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 December 31, 1994
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 February 7, 1995
Common Stock 7,328,817
<PAGE>
<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 Nine Months
Ended December 31, Ended December 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Sales $ 61,505 $ 49,343 $169,311 $140,547
Operating costs and expenses:
Cost of sales 36,906 30,238 100,406 85,991
Selling, general, and
administrative 14,612 13,065 42,478 37,741
Income from operations 9,987 6,040 26,427 16,815
Interest income 17 4 32 11
Interest expense (144) (218) (616) (698)
Other income (expense) (130) 103 230 434
Income before income taxes 9,730 5,929 26,073 16,562
Provision for income taxes 3,989 2,430 10,690 6,759
Net income $ 5,741 $ 3,499 $ 15,383 $ 9,803
Net income per common share $ 0.78 $ 0.48 $ 2.11 $ 1.36
Average common shares outstanding 7,325 7,221 7,295 7,202
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Balance Sheets
As of December 31, 1994 and March 31, 1994
(in thousands, except share and per share data)
<CAPTION>
December 31, March 31,
Assets 1994 1994
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,494 $ 1,606
Receivables, less allowance for doubtful
accounts of $1,741 at December 31, 1994
and $1,342 at March 31, 1994 43,771 37,465
Inventories, at lower of cost or market:
Raw materials 2,032 2,237
Work-in-process 13,584 10,857
Finished goods 2,757 3,040
Total inventories 18,373 16,134
Deferred income tax benefit 2,741 2,741
Prepaid expenses and other current assets 3,398 3,863
Total current assets 70,777 61,809
Property, plant, and equipment, net 53,044 55,727
Deferred charges and other assets 1,490 1,271
Excess of cost over fair value of net assets acquired 3,222 3,749
$128,533 $122,556
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 92 $ 25
Accounts payable 6,192 10,610
Accrued expenses 9,680 7,677
Accrued compensation 9,217 8,335
Income taxes 2,558 2,002
Reserve for discontinued operations 3,206 3,208
Total current liabilities 30,945 31,857
Long-term debt, excluding current installments 4,601 13,898
Deferred and other compensation 5,270 5,061
Deferred income taxes 6,153 6,153
Stockholders' equity:
Common Stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,203,817 shares at
December 31, 1994 and 8,114,817 shares
at March 31, 1994 82 81
Additional paid-in capital 32,006 31,413
Retained earnings 60,851 45,468
92,939 76,962
Less: 875,000 shares of common stock
held in treasury, at cost (11,375) (11,375)
Total stockholders' equity 81,564 65,587
$128,533 $122,556
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP INC.
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended December 31, 1994 and 1993
(Unaudited)
(in thousands)
<CAPTION>
1994 1993
<S> <C> <C>
Net cash provided by continuing operations $ 15,173 $ 14,878
Net cash used by discontinued operations (2) -
Net cash provided by operating activities 15,171 14,878
Cash flows from investing activities:
Capital expenditures (5,520) (12,314)
Payments for purchases of subsidiaries, net of
cash acquired (135) -
Net cash used in investing activities (5,655) (12,314)
Cash flows from financing activities:
Proceeds from long-term borrowings 12,100 14,800
Payments of long-term debt (21,330) (18,413)
Proceeds from the exercise of stock options 602 280
Net cash provided by (used in) financing activities (8,628) (3,333)
Net increase (decrease) in cash and cash equivalents 888 (769)
Cash and cash equivalents, beginning of period 1,606 3,169
Cash and cash equivalents, end of period $ 2,494 $ 2,400
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DEVON GROUP, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1994
(Unaudited)
(1) The condensed consolidated financial statements reflect the
operations of the Company and its subsidiaries, all of
which are wholly-owned except for The Aztech Chas P. Young
Company ("ACPY") and Aird Imports Pty. Ltd. ("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, 1994 (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 nine-month periods ended December 31, 1994
and 1993. Options outstanding were not included in the
1994 or 1993 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 $68,343,000 and $61,512,000 at December 31,
1994, and March 31, 1994, respectively.
(5) Effective April 1, 1994, the Company acquired a 50%
interest in Aird for $135,000 in cash. Located in
Adelaide, South Australia, Aird is a distributor of cards,
stationery, and related products. This investment is
included in "Deferred charges and other assets" in the
accompanying balance sheet. Effective January 13, 1995,
the Company acquired the business of Ahrens Creative
Group, 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.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated sales increased $12,162,000, or 24.6%, and
$28,764,000, or 20.5%, for the three- and nine-month periods
ended December 31, 1994 versus the comparable prior year periods
with each of the Company's subsidiaries contributing to this
growth. The increases are primarily the result of higher volume
in the pre-press business where revenues increased $8,082,000 and
$18,602,000, respectively, for the three- and nine-month periods
ended December 31, 1994. Increased creative, design,
photographic, and composition services provided to retail
advertising customers continues to positively impact comparisons
with prior year periods, reflecting increased volume with
existing customers and the addition of Meridian Retail, Inc., in
December 1993. Results for the current year periods have also
been favorably affected by increased typography and color
separation revenues relating to the textbook, 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 higher-end fine art line at
The Winn Devon Art Group, resulted in increased revenues of
$2,883,000 and $6,823,000 versus the prior year periods. In the
magazine printing business, despite continued pricing pressures
and nominal growth in page count, the addition of new magazine
titles, and nonrecurring work for both existing and new
customers, resulted in increased sales of $1,197,000 and
$3,339,000, for the three- and nine-month periods ended December
31, 1994.
Gross profit as a percentage of sales was 40.0% and 40.7%,
respectively, for the three- and nine-month periods ended
December 31, 1994 as compared to 38.7% and 38.8% for the
comparable prior year periods. These improvements are primarily
attributable to the pre-press business, as its gross margins
improved due to better operating leverage (i.e. the distribution
of relatively fixed costs over an increased revenue base) and
production efficiencies. The publishing subsidiary benefited
from operating leverage while the printing subsidiary's gross
margin was virtually unchanged.
Selling, general, and administrative expenses as a percentage of
sales were 23.8% and 25.1%, respectively, for the three- and nine-
month periods ended December 31, 1994 versus 26.5% and 26.9% for
the comparable prior year periods. For the quarter, the
improvements are primarily due to the publishing and pre-press
subsidiaries, where a high percentage of their increased volume
came from noncommissionable sales, as well as the absence of
costs incurred related to the start up of Meridian Retail, Inc.
in December 1993. The year-to-date comparison also reflects the
absence of the costs incurred in the prior year related to the
renegotiation of the Company's revolving credit facility.
Other income (expense) for the three-month period ended December
31, 1994 includes a charge of $415,000 related to the sale of the
publishing subsidiary's contract art and framing operation.
The effective income tax rate was 41.0% for the three- and nine-
month periods ended December 31, 1994 versus 41.0% and 40.8%,
respectively, for the prior year periods.
As a result of the foregoing, net income per share increased
$.30, or 62.5%, and $.75, or 55.1%, respectively, for the three-
and nine-month periods ended December 31, 1994.
<PAGE>
Liquidity and Capital Resources
At December 31, 1994, the Company's debt to equity ratio was .06
to 1 compared to .21 to 1 at March 31, 1994. During the nine
months ended December 31, 1994, the Company generated cash from
operating activities of $15,171,000 versus $14,878,000 for the
prior year period. This change is primarily the result of an
increase in net income for the nine-month period ended
December 31, 1994, partially offset by an increase in working
capital requirements. Higher levels of accounts receivable,
attributable to increased sales volume, an increase in work-in-
process at the Company's pre-press subsidiary, reflecting higher
retail advertising, typography, and color separation volume, and
a 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, accounted for the
majority of the working capital increase. For the nine-months
ended December 31, 1994 and 1993, cash provided from operating
activities was used to fund capital expenditures and reduce debt.
Recently Issued Financial Accounting Standards
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" ("SFAS No. 107"),
extends existing fair value disclosure practices for some
financial instruments. The Company will be required to adopt
SFAS No. 107 for its fiscal year ending March 31, 1996, however,
such adoption will have no impact on the Company's financial
position or results of operations since it relates to disclosure
matters only.
The Company does not currently utilize derivative financial
instruments. As a result, Statement of Financial Accounting
Standards No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" ("SFAS No.
119") will not impact the Company upon adoption. SFAS No. 119
requires additional disclosure about derivative financial
instruments such as futures and forward, swap, and option
contracts not previously required under existing standards such
as SFAS No. 107 above. The Company will be required to adopt
SFAS No. 119 for its fiscal year ending March 31, 1996.
<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.
None
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: February 8, 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>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statements of Income and the Condensed
Consolidated Balance Sheets of Devon Group, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 2,494
<SECURITIES> 0
<RECEIVABLES> 45,512
<ALLOWANCES> 1,741
<INVENTORY> 18,373
<CURRENT-ASSETS> 70,777
<PP&E> 121,387
<DEPRECIATION> 68,343
<TOTAL-ASSETS> 128,533
<CURRENT-LIABILITIES> 30,945
<BONDS> 0
<COMMON> 82
0
0
<OTHER-SE> 81,482
<TOTAL-LIABILITY-AND-EQUITY> 128,533
<SALES> 169,311
<TOTAL-REVENUES> 169,311
<CGS> 100,406
<TOTAL-COSTS> 100,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 616
<INCOME-PRETAX> 26,073
<INCOME-TAX> 10,690
<INCOME-CONTINUING> 15,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,383
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 0
</TABLE>
