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 MARCH 31, 2001 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)
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
----- -----
As of March 31, 2001, there were 3,880,128 shares of common stock of the
registrant outstanding.
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.....7
Part II: OTHER INFORMATION
Item 1. Legal Proceedings.............................................8
Item 2. Changes in Securities.........................................8
Item 3. Defaults Upon Senior Securities...............................8
Item 4. Submission of Matters to a Vote of Security Holders...........8
Item 5. Other Information.............................................8
Item 6. Exhibits and Reports on Form 8-K..............................8
SIGNATURES.....................................................................9
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 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
such as statements regarding the proposed merger pursuant to the merger
agreement with the Company's ESOP 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. Whether all the conditions to closing the proposed merger are met or the
merger is not consummated for any other reason.
2. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth.
3. 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.
4. The level of competition in the Company's industry, including companies
with significantly larger operations and resources than the Company.
5. The Company's ability to identify and win suitable projects and to
consummate or complete any such projects.
6. 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.
Certain of 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,
2000.
1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2001 September 30, 2000
ASSETS
Current Assets:
Cash and cash equivalents $1,094,000 $3,382,000
Accounts receivable 43,509,000 36,282,000
Costs and estimated profits of uncompleted
contracts in excess of related billings 18,867,000 18,404,000
Prepaid expenses and other current assets 593,000 915,000
------- -------
Total Current Assets 64,063,000 58,983,000
Property and equipment 7,729,000 7,655,000
Less accumulated depreciation 4,708,000 4,767,000
--------- ---------
Net property and equipment 3,021,000 2,888,000
Deferred income taxes 3,142,000 2,852,000
Other assets 1,072,000 903,000
--------- -------
TOTAL $71,298,000 $65,626,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Deferred compensation $98,000 $100,000
Accounts payable 11,579,000 9,025,000
Accrued expenses 12,388,000 11,839,000
Billings on uncompleted contracts in excess of
related costs and estimated profits 12,025,000 12,514,000
Deferred income taxes 2,157,000 1,983,000
Income tax payable 752,000 933,000
------- -------
Total Current Liabilities 38,999,000 36,394,000
Deferred compensation 4,569,000 3,886,000
Post-retirement benefits 1,200,000 1,200,000
Stockholders' Equity:
Common stock 2,064,000 2,053,000
Capital in excess of par 3,651,000 3,546,000
Retained earnings 21,586,000 19,318,000
---------- ----------
Total 27,301,000 24,917,000
Less: Treasury stock 771,000 771,000
------- -------
Total Stockholders' Equity 26,530,000 24,146,000
TOTAL $71,298,000 $65,626,000
=========== ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
2
STV GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
March 31 March 31
2001 2000 2001 2000
Revenues
Total revenues $45,114,000 $36,538,000 $88,937,000 $70,783,000
Less subcontract and procurement costs 13,904,000 8,030,000 27,560,000 14,875,000
---------- --------- ---------- ----------
Operating revenue $31,210,000 $28,508,000 $61,377,000 $55,908,000
Costs and expenses
Costs of services 26,488,000 23,828,000 52,465,000 46,731,000
General and administrative 2,416,000 2,264,000 4,689,000 4,394,000
--------- --------- --------- ---------
Total costs and expenses 28,904,000 26,092,000 57,154,000 51,125,000
Miscellaneous income, net 4,000 - 10,000 1,000
Interest expense (48,000) (43,000) (92,000) (81,000)
Interest income 41,000 65,000 124,000 158,000
------ ------ ------- -------
Income before income taxes 2,303,000 2,438,000 4,265,000 4,861,000
Income taxes 1,074,000 1,125,000 1,997,000 2,243,000
--------- --------- --------- ---------
Net income $1,229,000 $1,313,000 $2,268,000 $2,618,000
========== ========== ========== ==========
Basic earnings per share: $.32 $.34 $.59 $.68
Diluted earnings per share: $.30 $.31 $.54 $.62
<FN>
See notes to condensed consolidated financial statements.
</FN>
3
STV GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
March 31
2001 2000
Operating Activities
Net income $2,268,000 $2,618,000
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 756,000 577,000
Deferred income taxes (116,000) (618,000)
Loss on disposal of property and equipment 5,000 4,000
Changes in operating assets and liabilities:
Accounts receivable (7,227,000) (1,986,000)
Costs of uncompleted contracts in excess of billings
and other assets (316,000) (799,000)
Accounts payable and accrued expenses 3,784,000 1,398,000
Billings on uncompleted contracts in excess of related costs (489,000) (4,416,000)
Income taxes payable (181,000) 45,000
-------- ------
Net cash used in operating activities $(1,516,000) $(3,177,000)
Investing Activities
Purchase of property and equipment $(716,000) $(1,379,000)
Purchase of software (172,000) (312,000)
-------- --------
Net cash used in investing activities $(888,000) $(1,691,000)
Financing Activities
Proceeds from issuance of common stock $116,000 $37,000
Proceeds from line of credit and long term borrowings 1,700,000 0
Principal payments on line of credit and long term borrowings (1,700,000) 0
---------- -
Net cash provided by financing activities $116,000 $37,000
Decrease in cash and cash equivalents (2,288,000) (4,831,000)
Cash and cash equivalents at beginning of period 3,382,000 7,248,000
--------- ---------
Cash and cash equivalents at end of period $1,094,000 $2,417,000
========== ==========
<FN>
See notes to condensed consolidated financial statements.
</FN>
4
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2001
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 and six month periods ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2001.
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 SIX MONTHS ENDED
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
-------------- -------------- -------------- --------------
Basic earnings per share $0.32 $0.34 $0.59 $0.68
Shares outstanding 3,880,017 3,839,027 3,873,028 3,837,292
Diluted earnings per share $0.30 $0.31 $0.54 $0.62
Shares outstanding 4,133,903 4,171,620 4,168,869 4,202,871
4. RECLASSIFICATION
Certain amounts for 2000 in the accompanying consolidated financial statements
have been reclassified to conform to the 2001 presentation.
5
5. SUBSEQUENT EVENT
On April 30, 2001, the company announced that it entered into an Agreement and
Plan of Merger with the company's employee stock ownership plan (the "ESOP")
pursuant to which all shares of the company's common stock not owned by the ESOP
will be exchanged for $11.25 per share in cash. The shares of the company's
common stock owned by the ESOP will be retained by the ESOP. Completion of the
merger is subject to the receipt of proposed financing, the approval of the
company's non-ESOP stockholders and ESOP participants and to other conditions
contained in the merger agreement. There can be no assurance that the merger
will be consummated.
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operation
-----------------------------------------------------------------------
Results of Operations
- ---------------------
Total revenues for the quarter ended March 31, 2001 (second quarter of fiscal
2001) increased 23.5% as compared to the second quarter of fiscal 2000 and
increased 2.9% as compared to the previous quarter. Operating revenues (total
revenues excluding pass through costs) for the second quarter of fiscal 2001
increased 9.5% as compared to the second quarter of fiscal 2000 and increased
3.5% as compared to the previous quarter.
Pass through costs, expressed as a percentage of total revenues, increased to
30.8% compared to 22.0% in the second quarter of fiscal 2000 and decreased from
31.2% in the previous quarter. Pass through costs will vary depending on the
need for specialty subconsultants and governmental subcontract requirements.
Costs of services, expressed as a percentage of operating revenues, increased to
84.9% for the second quarter of fiscal 2001 from 83.6% for the second quarter of
fiscal 2000 and decreased from 86.1% recorded in the previous quarter. The
increase from the second quarter of fiscal 2000 is due mainly to an increase in
labor and labor related costs while the decrease from the previous quarter is
due primarily to the increase in operating revenues noted above.
6
General and administrative expense, expressed as a percentage of operating
revenue, was 7.7% in the second quarter of fiscal 2001 and is slightly lower
than the 7.9% recorded in the second quarter of fiscal 2000 and is comparable to
the 7.5% recorded in the previous quarter.
Miscellaneous income, net increased to $4,000 for the second quarter of fiscal
2001 from zero in the second quarter of fiscal 2000 and decreased from $6,000 in
the previous quarter.
Interest income, net of interest expense, decreased to net interest expense of
$7,000 for the second quarter of fiscal 2001 from net interest income of $22,000
in the second quarter of fiscal 2000 and from $39,000 in the previous quarter
due to lower cash balances as cash has been used to finance operating
activities.
Income tax expense for the second quarter of fiscal 2001 was 46.6% of pre-tax
income compared to 46.1% in the second quarter of fiscal 2000 and 47.0% in the
previous quarter. The decrease from the previous quarter is due to
non-deductible expenses being lower as a percentage of increased second quarter
pre-tax income.
Diluted earnings per common share for the second quarter of fiscal 2001 was $.30
cents versus $.31 cents for the second quarter of fiscal 2000.
Financial Condition and Liquidity
- ---------------------------------
Working capital increased to $25,064,000 at March 31, 2001 from $23,678,000 at
December 31, 2000. The Company has a $12,000,000 committed line of credit. The
agreement provides that the Company may borrow up to $10,000,000 and issue
letters of credit for up to $2,000,000. Approximately $10,000,000 is available
on the $12,000,000 line of credit. The Company is planning to continue its
program of purchasing computer-assisted design and drafting equipment.
The Company's backlog at March 31, 2001 is approximately $250 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
-----------------------------------------------------------
Market risk exposures to the Company are not material.
7
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
On April 30, 2001, the company announced that it entered into an
Agreement and Plan of Merger with the company's employee stock
ownership plan (the "ESOP") pursuant to which all shares of the
company's common stock not owned by the ESOP will be exchanged for
$11.25 per share in cash. The shares of the company's common stock
owned by the ESOP will be retained by the ESOP. Completion of the
merger is subject to the receipt of proposed financing, the approval
of the company's non-ESOP stockholders and ESOP participants and to
other conditions contained in the merger agreement. There can be no
assurance that the merger will be consummated.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
March 31, 2001.
8
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)
May 11, 2001 By: /s/ Dominick M. Servedio
- ----------------- -------------------------------------
Date Dominick M. Servedio
President and Chief Executive Officer
May 11, 2001 By: /s/ Peter W. Knipe
- ---------------- -------------------------------------
Date Peter W. Knipe
Chief Financial Officer
9