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 JUNE 30, 1998 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 $1.00 par value
(Title of class)
As of June 30, 1998, there were 3,790,318 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
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
5
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 through.
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, 1997.
1
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
June 30, 1998 September 30, 1997
ASSETS
Current Assets
Cash and Equivalents $1,222,000 $1,153,000
Accounts Receivable 23,196,000 20,154,000
Costs and Estimated Profits of Uncompleted
Contracts in Excess of Related Billings 14,080,000 15,077,000
Prepaid Income Taxes 503,000 503,000
Other Current Assets 918,000 1,223,000
------- ---------
Total Current Assets 39,919,000 38,110,000
Property and Equipment 7,759,000 7,466,000
Less Accumulated Depreciation 6,397,000 6,127,000
--------- ---------
Net Property and Equipment 1,362,000 1,339,000
Deferred Income Taxes 1,660,000 1,660,000
Other Assets 761,000 716,000
------- -------
TOTAL $43,702,000 $41,825,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes and Accounts Payable $7,531,000 $16,567,000
Accrued Wages and Expenses 10,307,000 7,851,000
Billings on Uncompleted Contracts in Excess of
Related Costs 11,052,000 4,386,000
---------- ---------
Total Current Liabilities 28,890,000 28,804,000
Long-Term Debt 2,051,000 1,819,000
Stockholders' Equity
Preferred Stock 0 0
Common Stock 2,020,000 1,921,000
Capital Surplus 3,329,000 3,003,000
Retained Earnings 8,183,000 6,674,000
--------- ---------
Total 13,532,000 11,598,000
Less: Treasury Stock 771,000 271,000
Loans Receivable from Officers 0 125,000
- -------
Total Stockholders' Equity 12,761,000 11,202,000
TOTAL $43,702,000 $41,825,000
=========== ===========
2
STV GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
June 30
1998 1997
Operating Activities
Net Income $1,509,000 $569,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and Amortization 512,000 609,000
Changes in Operating assets and liabilities
Accounts Receivable (3,042,000) 916,000
Costs of uncompleted contracts in
excess of billings and prepaid expenses 1,302,000 (1,991,000)
Accounts Payable and accrued expenses 2,642,000 269,000
Billing in excess of related costs 6,666,000 435,000
Current Income Taxes 1,051,000 (87,000)
--------- -------
Net Cash provided by operating activities $10,640,000 $720,000
Investing Activities
Purchase of Property and Equipment (461,000) (680,000)
Purchase of Software (203,000) (91,000)
Decrease (Increase) in other assets 51,000 121,000
------ -------
Net Cash provided (used) by investing activities ($613,000) ($650,000)
Financing Activities
Proceeds from issuance of common stock 84,000 0
Proceeds from line of credit and long term
borrowings 55,261,000 69,210,000
Principal payments on line of credit and long
term borrowings (65,303,000) (68,948,000)
----------- -----------
Net Cash (used) provided by financing
activities ($9,958,000) $262,000
Increase (decrease) in cash and equivalents 69,000 332,000
Cash and equivalents at beginning of year 1,153,000 28,000
--------- ------
Cash and equivalents at end of period $1,222,000 $360,000
========== ========
3
STV GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
June 30 June 30
1998 1997 1998 1997
Revenue
Total Revenue $25,550,000 $24,637,000 $75,682,000 $69,684,000
Less Subcontract and Procurement Costs 5,510,000 6,524,000 16,688,000 15,267,000
--------- --------- ---------- ----------
Operating Revenue $20,040,000 $18,113,000 $58,994,000 $54,417,000
Costs and Expenses
Costs of Services and Sales 17,296,000 15,994,000 51,118,000 48,307,000
General and Administrative 1,535,000 1,324,000 4,557,000 3,923,000
Interest Expense 59,000 350,000 418,000 1,035,000
Interest Income (31,000) (19,000) (64,000) (38,000)
------- ------- ------- -------
Total Costs and Expenses 18,859,000 17,649,000 56,029,000 53,227,000
Income Before Income Taxes 1,181,000 464,000 2,965,000 1,190,000
Income Taxes 579,000 236,000 1,456,000 621,000
------- ------- --------- -------
Net Income $602,000 $228,000 $1,509,000 $569,000
======== ======== ========== ========
Net Income per share: $0.15 $0.06 $0.38 $0.15
Weighted Average Number
of Shares Outstanding 4,102,795 3,805,702 3,943,723 3,802,938
Note: A 2 for 1 split was effected April 13, 1998, for shareholders of record as
of March 31, 1998. Prior period net income per share and weighted average
number of shares outstanding have been adjusted to reflect this split.
4
Notes to Consolidated Condensed Financial Statement
June 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instruction to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles.
It should be understood that the foregoing interim results are not necessarily
indicative of the results of operations for the full fiscal year ending
September 30, 1998 due in part to increased reliance on estimates at interim
dates.
2. EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share," has been adopted by the Company. SFAS 128
replaces primary earnings per share (EPS) with basic EPS and fully diluted EPS
with diluted EPS. Basic 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 NINE MONTHS ENDED
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
Basic earnings per share $0.16 $0.06 $0.41 $0.16
Shares outstanding 3,774,740 3,642,492 3,691,946 3,642,492
Diluted earnings per share $0.15 $0.06 $0.38 $0.15
Shares outstanding 4,102,795 3,805,702 3,943,723 3,802,938
A 2-for-1 split was effected April 13, 1998, for shareholders of record as of
March 31, 1998. This split is reflected in the above basic earnings per share
and weighted average number of shares outstanding.
5
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
Total revenues for the quarter ended June 30, 1998 (third quarter fiscal 1998)
increased 3.7% as compared to the third quarter of fiscal 1997 and decreased
1.7% as compared to the previous quarter. Operating revenues (total revenues
excluding pass-through costs) increased 10.6% as compared to the third quarter
of fiscal 1997 and increased 1.2% as compared to the previous quarter.
Pass-through costs, expressed as a percentage of total revenues, decreased to
21.6% as compared to 26.5% in the third quarter of fiscal 1997 and decreased
from 23.9% in the previous quarter. Pass-through costs will vary depending on
the need for specialty subconsultants and governmental subcontract requirements.
Cost of services, expressed as a percentage of operating revenues, decreased to
86.3% for the third quarter of fiscal 1998 from 88.3% in the third quarter of
fiscal 1997 and decreased from 87.0% in the previous quarter. The decrease in
the percentage from the third quarter of fiscal 1997 was due mainly to the
increase in operating revenues noted above. The costs of services remained
comparable to the previous quarter.
General and administrative expense, expressed as a percentage of operating
revenue, is 7.7% in the third quarter of fiscal 1998 and is comparable to 7.3%
recorded in the third quarter of fiscal 1997 and 7.5% in the previous quarter.
Interest, expressed as a percentage of operating revenues, decreased to .1% for
the third quarter of fiscal 1998 from 1.8% in the third quarter of fiscal 1997
and decreased slightly from .4% in the previous quarter. This decrease is due to
the virtual elimination in bank borrowings as a result of continued improvement
in cash receipts and interest earned from surplus cash.
6
Income tax expense for the third quarter of fiscal 1998 was 49.0% of pre-tax
income compared to 50.9% in the third quarter of fiscal 1997 and 50.5% in the
previous quarter. The decrease is due to slightly higher non-deductible expenses
being lower as a percentage of a considerably higher third quarter pre-tax
income.
Earnings per common share, calculated using the Treasury Stock Method, for the
third quarter of fiscal 1998 were 15 cents based on 4,102,795 shares outstanding
versus 6 cents for the third quarter of fiscal 1997 based on 3,805,702 shares
outstanding. A 2 for 1 stock split was effective April 13, 1998 for stockholders
of record as of March 31, 1998. Prior period net income per share and weighted
average number of shares outstanding have been adjusted to reflect this split.
Financial Condition and Liquidity
Working capital increased to $11,029,000 from $10,719,000 in the previous
quarter. Capital resources available to the Company include an existing line of
credit for working capital. The current limit is a maximum of $15.5 million
based on accounts receivable and work-in-progress of which approximately $13.3
million is currently available. The Company recently completed negotiations and
entered into an agreement with its bank which has reduced its borrowing rate to
the bank's base rate. The Agreement also reduces the amount charged by the bank
for Letters of Credit. 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 and has purchased a new project
management and accounting system.
The Company has been notified by NASDAQ that it does not meet the new listing
requirements for the National Market System promulgated by NASDAQ in 1998. The
Company has appealed that decision and is awaiting the outcome of that appeal.
In the event the Company is unsuccessful in its appeal, it will be delisted by
NASDAQ National Market System. In that case, it would apply for listing on the
NASDAQ small cap market.
The Company's backlog is approximately $150 million.
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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is filed as an exhibit to Part I of this
Form 10Q:
Exhibit 10.37 - Amendment To Loan Documents
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
June 30, 1998.
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)
August 14, 1998 By: /s/ Michael Haratunian
- ------------------- ----------------------
Date Michael Haratunian
Chairman, Chief Executive Officer
August 14, 1998 By: /s/ Peter W. Knipe
- ------------------- ----------------------
Date Peter W. Knipe
Secretary/Treasurer
9