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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-14850
DEVON GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 03-0212800
(State of Incorporation) (I.R.S. Employer Identification 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 2, 1996
Common Stock 7,383,317
<PAGE>
<TABLE>
PART I
Item 1 - Financial Statements
DEVON GROUP, INC.
Condensed Consolidated Statements of Income
For the three months ended June 30, 1996 and 1995
(Unaudited)
(in thousands, except per share data)
<CAPTION>
1996 1995
<S> <C> <C>
Sales $62,554 $59,781
Operating costs and expenses:
Cost of sales 39,223 35,872
Selling, general, and administrative 15,873 14,745
Income from operations 7,458 9,164
Interest income (expense), net 248 150
Other income, net 226 368
Income before income taxes 7,932 9,682
Provision for income taxes 3,173 3,921
Net income $ 4,759 $ 5,761
Net income per common share $ 0.64 $ 0.79
Average common shares outstanding 7,383 7,289
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DEVON GROUP, INC.
Condensed Consolidated Balance Sheets
As of June 30, 1996 and March 31, 1996
(in thousands, except share and per share data)
<CAPTION>
June 30, March 31,
Assets 1996 1996
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 28,936 $ 27,749
Receivables, less allowance for doubtful
accounts of $2,350 at June 30, 1996
and $2,477 at March 31, 1996 40,044 39,629
Inventories, at lower of cost or market:
Raw materials 2,179 2,726
Work-in-process 17,532 15,115
Finished goods 2,298 2,486
Total inventories 22,009 20,327
Deferred income tax benefit 3,430 3,430
Prepaid expenses and other current assets 6,085 6,079
Total current assets 100,504 97,214
Property, plant, and equipment, net 51,273 51,522
Deferred charges and other assets 1,094 1,111
Excess of cost over fair value of net 6,867 6,579
assets acquired
$159,738 $156,426
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 110 $ 110
Accounts payable 7,761 9,439
Accrued expenses 9,241 9,963
Accrued compensation 7,019 9,493
Income taxes 5,241 1,634
Total current liabilities 29,372 30,639
Long-term debt, excluding current installments 1,989 2,003
Deferred and other compensation 6,398 6,413
Deferred income taxes 4,413 4,413
Stockholders' equity:
Common Stock, $0.01 par value. Authorized
30,000,000 shares; issued 8,315,317 shares
at June 30, 1996 and 8,304,317 shares at
March 31,1996 83 83
Additional paid-in capital 34,598 34,538
Retained earnings 95,765 91,006
130,446 125,627
Less: Shares of common stock held in treasury,
at cost; 932,000 at June 30, 1996
and 925,000 at March 31, 1996 (12,880) (12,669)
Total stockholders' equity 117,566 112,958
$159,738 $156,426
</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, 1996 and 1995
(Unaudited)
(in thousands)
1996 1995
<S> <C> <C>
Net cash provided by operating activities $ 4,338 $ 5,464
Cash flows from investing activities:
Capital expenditures (2,586) (1,716)
Payments for purchases of subsidiaries, net of
cash acquired (400) -
Net cash used in investing activities (2,986) (1,716)
Cash flows from financing activities:
Payments of long-term debt (14) (22)
Proceeds from the exercise of stock options 60 8
and other
Purchase of treasury stock (211) (1,294)
Net cash used in financing activities (165) (1,308)
Net increase in cash and cash equivalents 1,187 2,440
Cash and cash equivalents, beginning of period 27,749 16,965
Cash and cash equivalents, end of period $28,936 $19,405
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DEVON GROUP, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(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 Publications
Pty. Ltd. ("Portal Aird"). 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, 1996
(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, 1996 and 1995.
Options outstanding were not included in the 1996 or 1995
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 $79,814,000 and $77,175,000 at June 30,
1996 and March 31, 1996, respectively.
(5) Effective July 31, 1995, the Company acquired Proof
Positive/Farrowlyne Associates, Inc. (PP/FA) for $4,000,000 in cash
and contingent consideration predicated on future earnings.
Located in Evanston, Illinois, PP/FA is a provider of editorial
and creative services to the publishing industry,
primarily in the educational sector. The excess of the
purchase price over the fair value of net assets acquired
was $3,370,000. Nobart, Inc., acquired effective March 1,
1996, is a full-service design, art, photography, and
production studio located in Chicago, Illinois. The
purchase price of $1,217,000 was equal to the net book
value of assets acquired.
(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 and 1997, under this
authorization, 50,000 and 7,000 shares, respectively, were
repurchased.
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Sales:
Consolidated sales for the quarter ended June 30, 1996 increased
$2,773,000, or 4.6%, compared to the prior year's first quarter
with each of the Company's subsidiaries contributing to this
growth.
Pre-press
Revenues for Black Dot Group increased $1,362,000, or 4.5%,
versus the prior year period. The increase is primarily due to
incremental revenues from Nobart and PP/FA, businesses acquired
during fiscal 1996, sales from the company's developing
multimedia business, and increased billing related to additional
textbook volume and new retail advertising accounts. Partially
offsetting these factors was the anticipated decrease in Sears
and Kmart related revenues reflecting the price concessions
included in the five-year contract extensions.
Publishing
Devon Publishing Group's sales increased $493,000, or 3.1%,
versus the prior year period reflecting an increase at Portal
Publications and modest growth at Portal U.K., partially offset
by a decrease in revenues at The Winn Devon Art Group. At Portal
a substantial increase in card sales, reflecting the continuing
success of the Anne Geddes line and the May introduction of the
Boynton line, and higher calendar revenues more than offset lower
sales of the poster/print and matted product lines. At The Winn
Devon Art Group an increase in revenues from the upscale Devon
Editions poster line was offset by reductions in framing and fine
art sales.
Printing
Graftek's sales increased $918,000, or 6.7%, versus the prior
year period primarily due to increased work for catalog
publishers and the addition of new magazines during the first
quarter of fiscal 1997.
Gross Profit:
Gross profit decreased by $578,000 for the quarter ended June 30,
1996 to $23,331,000, or 37.3% as a percentage of sales, compared
to 40.0% for the comparable prior year period. Decreases in
gross profit margins at both the pre-press and publishing
subsidiaries were partially offset by a modest improvement in the
magazine printing business. In the pre-press subsidiary, the
decrease was primarily due to higher labor costs related to
Nobart, which were necessary to properly transition that business
into the Black Dot Group, and higher levels of expenditures
related to further development of the interactive multimedia
business. Margins in the publishing subsidiary decreased
primarily due to higher charges related to calendar, seasonal
card, and poster returns. The increased charge for calendar and
seasonal card returns reflects the slightly higher than
anticipated returns from previous sales and more aggressive
current sales programs while the charge for poster returns
results from the issuance of credit vouchers for slow-moving
product in an effort to re-energize this line. Material costs
also increased slightly at the publishing subsidiary as a result
of the shift in sales to cards, in particular, the boxed line.
At the printing business, lower material costs contributed to its
margin improvement.
<PAGE>
Selling, General, and Administrative Expenses:
Selling, general, and administrative expenses as a percentage of
sales were 25.4% for the three months ended June 30, 1996 versus
24.7% for the comparable prior year period. The increase is
primarily attributable to the pre-press subsidiary and reflects
higher costs due to the fiscal 1996 acquisitions of Nobart and
PP/FA, as well as increased expenses resulting from new business
development efforts.
Interest Income (Expense):
Net interest income increased $98,000 to $248,000 for the three-
month period ended June 30, 1996 versus the comparable prior year
period reflecting an increase in the level of average short-term
investments over the prior year period.
Income Taxes:
The effective income tax rate for the three-month period ended
June 30, 1996 was 40.0% versus 40.5% for the prior year period.
Net Income:
As a result of decreased operating income partially offset by an
increase in net interest income and a decrease in the effective
tax rate, net income per share decreased $.15, or 19.0%, per
share for the three months ended June 30, 1996 versus the
comparable prior year period.
Liquidity and Capital Resources
During the three-month period ended June 30, 1996, the Company
generated cash from operating activities of $4,338,000 versus
$5,464,000 for the comparable prior year period. This decrease
was primarily due to the $1,002,000 reduction in net income. For
the three-month periods ended June 30, 1996 and 1995, cash
provided by operating activities was primarily used to fund
capital expenditures with the remainder conservatively invested.
<PAGE>
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.
In October 1995, Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", was
issued. The Company currently does not plan to change its method
of accounting for stock-based compensation; however, SFAS No. 123
will require additional footnote disclosure relating to the
effect of using a fair value-based method of accounting for stock-
based compensation costs for its fiscal year ending March 31, 1997.
<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 30, 1996.
b. Not required.
c. 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, 1997 was adopted by the
following vote:
For Against Abstain
6,709,374 150 5,513
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. 6,713,110 1,927
Robert S. Blank 6,713,110 1,927
John W. Dinzole 6,713,139 1,898
William G. Gisel 6,711,297 3,740
Thomas J. Harrington 6,711,610 3,427
Marne Obernauer 6,712,997 2,040
Edward L. Palmer 6,712,997 2,040
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 6, 1996 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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<PERIOD-START> APR-01-1996
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0
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