-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IXEO7xTESZADt40jL6884BOPP09KlK+Jeqiss6w2B1PIHdGxNgmA40Zz7PFBAAQN bMK0cMynd08IFo2s0KzAjw== 0000040542-98-000002.txt : 19980218 0000040542-98-000002.hdr.sgml : 19980218 ACCESSION NUMBER: 0000040542-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 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-Q SEC ACT: SEC FILE NUMBER: 000-14850 FILM NUMBER: 98535944 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-Q 1 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 December 31, 1997 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 11, 1998 Common Stock 7,358,817 PART I Item 1 - Financial Statements DEVON GROUP, INC. Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share data)
For the Three Months For the Nine Months Ended December 31, Ended December 31, 1997 1996 1997 1996 Sales $ 69,038 $ 56,514 $190,020 $159,411 Operating costs and expenses: Cost of sales 40,655 33,182 108,423 90,886 Selling, general, and administrative 18,330 14,865 53,571 44,272 Income from operations 10,053 8,467 28,026 24,253 Interest income, net 602 181 1,216 648 Other income, net 150 384 374 739 Income from continuing operations before income taxes 10,805 9,032 29,616 25,640 Provision for income taxes 4,322 3,615 11,846 10,261 Income from continuing operations 6,483 5,417 17,770 15,379 Discontinued operations: Gain on sale - - 6,818 - Income from operations - 678 1,046 1,786 Income from discontinued operations - 678 7,864 1,786 Net income $ 6,483 $ 6,095 $ 25,634 $ 17,165 Income per share from continuing operations: Basic $ 0.88 $ 0.74 $ 2.43 $ 2.08 Diluted 0.86 0.73 2.38 2.05 Net income per share: Basic $ 0.88 $ 0.83 $ 3.50 $ 2.32 Diluted 0.86 0.82 3.43 2.29 Average common shares outstanding: Basic 7,351 7,378 7,317 7,386 Diluted 7,525 7,472 7,467 7,506
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Condensed Consolidated Balance Sheets As of December 31, 1997 and March 31, 1997 (in thousands, except share and per share data)
December 31, March 31, Assets 1997 1997 (Unaudited) Current Assets: Cash and cash equivalents $ 49,464 $ 28,901 Short-term investments 4,699 - Receivables, less allowance for doubtful accounts of $2,291 at December 31, 1997 and $1,821 at March 31, 1997 58,939 37,615 Inventories, at lower of cost or market: Raw materials 635 572 Work-in-process 23,537 19,178 Finished goods 4,010 3,453 Total inventories 28,182 23,203 Deferred income tax benefits 3,212 3,070 Prepaid expenses and other current assets 5,371 6,624 Net assets of discontinued operation - 27,762 Total current assets 149,867 127,175 Property, plant, and equipment, net 29,003 24,194 Deferred charges and other assets 5,246 4,918 Deferred income tax benefits 1,008 1,095 Excess of cost over fair value of net assets acquired 9,226 6,369 $194,350 $163,751 Liabilities and Stockholders' Equity Current Liabilities: Current installments of long-term debt $ 92 $ 92 Accounts payable 5,307 6,803 Accrued expenses 10,977 9,709 Accrued compensation 8,665 7,818 Income taxes 4,194 1,327 Total current liabilities 29,235 25,749 Long-term debt, excluding current installments 2,901 1,916 Deferred and other compensation 5,083 5,005 Stockholders' equity: Common Stock, $0.01 par value. Authorized 30,000,000 shares; issued 8,458,317 shares at December 31, 1997 and 8,383,317 shares at March 31, 1997 85 84 Additional paid-in capital 36,073 35,658 Retained earnings 137,968 112,334 174,126 148,076 Less: 1,099,500 shares of common stock held in treasury, at cost, at December 31, 1997 and March 31, 1997 (16,995) (16,995) Total stockholders' equity 157,131 131,081 $194,350 $163,751
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Condensed Consolidated Statements of Cash Flows For the nine months ended December 31, 1997 and 1996 (Unaudited) (in thousands)
1997 1996 Net cash provided by (used in) continuing operations $(3,281) $ 308 Net cash provided by (used in) discontinued operations (2,037) 1,801 Net cash provided by (used in) operating activities (5,318) 2,109 Cash flows from investing activities: Capital expenditures (9,392) (4,938) Purchase of short-term investments (4,699) - Payments for purchases of subsidiaries, net of cash acquired (3,227) (400) Proceeds from sale of discontinued operations 42,883 - Net cash provided by (used in) investing activities 25,565 (5,338) Cash flows from financing activities: Payments of long-term debt (100) (52) Proceeds from the exercise of stock options and other 416 454 Purchase of treasury stock - (4,326) Net cash provided by (used in) financing activities 316 (3,924) Net increase (decrease) in cash and cash equivalents 20,563 (7,153) Cash and cash equivalents, beginning of period 28,901 27,857 Cash and cash equivalents, end of period $49,464 $20,704
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Notes to Condensed Consolidated Financial Statements December 31, 1997 (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. The prior year financial statements have been reclassified, where applicable, to conform to the December 31, 1997 presentation. On September 8, 1997 the Company consummated a transaction for the sale of its printing subsidiary, Graftek Press, Inc. (see note 7). Accordingly, the operations of Graftek Press, Inc. have been presented as a discontinued operation in the accompanying condensed consolidated financial statements. Reference should be made to the "Annual Report of Corporation Form 10-K" for the fiscal year ended March 31, 1997 (including its notes to consolidated financial statements) filed with the Securities and Exchange Commission. (2) Earnings per share is presented on a Basic and Diluted basis. The computation of Basic earnings per share is based on income available to common stockholders and the weighted average number of common shares outstanding during the three- and nine-month periods. Diluted earnings per share reflects the potential dilution that could occur if dilutive stock options were exercised resulting in the issuance of common stock that then shared in the earnings of the Company. The following table details the computation of Basic and Diluted earnings per share for the three- and nine-month periods. For the Three Months For the Nine Months Ended December 31, Ended December31, Income 1997 1996 1997 1996 Income from continuing operations $ 6,483 $ 5,417 $17,770 $15,379 Discontinued operations - 678 7,864 1,786 Net Income $ 6,483 $ 6,095 $25,634 $17,165 Shares Basic Shares 7,351 7,378 7,317 7,386 Effect of Dilutive Stock Options 174 94 150 120 Diluted Shares 7,525 7,472 7,467 7,506 For the Three Months For the Nine Months Ended December 31, Ended December 31, Basic EPS 1997 1996 1997 1996 Income from continuing operations $ .88 $ .74 $2.43 $2.08 Discontinued operations - .09 1.07 .24 Net Income $ .88 $ .83 $3.50 $2.32 Diluted EPS Income from continuing operations $ .86 $ .73 $2.38 $2.05 Discontinued operations - .09 1.05 .24 Net Income $ .86 $ .82 $3.43 $2.29 (3) For purposes of the Statements of Cash Flows, the Company considers all short-term investments with maturities of three months or less to be cash equivalents since the investments are highly liquid. (4) Property, plant, and equipment is net of accumulated depreciation of $37,659,000 and $34,747,000 at December 31, 1997 and March 31, 1997, respectively. (5) Effective September 1, 1997 the Company acquired Canadian Art Prints Inc.(CAP) for $2,527,000 in cash and a note payable of $1,086,000. Located in Richmond, B.C., Canada, CAP publishes and distributes art posters, art cards, limited edition prints, and matted as well as framed art. The excess of the purchase price over the fair value of net assets acquired was $2,684,000. Effective July 31, 1995, the Company acquired Proof Positive/ Farrowlyne Associates, Inc. (PP/FA) for $4,000,000 in cash and earnings-related contingent consideration, $1,100,000 of which has been earned and paid to date. 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 $4,470,000, including the additional contingent consideration. (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. Under this authorization, 174,500 and 50,000 shares were acquired during fiscal 1997 and 1996, respectively. (7) On July 22, 1997, Devon Group, Inc. announced that it had reached agreement for the sale of the capital stock of its printing subsidiary, Graftek Press, Inc., to BGJ Enterprises, Inc., an affiliate of Brown Printing Company for approximately $40,000,000 in cash. The transaction was consummated on September 8, 1997 and resulted in a gain (net of applicable income taxes) for financial statement purposes of $6,818,000 and generated approximately $35,455,000 in after-tax cash. Revenues for Graftek Press, Inc. were $24,688,000 for the nine-month period ended December 31, 1997 versus $12,882,000 and $41,579,000 for the prior year three- and nine-month periods, respectively. Income from discontinued operations is net of related income tax expense of $5,235,000 for the nine-month period ended December 31, 1997, versus $448,000 and $1,182,000 for the prior year three- and nine-month periods, respectively. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Sales: Sales from continuing operations increased $12,524,000, or 22.2%, and $30,609,000, or 19.2%, for the three- and nine-month periods ended December 31, 1997 versus the comparable prior year periods reflecting growth in both the pre-press and publishing subsidiaries. Pre-press Revenues for Black Dot Group increased $7,659,000, or 20.2%, and $14,184,000, or 14.2%, respectively, for the three- and nine- month periods ended December 31, 1997. The increases versus the prior year periods reflect continued growth in creative, design, photographic, and composition services provided to new retail advertising and catalog accounts as well as incremental volume with our major retail advertising customers. These gains offset lower textbook-related revenues. Publishing Devon Publishing Group's sales increased $4,865,000, or 26.0%, and $16,425,000, or 27.8%, respectively, versus the comparable prior year periods reflecting increased revenues at each of its existing subsidiaries and incremental revenues from Canadian Art Prints Inc., a subsidiary acquired effective September 1, 1997. At Portal, the improvements reflect increased sales of the card, matted product, and T-shirt lines, primarily due to the combined effects of the popularity of the Anne Geddes imagery and increased sales to mass market merchants. Revenues at The Winn Fine Art Group improved versus the prior year periods reflecting the success of the upscale Devon Editions poster line as well as a slight increase in fine art sales. Gross Profit: Gross Profit as a percentage of sales was 41.1% and 42.9%, respectively, for the three- and nine-month periods ended December 31, 1997 versus 41.3% and 43.0% for the comparable prior year periods. While gross margins at the pre-press subsidiary were essentially flat, they declined at the publishing subsidiary where a shift in product mix resulted in an increase in the cost of materials as a percentage of sales. Increased return provisions in the publishing subsidiary also contributed to the lower gross margin. Selling, General, and Administrative Expenses: Selling, general, and administrative expenses as a percentage of sales were 26.6% and 28.2%, respectively, for the three- and nine- month periods ended December 31, 1997 versus 26.3% and 27.8% for the comparable prior year periods. These increases were primarily due to higher royalty expenses and art amortization charges at the publishing subsidiary reflecting an increase in licensed imagery and an expansion of published titles. Interest Income, Net: Net interest income increased $421,000 and $568,000, respectively, for the three- and nine-month periods ended December 31, 1997 reflecting an increase in the average level of short-term investments over the prior year periods. Income Taxes: The effective income tax rate was 40.0% for the three- and nine- month periods ended December 31, 1997 and 1996 Net Income: As a result of the foregoing, income from continuing operations increased $1,066,000, or $.14 per share, and $2,391,000, or $.35 per share, for the three- and nine-month periods ended December 31, 1997, while diluted earnings per share increased $.13 and $.33, respectively, versus the prior year periods. Liquidity and Capital Resources During the nine-month period ended December 31, 1997, cash used by continuing operations was $3,281,000 while cash provided by continuing operations for the prior year period was $308,000. The difference primarily reflects increased working capital versus the prior year period partially offset by a $2,391,000 increase in income from continuing operations. The increased working capital requirements were primarily due to higher levels of accounts receivable in the pre-press business attributable to increased sales volume and the timing of payments for the nine- month period ended December 31, 1997. Existing short-term investments were used to fund the cash requirements of the discon- tinued operation, capital expenditures, the purchase of Canadian Art Prints, and the contingent payment related to the purchase of PP/FA. All balances, including those generated by the sale of Graftek Press, Inc., were invested in short-term low-risk investments. For the nine months ended December 31, 1996, existing short-term investments along with cash generated by continuing and discontinued operations were used to fund capital expenditures and the contingent payment related to the purchase of PP/FA. Impact of the Year 2000 Issue The Company has assessed the impact of the Year 2000 issue on its computer systems. Remedial action has been taken or is planned for completion in a timely manner, and the Company estimates that the related costs will not have a material impact on its results of operations. Recently Issued Financial Accounting Standards In June 1997, SFAS No. 130 "Reporting Comprehensive Income" was issued establishing standards for reporting and display of "comprehensive income" and its components. The Company will be required to adopt SFAS No. 130 for its fiscal year ending March 31, 1999; however, such adoption will not have a material impact on the Company's financial position or results of operations as it relates to disclosure matters only. In June 1997, SFAS No. 131 "Disclosure About Segments of an Enterprise and Related Information" was issued establishing standards for reporting information about operating segments, products and services, geographic areas, and major customers in annual and interim financial statement footnote disclosure. As required, the Company will adopt the applicable sections of SFAS No. 131 during its fiscal year ending March 31, 1999 and its adoption will not have a material impact on the Company's financial position or results of operations as it relates to disclosure matters only. 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. Exhibit 10 - Material Contracts - Stock Purchase Agreement between BGJ Enterprises, Inc. and the Company. (Incorporated by reference to Exhibit No. 10 forming part of the Registrant's Report on Form 10-Q filed with Securities and Exchange Commossion under the Securities Exchange Act of 1934, as amended, for the quarterly period ended September 30, 1997) Exhibit 27 - Financial Data Schedule b. Reports on Form 8-K. None. 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 12, 1998 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) EX-27 2
5 0000040542 R. DONOVAN 1000 USDOLLARS 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1997 1 54163 0 61230 2291 28182 149867 66662 37659 194350 29235 0 85 0 0 157046 194350 190020 190020 108423 108423 0 933 151 29616 11846 17770 7864 0 0 25634 2.43 2.38
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