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 September 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 November 8, 1995
Common Stock 7,369,317
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<TABLE>
PART I
Item 1 - Financial Statements
DEVON GROUP, INC.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
<CAPTION>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $ 63,449 $ 58,584 $123,230 $107,806
Operating costs and expenses:
Cost of sales 35,314 33,654 71,186 63,500
Selling, general, and
administrative 16,267 14,864 31,012 27,866
Income from operations 11,868 10,066 21,032 16,440
Interest income (expense), net 155 (216) 305 (457)
Other income, net 418 184 786 360
Income before income taxes 12,441 10,034 22,123 16,343
Provision for income taxes 5,039 4,114 8,960 6,701
Net income $ 7,402 $ 5,920 $ 13,163 $ 9,642
Net income per common share $ 1.01 $ .81 $ 1.80 $ 1.32
Average common shares outstanding 7,317 7,293 7,303 7,279
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Balance Sheets
As of September 30, 1995 and March 31, 1995
(in thousands, except share and per share data)
<CAPTION>
September 30, March 31,
Assets 1995 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,570 $ 16,965
Receivables, less allowance for doubtful
accounts of $2,233 at September 30, 1995
and $1,852 at March 31, 1995 44,818 32,272
Inventories, at lower of cost or market:
Raw materials 2,815 2,390
Work-in-process 14,878 13,774
Finished goods 2,503 2,685
Total inventories 20,196 18,849
Deferred income tax benefit 3,385 3,385
Prepaid expenses and other current assets 4,748 4,781
Total current assets 85,717 76,252
Property, plant, and equipment, net 50,907 52,430
Deferred charges and other assets 1,179 1,179
Excess of cost over fair value of net assets
acquired 6,799 3,575
$144,602 $133,436
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 310 $ 311
Accounts payable 7,685 8,920
Accrued expenses 11,794 11,406
Accrued compensation 8,917 8,907
Income taxes 2,859 3,518
Total current liabilities 31,565 33,062
Long-term debt, excluding current installments 2,051 2,091
Deferred and other compensation 5,364 5,205
Deferred income taxes 4,925 4,925
Stockholders' equity:
Common Stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,294,317 shares at
September 30, 1995 and 8,203,817 shares
at March 31, 1995 83 82
Additional paid-in capital 33,145 32,471
Retained earnings 80,138 66,975
113,366 99,528
Less: Shares of common stock held in treasury,
at cost; 925,000 at September 30, 1995
and 875,000 at March 31, 1995 (12,669) (11,375)
Total stockholders' equity 100,697 88,153
$144,602 $133,436
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Statements of Cash Flows
For the six months ended September 30, 1995 and 1994
(Unaudited)
(in thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Net cash provided by operating activities $ 3,848 $ 5,972
Cash flows from investing activities:
Capital expenditures (3,691) (4,342)
Payments for purchases of subsidiaries, net of
cash acquired (3,892) (135)
Net cash used in investing activities (7,583) (4,477)
Cash flows from financing activities:
Proceeds from long-term borrowings - 10,300
Payments of long-term debt (41) (13,022)
Proceeds from the exercise of stock options
and other 675 558
Purchase of treasury stock (1,294) -
Net cash used in financing activities (660) (2,164)
Net decrease in cash and cash equivalents (4,395) (669)
Cash and cash equivalents, beginning of period 16,965 1,606
Cash and cash equivalents, end of period $12,570 $ 937
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DEVON GROUP, INC.
Notes to Condensed Consolidated Financial Statements
September 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- and six-
month periods ended September 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
$74,750,000 and $69,586,000 at September 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. Effective July 31, 1995,
the Company acquired Proof Positive/Farrowlyne Associates, Inc.
("PP/FA") for $4,000,000 in cash. 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 assets acquired was
$3,370,000.
(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 increased $4,865,000, or 8.3%, and $15,424,000, or
14.3% ,respectively, for the three- and six-month periods ended
September 30, 1995 versus the comparable prior year periods with each of
the Company's subsidiaries contributing to this growth. A significant
portion of the increases came from the pre-press business where revenues
increased $2,681,000 and $10,670,000, respectively, for the three- and
six-month periods ended September 30, 1995 as increased creative, design,
photographic, and composition services provided to retail advertising
customers continued to positively affect comparisons with the prior year
periods and offset a decline from last year's unusually high level of
textbook revision work. At the publishing subsidiary, sales increased
$1,577,000 and $3,277,000, respectively, versus the prior year periods.
These increases were primarily due to increased sales of Portal Publications'
card lines and matted product. An increase in poster and print sales both
at Portal Publications and The Winn Devon Art Group more than offset a
decline in sales of fine art and related framing at The Winn Devon Art Group.
Sales at the Company's magazine printing business increased $607,000 and
$1,477,000, respectively, for the three- and six-month periods ended
September 30, 1995 primarily due to increased paper sales.
Gross profit as a percentage of sales was 44.3% and 42.2%, respectively,
for the three- and six-month periods ended September 30, 1995 as compared
to 42.6% and 41.1% for the comparable prior year periods. In the pre-press
subsidiary the impact of a reduction in the cost of supplies, particularly
film, was partially offset by the impact of lower production levels at
certain plants due to reduced levels of textbook work versus the prior year
periods. Results at the publishing subsidiary reflect a reduction in
inventory obsolescence charges and the positive effects of higher sales.
During the quarter ended September 30, 1995, the printing
subsidiary experienced reduced depreciation charges and a decrease in the
cost of direct materials resulting from higher discounts from major
suppliers.
Selling, general, and administrative expenses (SG&A) as a percentage of
sales were 25.6% and 25.2%, respectively, for the three- and six-month
periods ended September 30, 1995 versus 25.4% and 25.8%, for the comparable
prior year periods. For the quarter, SG&A expenses at each of the Company's
subsidiaries were in line with the prior year period. For the six-month
period ended September 30, 1995, the improvement reflects lower
compensation-related expenses due to an increase in noncommissionable
sales at the Company's pre-press and publishing subsidiaries.
Interest income increased $197,000 and $402,000 respectively, for the three-
and six-month periods ended September 30, 1995, while interest expense
decreased $174,000 and $360,000 for the comparable prior year periods. The
increases in interest income reflect earnings from short-term investments.
The decreases in interest expense reflect the repayment of all borrowings
under the Company's bank line of credit during the fourth quarter of fiscal
1995.
Other income was $418,000 and $786,000, respectively, for the three- and
six-month periods ended September 30, 1995, versus $184,000 and $360,000
for the prior year periods. The increases were primarily due to the
advantageous sale of scrap paper at the printing subsidiary during a period
when paper prices have been dramatically affected by shortages.
The effective income tax rate was 40.5% for the three- and six-month
periods ended September 30, 1995, versus 41.0% for the prior year periods.
<PAGE>
As a result of the foregoing, net income per share increased $.20, or
24.7%, and $.48, or 36.4%, respectively, versus the prior year quarter and
six-month periods.
Liquidity and Capital Resources
During the six-month period ended September 30, 1995, the Company generated
cash from operating activities of $3,848,000. The $5,972,000 generated
during the prior year comparable period was positively impacted by
collection of the high level of accounts receivable generated at fiscal
year end 1994 at the pre-press subsidiary. For the six-month period ended
September 30, 1995, cash provided by operating activities and existing
short-term investments were used to fund capital expenditures and the
acquisition of PP/FA in August of 1995. For the six-months ended September
30, 1994, cash provided by operating activities was used to fund capital
expenditures and reduce long-term debt.
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.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", has recently been issued. The Company has not
yet made a determination as to its impact.
<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: November 13, 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)
<TABLE> <S> <C>
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<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1995
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<ALLOWANCES> 2233
<INVENTORY> 20196
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<PP&E> 125657
<DEPRECIATION> 74750
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0
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</TABLE>
