SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 0-3415
STV GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1698231
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
205 West Welsh Drive, Douglassville, Pennsylvania 19518
(Address of principal executive offices) (Zip Code)
(610) 385-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.50 par value
(Title of class)
As of December 31, 1999, there were 3,836,818 shares of common stock of the
registrant outstanding.
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 twelve 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
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS......................1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements.......................................2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation.........................6
Item 3. Quantitative and Qualitative Disclosures about Market Risk.8
Part II: OTHER INFORMATION
Item 1. Legal Proceedings..........................................9
Item 2. Changes in Securities......................................9
Item 3. Defaults Upon Senior Securities............................9
Item 4. Submission of Matters to a Vote of Security Holders........9
Item 5. Other Information..........................................9
Item 6. Exhibits and Reports on Form 8-K...........................9
SIGNATURES....................................................................10
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements regarding the Company's ability to meet its liquidity needs and
control costs, certain statements in Notes to Condensed Consolidated Financial
Statements, and other statements contained herein regarding matters which are
not historical facts are forward looking statements (as such term is defined in
the Securities Act of 1933) and because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to those discussed
below:
1. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth.
2. The Company's continued ability to operate in a heavily regulated
government environment. The Company's government contracts are subject to
termination, reduction or modification as a result of changes in the
government's requirements or budgetary restrictions. In addition,
government contracts are subject to termination at the conveniences of the
government. Under certain circumstances, the government can also suspend or
debar individuals or firms from obtaining future contracts with the
government.
3. The level of competition in the Company's industry, including companies
with significantly larger operations and resources than the Company.
4. The Company's ability to identify and win suitable projects and to
consummate or complete any such projects.
5. The Company's ability to perform design/build projects which may include
the responsibility of ensuring the actual construction of a project for a
guaranteed price.
These and other factors have been discussed in more detail in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999.
1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, 1999 September 30, 1999
ASSETS
Current Assets
Cash and Cash Equivalents $2,385,000 $7,248,000
Accounts Receivable 34,524,000 30,590,000
Costs and Estimated Profits of Uncompleted
Contracts in Excess of Related Billings 16,024,000 17,029,000
Prepaid Expenses and Other Current Assets 509,000 829,000
------- -------
Total Current Assets 53,442,000 55,696,000
Property and Equipment 7,163,000 6,645,000
Less Accumulated Depreciation 5,032,000 4,832,000
--------- ---------
Net Property and Equipment 2,131,000 1,813,000
Deferred Income Taxes 2,443,000 2,443,000
Other Assets 846,000 782,000
------- -------
TOTAL $58,862,000 $60,734,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $6,020,000 $7,675,000
Accrued Expenses 9,002,000 10,211,000
Billings on Uncompleted Contracts in Excess of
Related Costs 16,122,000 17,094,000
Current portion of long term debt 103,000 110,000
Deferred income taxes 2,137,000 2,137,000
Income tax payable 1,253,000 876,000
--------- -------
Total Current Liabilities 34,637,000 38,103,000
Long-Term Debt 3,065,000 2,794,000
Post-retirement Benefits 1,070,000 1,070,000
Stockholders' Equity
Common Stock 2,043,000 2,041,000
Capital in Excess of Par 3,461,000 3,445,000
Retained Earnings 15,357,000 14,052,000
---------- ----------
Total 20,861,000 19,538,000
Less: Treasury Stock 771,000 771,000
------- -------
Total Stockholders' Equity 20,090,000 18,767,000
TOTAL $58,862,000 $60,734,000
=========== ===========
See notes to condensed consolidated financial statements.
2
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
December 31
1999 1998
Revenues
Total Revenues $34,246,000 $34,221,000
Less Subcontract and Procurement Costs 6,846,000 11,362,000
--------- ----------
Operating Revenue $27,400,000 $22,859,000
Costs and Expenses
Costs of Services and Sales 22,902,000 19,402,000
General and Administrative 2,130,000 1,748,000
--------- ---------
Total Costs and Expenses 25,032,000 21,150,000
Interest Expense (38,000) (74,000)
Interest Income 93,000 73,000
------ ------
Income Before Income Taxes 2,423,000 1,708,000
Income Taxes 1,118,000 796,000
--------- -------
Net Income $1,305,000 $912,000
========== ========
Basic earnings per share: $.34 $.24
Diluted earnings per share: $.31 $.22
See notes to condensed consolidated financial statements.
3
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
December 31
1999 1998
Operating Activities
Net Income $1,305,000 $912,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and Amortization 269,000 189,000
Changes in Operating assets and liabilities
Accounts Receivable (3,934,000) (881,000)
Costs of uncompleted contracts in
excess of billings and other current assets 1,325,000 (286,000)
Accounts Payable and accrued expenses (2,593,000) 19,000
Billing in excess of related costs (972,000) (281,000)
Current Income Taxes 377,000 435,000
------- -------
Net Cash provided by operating activities ($4,223,000) $107,000
Investing Activities
Purchase of Property and Equipment (518,000) (189,000)
Purchase of Software (159,000) (119,000)
Decrease in other assets 26,000 2,000
------ -----
Net Cash used in investing activities ($651,000) ($306,000)
Financing Activities
Proceeds from issuance of common stock 18,000 0
Principal payments on line of credit and long
term borrowings (7,000) (260,000)
------ --------
Net Cash used in financing activities $11,000 ($260,000)
Decrease in cash and cash equivalents (4,863,000) (459,000)
Cash and cash equivalents at beginning of year 7,248,000 4,444,000
--------- ---------
Cash and cash equivalents at end of period $2,385,000 $3,985,000
========== ==========
See notes to condensed consolidated financial statements.
4
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2000.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
Actual results could differ from those estimates.
3. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS recognizes the potential dilutive effects of the future exercise of
common stock options.
THREE MONTHS ENDED
Dec. 31, 1999 Dec. 31, 1998
Basic earnings per share $0.34 $0.24
Shares outstanding 3,835,557 3,800,318
Diluted earnings per share $0.31 $0.22
Shares outstanding 4,234,123 4,074,906
5
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operation
Results of Operations
Total revenues for the quarter ended December 31, 1999 (first quarter fiscal
2000) remained comparable to the first quarter of fiscal 1999 and decreased 6.7%
as compared to the previous quarter, primarily due to the decrease in revenues
related to pass-through costs. Operating revenues (total revenues excluding
pass-through costs) increased 19.9% as compared to the first quarter of fiscal
1999 and increased 5.5% as compared to the previous quarter.
Pass-through costs decreased 39.7% compared to the first quarter of fiscal 1999
and decreased 36.3% from the previous quarter. Pass-through costs vary depending
on the need for specialty subconsultants and governmental subcontract
requirements.
Costs of services, expressed as a percentage of operating revenues, decreased to
83.6% for the first quarter of fiscal 2000 from 84.9% in the first quarter of
fiscal 1999 and from 84.4% in the previous quarter. While the decrease in the
percentages from the first quarter of fiscal 1999 and the previous quarter was
due to an increase in operating revenues noted above, the absolute costs of
services also increased from the previous quarter due to an increase in labor
related costs.
General and administrative expense, expressed as a percentage of operating
revenue, is 7.8% in the first quarter of fiscal 2000 which is comparable to the
7.6% recorded in the first quarter of fiscal 1999 and a decrease from 9.2% in
the previous quarter. The decrease from the previous quarter is due to an
increase in operating revenues and a decrease in legal, consulting, and office
related expenses.
Interest income, net of interest expense, increased to $55,000 for the first
quarter of fiscal 2000 from net interest expense of $1,000 in the first quarter
of fiscal 1999 and decreased from $76,000 in the previous quarter.
6
Income tax expense for the first quarter of fiscal 2000 was 46.1% of pre-tax
income compared to 46.6% in the first quarter of fiscal 1999 and 43.9% in the
previous quarter. The increase from the previous quarter is due to the previous
quarter's rate being reduced as a result of increased pre-tax income derived
from the proceeds of a lawsuit settlement, reducing the effect of non-deductible
expenses.
Diluted earnings per common share for the first quarter of fiscal 2000 was $.31
cents versus $.22 for the first quarter of fiscal 1999.
Financial Condition and Liquidity
Working capital increased to $18,805,000 from $17,593,000 in the previous
quarter. Subsequent to December 31, 1999, STV completed negotiations with
another bank and obtained a $12,000,000 committed line of credit. The current
limit is a maximum of $12.0 million based on the Company maintaining certain
financial covenants of which approximately $11.0 million is currently available.
The Company believes that it and the lender will maintain a line of credit
adequate to meet the current and future financial needs of the Company. The
Company is planning to continue its program of purchasing computer-assisted
design and drafting equipment.
The Company's backlog at December 31, 1999 is approximately $220 million.
Year 2000
The Year 2000 issue, or "The Y2K Bug" as it is sometimes called, is the result
of computer programs and equipment that were written and manufactured using two
digits rather than four to define the applicable year. Date-sensitive computer
programs and equipment may recognize a date using only the last two digits. This
could result in the year 2000 being recognized as the year 1900. System failures
or miscalculations can occur, which would cause disruptions in operations and/or
the inability to process normal business transactions. The Company is not aware
of any significant adverse effects of Year 2000 on its systems and operations.
7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk exposures to the Company are not material.
8
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10Q:
Exhibit 10.35 - Letter Agreement with PNC Bank
Exhibit 10.36 - Committed Line of Credit Note with PNC Bank
Exhibit 10.37 - Security Agreement with PNC Bank
Exhibit 10.38 - Reimbursement Agreement for Standby Letter(s)
of Credit with PNC Bank
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
December 31, 1999.
9
SIGNATURES
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.
STV GROUP, INCORPORATED
(Registrant)
February 14, 2000 By: /s/ Dominick M. Servedio
- ---------------------- -------------------------------------
Date Dominick M. Servedio
President and Chief Executive Officer
February 14, 2000 By: /s/ Peter W. Knipe
- ---------------------- -------------------------------------
Date Peter W. Knipe
Chief Financial Officer
10