-----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, C6JPlHuAfV9jOpA0dy2DNRqTZMlSBX1lda07Xw0xqw2VZ4g67j+8kxTwEuk1NqW9 IzA2Ac5EMcMhHSWJB5+eEw== 0000040542-96-000010.txt : 19961118 0000040542-96-000010.hdr.sgml : 19961118 ACCESSION NUMBER: 0000040542-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 1934 Act SEC FILE NUMBER: 000-14850 FILM NUMBER: 96663850 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 September 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 November 12, 1996 Common Stock 7,379,817 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 Six Months Ended September 30, Ended September30, 1996 1995 1996 1995 Sales $ 68,389 $ 63,449 $130,943 $123,230 Operating costs and expenses: Cost of sales 41,265 35,314 80,488 71,186 Selling, general, and administrative 17,209 16,267 33,082 31,012 Income from operations 9,915 11,868 17,373 21,032 Interest income (expense), net 219 155 467 305 Other income, net 384 418 610 786 Income before income taxes 10,518 12,441 18,450 22,123 Provision for income taxes 4,207 5,039 7,380 8,960 Net income $ 6,311 $ 7,402 $ 11,070 $ 13,163 Net income per common share $ .85 $ 1.01 $ 1.50 $ 1.80 Average common shares outstanding 7,396 7,317 7,390 7,303
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Condensed Consolidated Balance Sheets As of September 30, 1996 and March 31, 1996 (in thousands, except share and per share data) September 30, March 31, Assets 1996 1996 (Unaudited) Current Assets: Cash and cash equivalents $ 20,059 $ 27,749 Receivables, less allowance for doubtful accounts of $2,300 at September 30, 1996 and $2,477 at March 31, 1996 52,394 39,629 Inventories, at lower of cost or market: Raw materials 1,959 2,726 Work-in-process 18,396 15,115 Finished goods 2,402 2,486 Total inventories 22,757 20,327 Deferred income tax benefit 3,430 3,430 Prepaid expenses and other current assets 7,016 6,079 Total current assets 105,656 97,214 Property, plant, and equipment, net 52,241 51,522 Deferred charges and other assets 1,129 1,111 Excess of cost over fair value of net assets acquired 6,752 6,579 $165,778 $156,426 Liabilities and Stockholders' Equity Current Liabilities: Current installments of long-term debt $ 110 $ 110 Accounts payable 7,985 9,439 Accrued expenses 11,058 9,963 Accrued compensation 8,555 9,493 Income taxes 1,093 1,634 Total current liabilities 28,801 30,639 Long-term debt, excluding current installments 1,968 2,003 Deferred and other compensation 6,418 6,413 Deferred income taxes 4,413 4,413 Stockholders' equity: Common Stock, $0.01 par value. Authorized 30,000,000 shares; issued 8,357,317 shares at September 30, 1996 and 8,304,317 shares at March 31, 1996 84 83 Additional paid-in capital 34,898 34,538 Retained earnings 102,076 91,006 137,058 125,627 Less: Shares of common stock held in treasury, at cost; 932,000 at September 30, 1996 and 925,000 at March 31, 1996 (12,880) (12,669) Total stockholders' equity 124,178 112,958 $165,778 $156,426
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Condensed Consolidated Statements of Cash Flows For the six months ended September 30, 1996 and 1995 (Unaudited) (in thousands) 1996 1995 Net cash provided by (used in) operating activities $(1,009) $ 3,848 Cash flows from investing activities: Capital expenditures (6,396) (3,691) Payments for purchases of subsidiaries, net of cash acquired (400) (3,892) Net cash used in investing activities (6,796) (7,583) Cash flows from financing activities: Payments of long-term debt (35) (41) Proceeds from the exercise of stock options and other 361 675 Purchase of treasury stock (211) (1,294) Net cash provided by (used in) financing activities 115 (660) Net decrease in cash and cash equivalents (7,690) (4,395) Cash and cash equivalents, beginning of period 27,749 16,965 Cash and cash equivalents, end of period $20,059 $12,570
See accompanying notes to condensed consolidated financial statements. DEVON GROUP, INC. Notes to Condensed Consolidated Financial Statements September 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- and six-month periods ended September 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 $82,621,000 and $77,175,000 at September 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 of which $400,000 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 $3,770,000 including the additional contingent consideration. 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 six-month periods ended September 30, 1996 and 1995, under this authorization, 7,000 and 50,000 shares, respectively, were repurchased. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Sales: Consolidated sales increased $4,940,000, or 7.8%, and $7,713,000, or 6.3%, for the three- and six-month periods ended September 30, 1996 versus the comparable prior year periods with each of the Company's subsidiaries contributing to this growth. Pre-press Revenues for Black Dot Group increased $3,067,000, or 11.0%, and $4,429,000, or 7.6%, respectively, for the three- and six-month periods ended September 30, 1996. The increases versus the prior year periods were primarily due to new retail advertising accounts, additional textbook volume, incremental revenues from Nobart and PP/FA, businesses acquired during fiscal 1996, and sales from the Company's developing multimedia business. Partially offsetting these factors were reductions in billings to Sears and Kmart reflecting reduced prices included in the five- year contract extensions. Publishing Devon Publishing Group's sales increased $1,676,000, or 7.5%, and $2,169,000, or 5.7%, for the three- and six-month periods ended September 30, 1996, reflecting increased revenues at Portal and Portal UK, while sales at The Winn Devon Art Group approximated the prior year periods. At Portal, sales of cards were especially strong reflecting the success of the Geddes imagery and the May 1996 introduction of the Boynton line. A decrease in poster/print and matted product revenues partially offset this gain. At The Winn Devon Art Group, an increase in revenues from the upscale Devon Editions poster line was offset by reduced framing revenues. Printing Sales at Graftek Press, Inc. increased $197,000, or 1.5%, and $1,115,000, or 4.1%, respectively, for the three- and six-month periods ended September 30, 1996. The increases were primarily due to increased work for catalog publishers, which was particularly strong during the first quarter of fiscal 1997, and the addition of new magazines added in fiscal 1997. Gross Profit: Gross profit as a percentage of sales was 39.7%, and 38.5%, respectively, for the three- and six-month periods ended September 30, 1996 versus 44.3%, and 42.2%, for the comparable prior year periods. For the three-month period ended September 30, 1996, the decrease was primarily due to a reduction at the pre-press subsidiary while margins at the publishing and magazine printing businesses were in line with the prior year period. In the pre-press subsidiary, the decrease was primarily due to higher outside service costs related to new retail advertising customers, increased labor costs associated with the transition of Nobart into the Black Dot Group, expenditures related to further development of the interactive multimedia business, and the effects of the Sears and Kmart price concessions. For the six-month period, margins at both the pre-press and publishing subsidiaries decreased versus the prior year period and were partially offset by a slight improvement at the magazine printing business. In the pre-press subsidiary, the decline was primarily due to the aforementioned increase in labor costs and expenditures related to the multimedia business. Margins in the publishing subsidiary reflect 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 fiscal first quarter returns from previous sales and more aggressive current sales programs, while the charge for poster returns results from the issuance of credit vouchers for slower-moving product in an effort to reenergize 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 slight margin improvement. Selling, General, and Administrative Expenses: Selling, general, and administrative expenses as a percentage of sales were 25.2%, and 25.3%, respectively, for the three- and six- month periods ended September 30, 1996 versus 25.6% and 25.2% for the comparable prior year period. For the quarter, the modest improvement in SG&A expenses as a percentage of sales was primarily attributable to the pre-press subsidiary and reflects a reduction in incentive-based compensation expenses, partially offset by higher costs due to the fiscal 1996 acquisitions of Nobart and PP/FA. For the six-month period ended September 30, 1996, SG&A expenses at each of the Company's subsidiaries were in line with the prior year period. Interest Income (Expense): Net interest income increased $64,000 and $162,000, respectively, for the three- and six-month periods ended September 30, 1996 reflecting an increase in the level of average short-term investments over the prior year periods. Income Taxes: The effective income tax rate was 40.0% for the three- and six- month periods ended September 30, 1996 versus 40.5% for the prior year periods. Net Income: As a result of the foregoing, net income per share decreased $.16, or 15.8%, and $.30, or 16.7%, respectively, versus the prior year three- and six-month periods. Liquidity and Capital Resources During the six-month period ended September 30, 1996, cash used by operating activities was $1,009,000, while cash provided by operating activities for the prior year period was $3,848,000. The change reflects a $3,179,000 increase in working capital requirements versus the prior year period as well as a $2,093,000 reduction in net income. The increased working capital requirements were primarily due to the higher inventory levels in the pre-press business as its customer base expands and higher levels of accounts receivable in the publishing business attributable to increased sales volume and the timing of payments. For the six-month period ended September 30, 1996, short-term investments were used to provide cash for operating activities and fund capital expenditures. 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 1995. Recently Issued Financial Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" 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. 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. 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. 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 14, 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) EX-27 2
5 0000040542 R DONOVAN 1,000 US DOLLARS 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 1.0 20059 0 54694 2300 22757 105656 134862 82621 165778 28801 0 84 0 0 124094 165778 130943 130943 80488 80488 0 339 90 18450 7380 11070 0 0 0 11070 1.50 0
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