-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, I3cY2yhWhgj6th5V++O+ODU4DMnJcJxdUSiaNrfbBom+GunPx+vHQuJCJ29FqV6F 7Qmhj2hEVMqltJsoPkB3iw== 0000040542-95-000011.txt : 199506280000040542-95-000011.hdr.sgml : 19950628 ACCESSION NUMBER: 0000040542-95-000011 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950627 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVON GROUP INC CENTRAL INDEX KEY: 0000040542 STANDARD INDUSTRIAL CLASSIFICATION: SERVICE INDUSTRIES FOR THE PRINTING TRADE [2790] IRS NUMBER: 030212800 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14850 FILM NUMBER: 95549657 BUSINESS ADDRESS: STREET 1: 281 TRESSER BLVD STREET 2: STE 501 CITY: STAMFORD STATE: CT ZIP: 06901-3227 BUSINESS PHONE: 2039641444 MAIL ADDRESS: STREET 1: 281 TRESSER BLVD STREET 2: STE 501 CITY: STAMFORD STATE: CT ZIP: 06901-3227 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL EDUCATIONAL SERVICES CORP DATE OF NAME CHANGE: 19760810 10-K405 1 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. 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 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. 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 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 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. 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 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 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. 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. 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. 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 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 Selected Financial Data for Five Years Devon Group, Inc.
Years ended March 31, 1995 1994 1993 1992 1991 ($ in thousands except per share data) Operations 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)
Financial Position
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.
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 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. 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 $35,000,000 bank credit facility. Excess cash will be invested in short-term, low-risk investments. Consolidated Statements of Income Devon Group, Inc.
Years ended March 31, 1995 1994 1993 ($ in thousands except per share data) 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.
Consolidated Balance Sheets Devon Group, Inc.
March 31, 1995 1994 ($ in thousands) 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 $122,556 See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows Devon Group, Inc.
Years ended March 31, 1995 1994 1993 ($ in thousands) 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.
Consolidated Statements of Stockholders' Equity Devon Group, Inc.
Additional Common Paid-in Retained Treasury Years ended March 31, 1995, Stock Capital Earnings Stock Total 1994, and 1993 ($ in thousands) 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.
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. 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 $207,000, respectively. 5 Income Taxes As discussed in Note 1, the Company adopted SFAS No. 109, "Accounting for Income Taxes," as of April 1, 1993. The cumulative effect of this change had no significant impact on the Company's financial statements. The income tax provisions for the years ended March 31, 1995, 1994, and 1993 follow: ($ 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 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. 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. 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. 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 $16.75 Exercise price 278,000 280,000 - 532,000 621,000 395,500 12 Contingent Liabilities The Company, in the ordinary course of business, is contingently liable on pending lawsuits and claims. Based upon advice from legal counsel, management believes such pending items will not have a material effect on the Company's consolidated financial position or results of operations. 13 Quarterly Financial Information (unaudited) The quarterly results for the years ended March 31, 1995 and 1994 are summarized below: First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year ($ 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. 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 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 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. 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 DEVON GROUP, INC. AND SUBSIDIARIES Schedule II VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED MARCH 31, 1995 ($ in thousands)
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 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.
F-2 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 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 EX-27 2
5 1000 US DOLLARS YEAR MAR-31-1995 MAR-31-1995 1.0 16965 0 34124 1852 18849 76252 122016 69586 133436 33062 0 82 0 0 88071 133436 225682 225682 135842 135842 0 1084 676 32714 13413 19301 2206 0 0 21507 2.94 0
-----END PRIVACY-ENHANCED MESSAGE-----