.
(g) 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. At March 31, 1996 and 1995, the Company
had $23,735,000 and $16,332,000, respectively, invested in U.S.
government securities under agreements to resell on April 1, 1996 and
April 3, 1995, respectively. The market value of the underlying
securities approximated their carrying value. Due to the short-term
nature of the agreements, the Company did not take possession of the
securities which were instead held by financial institutions.
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, 1996, 1995, and 1994, sales to the
Company's two largest customers amounted to $83,035,000, $66,193,000,
and $45,091,000, respectively.
<PAGE>
3 Stockholders' Equity
In fiscal 1996 and 1995, 100,500 and 89,000 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. Under this
authorization, 50,000 shares were acquired by the Company during
fiscal 1996, and no shares were acquired during fiscal 1995.
4 Acquisitions and Dispositions
In fiscal 1996, the Company acquired two businesses, Proof
Positive/Farrowlyne Associates, Inc. (PP/FA), and Nobart, Inc.
(Nobart). Effective July 31, 1995, the Company acquired PP/FA for
$4,000,000 in cash and contingent consideration predicated on future
earnings. Located in Evanston, Illinois, PP/FA is a provider of
editorial and creative services to the publishing industry, primarily
in the educational sector. The excess of the purchase price over the
fair value of net assets acquired was $3,370,000. Nobart, acquired
effective March 1, 1996, is a full-service design, art, photography,
and production studio located in Chicago, Illinois. The purchase
price of $1,217,000 was equal to the net book value of assets
acquired.
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.
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, 1996, 1995, and 1994 was $366,000, $207,000, and
$209,000, respectively. As of March 31, 1996 and 1995, the balance of
accumulated amortization was $1,850,000 and $1,485,000, respectively.
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 $2,206,000 was recorded.
5 Income Taxes
The income tax provisions for the years ended March 31, 1996, 1995,
and 1994 follow:
($ in thousands) Current Deferred Total
1996 Federal $13,651 $ (435) $13,216
State 2,927 (122) 2,805
Total $16,578 $ (557) $16,021
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
<PAGE>
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) 1996 1995 1994
Pretax Pretax Pretax
Amount Income % Amount Income % Amount Income %
Computed "expected"
tax expense $14,018 35.0 $11,450 35.0 $ 7,819 35.0
Increase in taxes
resulting from:
State income taxes, net
of Federal income tax
benefit 1,823 4.6 1,321 4.0 1,071 4.8
Other 180 .4 642 2.0 240 1.1
$16,021 40.0 $13,413 41.0 $ 9,130 40.9
The actual amounts of income taxes paid during the years ended March
31, 1996, 1995, and 1994 were $17,167,000, $13,288,000, and
$9,792,000, respectively.
The tax effects of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities at March 31, 1996 and
1995 are presented below:
($ in thousands) 1996 1995
Deferred tax assets:
Deferred compensation $ 2,992 $ 2,873
Inventory 1,352 1,502
Accounts receivable 752 652
Other 894 1,064
Total deferred tax assets 5,990 6,091
Deferred tax liabilities:
Accelerated depreciation (5,882) (6,895)
Prepaid expenses (1,038) (727)
Other (53) (9)
Total deferred tax liabilities (6,973) (7,631)
Net deferred tax liability $ (983) $(1,540)
The Company believes that no valuation allowance is necessary for
deferred tax assets. This determination is based on the Company's
estimate that it is more likely than not that future taxable income
will be sufficient to offset the expenses to which the deferred tax
assets relate.
6 Income Per Share
Income per common share is computed on the basis of weighted average
shares outstanding during the year adjusted for common stock
equivalents on the assumption that dilutive stock options were
exercised at the beginning of the year with applicable proceeds used
to purchase treasury stock at the average market price. The weighted
average number of common shares included in this calculation for the
years ended March 31, 1996, 1995, and 1994 was 7,339,951, 7,303,231,
and 7,210,354, respectively.
<PAGE>
7 Property, Plant, and Equipment
A summary of property, plant, and equipment at March 31, 1996 and
1995, at cost, follows:
($ in thousands) 1996 1995
Land $ 1,939 $ 1,939
Buildings and improvements 24,507 23,253
Leasehold improvements 2,707 3,421
Furniture, fixtures, and equipment 99,544 93,403
128,697 122,016
Less accumulated depreciation and amortization 77,175 69,586
Net property, plant, and equipment $ 51,522 $ 52,430
8 Long-term Debt
The following is a summary of long-term debt at March 31, 1996 and
1995:
($ in thousands) 1996 1995
Revolving credit facility (a) $ - $ -
6.5% IDA bond (b) 900 900
Miscellaneous notes payable (c) 1,213 1,502
2,113 2,402
Less current installments 110 311
$ 2,003 $ 2,091
Annual maturities of long-term debt for the next five fiscal years are
as follows: 1997, $110,000; 1998, $92,000; 1999, $92,000; 2000,
$92,000; and 2001, $92,000. Interest paid for the years ended March
31, 1996, 1995, and 1994 was $195,000, $649,000, and $968,000,
respectively.
(a) The Company's $35,000,000 revolving credit facility extends
through April 1, 2000, is unsecured, and provides interest rate
options no less favorable than prime and generally based upon a
competitively bid "auction" rate. Under the facility agreement, the
Company pays fees which range from .100 to .250 on various portions of
the revolving credit facility. At March 31, 1996, the Company had no
outstanding balance under this 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%.
9 Lease Commitments
At March 31, 1996, minimum rental payments due under operating leases
were as follows: 1997, $3,334,000; 1998, $2,210,000; 1999,
$1,371,000; 2000, $494,000; 2001, $301,000; and later years, $195,000.
Total rental expense for the years ended March 31, 1996, 1995, and
1994 was $3,631,000, $3,027,000, and $2,498,000, 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.
<PAGE>
10 Profit Sharing, Pension, and Bonus Plans
The Company has various profit sharing and pension plans covering
substantially all employees who meet eligibility requirements.
Amounts contributed to profit sharing plans are at the discretion of
the appropriate subsidiary's Board of Directors. Benefits for pension
plans accrue and are vested based on compensation levels and years of
service. The amounts charged to operations for all plans combined for
the years ended March 31, 1996, 1995, and 1994 were $2,454,000,
$2,483,000, and $1,972,000, respectively.
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, 1996, 1995, and 1994 were
$4,866,000, $4,206,000, and $3,487,000, respectively.
11 Stock Option Plans
The Company has three stock option plans which provide for the grant
of nonqualified stock options to employees and certain directors. As
of March 31, 1996, 851,500 options were outstanding with exercise
prices ranging from $5.00 to $34.25 per share with 130,500
exercisable. A total of 155,000 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
1,006,500 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, 1996, 1995, and 1994:
Option Activity 1996 1995 1994
Options outstanding, beginning of year 532,000 621,000 395,500
Options granted 420,000 - 280,000
Options exercised (100,500) (89,000) (54,500)
Options outstanding, end of year 851,500 532,000 621,000
Recap of Options Outstanding at March 31, 1996 1995 1994
$ 5.00 Exercise price 111,000 182,000 250,000
$10.63 Exercise price 12,000 12,000 16,000
$12.25 Exercise price 42,000 60,000 75,000
$16.75 Exercise price 266,500 278,000 280,000
$34.25 Exercise price 420,000 - -
851,500 532,000 621,000
In October 1995, Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," was issued. The
Company currently does not plan to change its method of accounting for
stock-based compensation; however, SFAS No. 123 will require
additional footnote disclosure relating to the effect of using a fair
value-based method of accounting for stock-based compensation costs
for its fiscal year ending March 31, 1997.
12 Contingent Liabilities
The Company, in the ordinary course of business, is contingently
liable on pending lawsuits and claims. Based upon advice from legal
counsel, management believes such pending items will not have a
material effect on the Company's consolidated financial position or
results of operations.
<PAGE>
13 Quarterly Financial Information (unaudited)
The quarterly results for the years ended March 31, 1996 and 1995 are
summarized below:
First Second Third Fourth Fiscal
($ in thousands except Quarter Quarter Quarter Quarter Year
per share data)
1996
Sales $59,781 $63,449 $66,112 $59,631 $248,973
Gross profit 23,909 28,135 25,630 22,302 99,976
Net income 5,761 7,402 6,348 4,520 24,031
Income per common share (1) .79 1.01 .86 .61 3.27
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
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
(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.
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, 1996 1995
Fiscal Quarter
First Quarter 29 3/4 - 25 3/4 20 1/2 - 18
Second Quarter 44 - 29 24 1/2 - 18 3/4
Third Quarter 45 3/4 - 26 3/4 29 3/4 - 23 1/2
Fourth Quarter 34 3/4 - 27 30 1/2 - 22
The approximate number of record holders of common stock at March 31, 1996
was 127. 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>
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
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended March 31, 1996 in conformity with generally accepted
accounting principles.
s/KPMG Peat Marwick LLP
Stamford, Connecticut
May 8, 1996
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Devon Group, Inc.
Under date of May 8, 1996, we reported on the consolidated balance
sheets of Devon Group, Inc. and subsidiaries as of March 31, 1996 and
1995, 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, 1996, as contained in the 1996 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 1996. 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 8, 1996
F-1
<PAGE>
<TABLE>
DEVON GROUP, INC. AND SUBSIDIARIES
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1996
($ 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, 1994
Allowance for doubtful accounts $1,197 $ 695 $ - $ 550 (1) $1,342
Inventory reserves $1,097 $1,570 $ - $1,301 $1,366
Year ended March 31, 1995
Allowance for doubtful accounts $1,342 $1,084 $ - $ 574 (1) $1,852
Inventory reserves $1,366 $1,323 $ - $ 815 $1,874
Year ended March 31, 1996
Allowance for doubtful accounts $1,852 $ 890 $ - $ 265 (1) $2,477
Inventory reserves $1,874 $1,136 $ - $1,278 $1,732
(1) Uncollectible accounts written off, net of recoveries.
</TABLE>
F-2
<PAGE>
Exhibit 21
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
Proof Positive/Farrowlyne Illinois 100.0
Associates, Inc.
Nobart, Inc. Illinois 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, 33-75060, and 33-
64181) of Devon Group, Inc. of our reports dated May 8, 1996, relating
to the consolidated balance sheets of Devon Group, Inc. and
subsidiaries as of March 31, 1996 and 1995 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, 1996, which reports are included or
incorporated by reference in the March 31, 1996 annual report on Form
10-K of Devon Group, Inc.
s/KPMG Peat Maewick LLP
Stamford, Connecticut
June 27, 1996
F-4
<PAGE>
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