UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 No.)
281 Tresser Boulevard, Suite 501, Stamford, Connecticut 06901-3227
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 964-1444
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of August 3, 1995
Common Stock 7,278,817
<PAGE>
<TABLE>
PART I
Item 1 - Financial Statements
DEVON GROUP, INC.
Condensed Consolidated Statements of Income
For the three months ended June 30, 1995 and 1994
(Unaudited)
(in thousands, except per share data)
<CAPTION>
1995 1994
<S> <C> <C>
Sales $59,781 $49,222
Operating costs and expenses:
Cost of sales 35,872 29,846
Selling, general, and administrative 14,745 13,002
Income from operations 9,164 6,374
Interest income (expense), net 150 (241)
Other income, net 368 176
Income before income taxes 9,682 6,309
Provision for income taxes 3,921 2,587
Net income $ 5,761 $ 3,722
Net income per common share $ 0.79 $ 0.51
Average common shares outstanding 7,289 7,265
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Balance Sheets
As of June 30, 1995 and March 31, 1995
(in thousands, except share and per share data)
<CAPTION>
June 30, March 31,
Assets 1995 1995
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,405 $ 16,965
Receivables, less allowance for doubtful
accounts of $1,993 at June 30, 1995
and $1,852 at March 31, 1995 34,097 32,272
Inventories, at lower of cost or market:
Raw materials 2,406 2,390
Work-in-process 13,907 13,774
Finished goods 2,591 2,685
Total inventories 18,904 18,849
Deferred income tax benefit 3,385 3,385
Prepaid expenses and other current assets 5,036 4,781
Total current assets 80,827 76,252
Property, plant, and equipment, net 51,479 52,430
Deferred charges and other assets 1,289 1,179
Excess of cost over fair value of net assets
acquired 3,522 3,575
$137,117 $133,436
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 310 $ 311
Accounts payable 8,375 8,920
Accrued expenses 10,759 11,406
Accrued compensation 7,058 8,907
Income taxes 5,688 3,518
Total current liabilities 32,190 33,062
Long-term debt, excluding current installments 2,070 2,091
Deferred and other compensation 5,304 5,205
Deferred income taxes 4,925 4,925
Stockholders' equity:
Common Stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,203,817 shares at
June 30, 1995 and March 31, 1995 82 82
Additional paid-in capital 32,479 32,471
Retained earnings 72,736 66,975
105,297 99,528
Less: Shares of common stock held in treasury,
at cost; 925,000 at June 30, 1995
and 875,000 at March 31, 1995 (12,669) (11,375)
Total stockholders' equity 92,628 88,153
$137,117 $133,436
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Statements of Cash Flows
For the three months ended June 30, 1995 and 1994
(Unaudited)
(in thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Net cash provided by (used in) operating activities $ 5,464 $(4,004)
Cash flows from investing activities:
Capital expenditures (1,716) (1,908)
Payments for purchases of subsidiaries, net of
cash acquired - (135)
Net cash used in investing activities (1,716) (2,043)
Cash flows from financing activities:
Proceeds from long-term borrowings - 6,800
Payments of long-term debt (22) (2,520)
Proceeds from the exercise of stock options and other 8 197
Purchase of treasury stock (1,294) -
Net cash provided by (used in) financing activities (1,308) 4,477
Net increase (decrease) in cash and cash equivalents 2,440 (1,570)
Cash and cash equivalents, beginning of period 16,965 1,606
Cash and cash equivalents, end of period $19,405 $ 36
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DEVON GROUP, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1995
(Unaudited)
(1) The condensed consolidated financial statements reflect the
operations of the Company and its subsidiaries, all of which are
wholly-owned except for Portal Aird Imports Pty, Ltd. ("Portal Aird")
(see note 5). All significant intercompany transactions have been
eliminated in consolidation. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results for the unaudited
periods, have been included. Results of operations for the periods
included in the report are not necessarily indicative of the results
for the full year.
Reference should be made to the "Annual Report of Corporation Form 10-
K" for the fiscal year ended March 31, 1995 (including its notes to
consolidated financial statements) filed with the Securities and
Exchange Commission.
(2) Net income per common share is computed on the basis of the weighted
average number of common shares outstanding during the three-month
periods ended June 30, 1995 and 1994. Options outstanding were not
included in the 1995 or 1994 computations of net income per share as
their effect was not material.
(3) For purposes of the Statements of Cash Flows, the Company considers
all short-term investments to be cash equivalents since the
investments are highly liquid with maturities of three months or
less.
(4) Property, plant, and equipment is net of accumulated depreciation of
$72,254,000 and $69,586,000 at June 30, 1995 and March 31, 1995,
respectively.
(5) Effective April 1, 1994 the Company acquired a 50% interest in Portal
Aird for $135,000 in cash. Located in Adelaide, South Australia,
Portal Aird is a distributor of posters and related products. This
investment is included in "Deferred charges and other assets" in the
accompanying balance sheets. Effective January 13, 1995, the Company
acquired the business of Ahrens Interactive, Inc. ("Ahrens").
Located in Chicago, Illinois, Ahrens is a developer of interactive
multimedia products and services for the corporate, retail,
advertising, and publishing markets. The excess of the purchase
price ($381,000 in cash and a $200,000 note payable) over the fair
value of net assets acquired was $407,000.
(6) 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. During the first quarter of
fiscal 1996, under this authorization, 50,000 shares were
repurchased.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Consolidated sales for the quarter ended June 30, 1995 increased
$10,559,000, or 21.5%, compared to the prior year's first quarter with each
of the Company's subsidiaries contributing to this growth. Sales at the
Company's pre-press subsidiary increased $7,989,000, or 36.3%, primarily
due to the higher levels of creative, design, photographic, and composition
services provided to retail advertising customers. In the publishing
subsidiary, strong sales of Portal Publications' matted product and card
lines as well as an increase in The Winn Devon Art Group's line of upscale
posters, resulted in increased revenues of $1,700,000, or 11.9%, versus the
prior year period. Sales at the Company's magazine printing business
increased $870,000, or 6.7%, primarily due to increased paper sales.
Gross profit increased by $4,533,000 for the quarter ended June 30, 1995 to
$23,909,000 or 40.0% as a percentage of sales compared to 39.4% for the
comparable prior year period. The increase in gross profit margins at both
the pre-press and publishing subsidiaries was partially offset by a
decrease in the magazine printing business. In the pre-press subsidiary,
the improvement was primarily due to the distribution of relatively fixed
overhead costs over an increased revenue base. This was partially offset
by the impact of lower production levels at certain plants reflecting the
nonrecurrence of high levels of textbook work during the first quarter of
fiscal year 1995. Margins in the publishing subsidiary reflect the
positive effects of the higher sales volume and a decrease in inventory
obsolescence charges versus the prior year period. The decrease in the
printing business margin was primarily due to an increase in the cost of
materials related to the higher level of paper sales.
Selling, general, and administrative expenses as a percentage of sales were
24.7% for the three months ended June 30, 1995 versus 26.4% for the
comparable prior year period. The improvement was primarily due to the pre-
press and publishing subsidiaries where a high percentage of their
increased revenues came from noncommissionable sales. At each subsidiary,
the distribution of relatively fixed general and administrative costs over
an increased revenue base positively affected comparisons. These
improvements were partially offset by increased incentive and other
employment-related expenses in the pre-press business.
Interest expense was $57,000 for the three-month period ended June 30, 1995
compared to $243,000 for the prior year period, while interest income
increased to $207,000 versus $2,000. The decrease in interest expense
reflects the repayment of all borrowings under the Company's bank line of
credit during fiscal 1995. The increase in interest income reflects
earnings from short-term investments.
The effective income tax rate for the three-month period ended June 30,
1995 was 40.5% versus 41.0% for the prior year period.
As a result of the foregoing, as well as the Company's purchase of 50,000
shares of treasury stock during the first quarter of fiscal 1996 (see note
6), net income per share increased $.28, or 54.9%, for the three months
ended June 30, 1995.
Liquidity and Capital Resources
During the three-month period ended June 30, 1995 the Company generated
cash from operating activities of $5,464,000 while cash used by operating
activities for the prior year period was $4,004,000. This change is
primarily the result of decreased working capital requirements and
increased net income for the current three-month period. In the prior year
<PAGE>
period, the higher levels of accounts receivable, some attributable to
increased sales volume and some to the timing of payments from several
large customers, coupled with a significant decline in accounts payable due
primarily to the payment of service providers utilized by the pre-press
subsidiary to help complete fiscal year-end textbook work, resulted in an
unusually high level of working capital requirements. For the three-month
period ended June 30, 1995, cash provided by operating activities was used
to fund capital expenditures with the remainder conservatively invested.
During the three months ended June 30, 1994 proceeds from long-term bank
borrowings were used to fund the cash requirements of operating activities
and capital expenditures.
Recently Issued Financial Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121") requires that long-lived assets and certain intangible
assets to be held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. SFAS No. 121 further requires that assets
in this category to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company will be required to
adopt SFAS No. 121 for its fiscal year ending March 31, 1997, however, it
is not expected that such adoption will have a material impact on the
Company's financial position or results of operations.
<PAGE>
DEVON GROUP, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company, in the ordinary course of business, is contingently
liable on pending lawsuits and claims. Based upon advice from legal
counsel, these pending items are not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
a. The Company's Annual Meeting of Stockholders was held on July 25,
1995.
b. Not required.
c. A proposal to approve the 1995 Non-Qualified Stock Option Plan as
described in the Company's proxy statement dated June 19, 1995
was adopted by the following vote:
For Against Abstain
6,381,152 82,099 29,496
A proposal to ratify the selection of the firm of KPMG Peat Marwick
LLP as auditors for the Company for the fiscal year ending March
31, 1996 was adopted by the following vote:
For Against Abstain
6,486,395 200 6,153
The following Directors were elected for the ensuing year and until
their respective successors have been duly elected and qualified by
the following vote:
For Withhold Vote on
Marne Obernauer, Jr. 6,486,876 5,871
Robert S. Blank 6,486,138 6,609
John W. Dinzole 6,486,812 5,935
William G. Gisel 6,486,126 6,621
Thomas J. Harrington 6,486,876 5,871
Marne Obernauer 6,486,526 6,221
Edward L. Palmer 6,486,526 6,221
d. Not applicable
<PAGE>
DEVON GROUP, INC.
PART II - OTHER INFORMATION
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
None.
b. Reports on Form 8-K.
None.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: August 3, 1995 s/Bruce K. Koch
Bruce K. Koch
Executive Vice President,
Operations and Finance
and Chief Financial Officer
(Principal Financial Officer)
s/Robert H. Donovan
Robert H. Donovan
Senior Vice President, Finance and
Treasurer
(Principal Accounting Officer)
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