EXHIBIT (c)(2)
REPORT OF THE COMPANY'S FINANCIAL ADVISOR
Presentation to the
Special Committee of the Board of
Directors of STV Group, Incorporated
- --------------------------------------------------------------------------------
April 30, 2001
[LOGO]
HOULIHAN LOKEY HOWARD & ZUKIN
Financial Advisors
1930 Century Park West
Los Angeles, California 90067
(310) 553-8871 o http://www.hlhz.com
Los Angeles o New York o Chicago o San Francisco
Washington, D.C. o Minneapolis o Dallas o Atlanta o Toronto o Hong Kong
STV Group, Incorporated
Table of Contents
- --------------------------------------------------------------------------------
Section
-------
Executive Summary .................................................... A
Analysis of Publicly Traded Stock Price .............................. B
Fundamental Valuation ................................................ C
Other Valuation Considerations ....................................... D
Appendices ........................................................... E
Acquisition of Minority Interest Study
Going Private Study
STV Financial Statements
Houlihan Lokey Fairness Opinion
Houlihan Lokey Howard & Zukin i
Executive Summary
STV Group, Incorporated
Executive Summary
- --------------------------------------------------------------------------------
Background and Scope Of Engagement
o We understand that STV Group, Incorporated ("STV" or the "Company") intends
to make an offer to purchase all of the publicly traded shares of common
stock not already held by the STV Employee Stock Ownership Plan (the "ESOP")
for $11.25 per share (the "Consideration"). We understand that the Company
will purchase a total of 2,525,265 shares, including 1,082,980 options to
purchase common shares, in the Transaction. We also understand that the ESOP
currently owns approximately 63% of STV's basic shares outstanding.
o It is our understanding that the Company has formed a special committee (the
"Committee") to consider certain matters relating to the Transaction.
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") has
been retained by the Committee to provide an opinion (the "Opinion") as to
the fairness of the Consideration, from a financial point of view, to the
non-ESOP public stockholders of the Company. Such transaction and all related
transactions are referred to collectively herein as the "Transaction."
Houlihan Lokey Howard & Zukin 1
STV Group, Incorporated
Executive Summary
- --------------------------------------------------------------------------------
Per Share Price Conclusion
Per Share Value Range
Low High
--------- -----------
Conclusion of Analysis of Publicly Traded Stock Price $ 7.49 -- $ 8.56
Market Multiple Approach 11.27 -- 12.48
Comparable Transaction Approach 11.39 -- 14.01
Discounted Cash Flow Analysis Approach 10.18 -- 11.39
Conclusion of Sale Process 9.00 -- 13.00
--------- ----------
Range 7.49 14.01
Mean 9.87 11.89
Median 10.18 12.48
Selected Per Share Value Range $10.00 $12.00
- -------------------------------------------------------------------------------
Selected Per Share Value $11.25
- -------------------------------------------------------------------------------
o Going Private Price at $11.25 per share represents approximately:
o 210% of recent price;
o 162% of 1-year average price;
o 118% of 1-year high price; and
o 98% of 4-year high price.
o Although the above represents a significant premium to STV's current publicly
traded stock price:
o STV's stock faces significant illiquidity and other constraints to public
fair market value;
o STV's stock price is significantly undervalued compared to comparable
companies; and
o The Transaction price falls within the indicted ranges of fair market value
as determined by the sale process and fundamental analysis.
Houlihan Lokey Howard & Zukin 2
STV Group, Incorporated
Executive Summary
- --------------------------------------------------------------------------------
Indications of Value
o Conclusion: The Consideration of $11.25 per share falls within the range of
indications of fair market value.
o In assessing the financial fairness of the purchase price offered in the
Transaction to the Company's non-ESOP public stockholders we have analyzed
the reasonableness of the Consideration being offered in the Transaction by
comparing it with (i) the trading value of the Company's publicly traded
equity securities, (ii) the fundamental valuation based on widely accepted
valuation methodologies and (iii) the private market control price, as
determined by the sale process conducted by CIBC Oppenheimer ("CIBC").
o Public stock price analysis: As a publicly traded company, STV's market
value provides an indication of value. The following table highlights the
recent trading activity for the Company's common stock (as of 4/24/01).
----------------------------------------
Current Price $5.35
Thirty Day Average $5.33
52 Week High (8/15/00) $9.50
52 Week Low (3/19/01) $4.75
----------------------------------------
o However, as described in greater detail later in the presentation, the
public stock price does not reflect the true value of STV due to a number of
factors, including the lack of significant trading volume, public float or
analyst coverage. In the Transaction, the Company will purchase from its
existing public shareholders all of the outstanding shares, other than those
held by its employee stock ownership plan (the "ESOP"). Thus, the ESOP will
own 100% of the outstanding shares post-transaction. This constitutes a
going private transaction. Therefore, we have performed and analyzed a study
of transactions similar to the proposed Transaction.
o Upon analyzing the trading prices for STV, we applied a premium to a
representative market value to incorporate both the small, thinly traded
company discount and the going-private premium that would be required to be
paid in order to arrive at a control equity market value.
o Concluded control price per share value range: $7.50 to $8.50.
Houlihan Lokey Howard & Zukin 3
STV Group, Incorporated
Executive Summary
- --------------------------------------------------------------------------------
Indications of Value (continued)
o Fundamental valuation: In order to arrive at an independent control equity
market valuation of the Company, Houlihan Lokey also conducted a fundamental
valuation, which incorporated three commonly accepted valuation methods: the
market multiples, comparable transactions and discounted cash flow approaches.
o Concluded control price per share value range: $10.00 to $12.00.
o Other indications of value:
o Sale Process: This Transaction follows an approximately two-year process that
STV Management conducted to maximize shareholder value, which included a
detailed sale process conducted by CIBC. According to STV Management, the
Company was "shopped" to several firms beginning in 1999. These firms included
large engineering companies and one conglomerate. STV excluded contractor
firms from the sale process. Most of the firms completed at least limited due
diligence, with some firms performing a more detailed review. STV ultimately
received written indications of interest from eight firms and one verbal
indication of interest (all these firms engaged in some level of due
diligence). The indications of interest ranged from approximately $8 to $13
per share, with most of the indications of interest in the $9 to $13 per share
range. Please see Other Valuation Considerations for more detailed information
concerning the sale process.
o Concluded control price per share value range: $9.00 to $13.00.
o Private companies with public information: Several companies that are
privately held file publicly released data with the SEC. These "trading"
multiples of these companies are analyzed herein and compared with the
Company's implied valuation. The Company's implied valuation range falls
within a small range from the median of the privately held companies.
o Other Factors:
o Minority repurchase type transaction (i.e. lower control premium)
o Going Private Transaction
o Sale process was conducted but resulted in no closure
o Going Private impacted by financing marketplace which is difficult now
o Failure to do a transaction results in the very low trading price (i.e. this
deal is a high control premium)
Houlihan Lokey Howard & Zukin 4
STV Group, Incorporated
Executive Summary
- --------------------------------------------------------------------------------
Company Overview
Overall Description
STV provides engineering and architectural consulting and design services on a
variety of projects for the federal government, local, state and foreign
governments, and private industry. The Company also performs selected
design/build, construction management projects. As of September 30, 2000, STV
and its subsidiaries employed 1,228 people, 1,061 were engaged in engineering
and architectural services, 122 were engaged in administration and 45 in
marketing.
Description of Services
o Architectural Engineering -- design and development of systems for heating
ventilation, cooling, refrigeration, fire protection, lighting, power
generation and distribution, and communications. In addition, STV has
performed energy conservation audits and has recommended and designed programs
for the conservation of fuel and electrical energy.
o Civil, Highway, Bridge, Airport and Port Engineering -- design of lighting,
drainage, erosion systems, and mapping and landscaping services. STV also
performs hydraulic and hydrologic studies, soils engineering, traffic studies
and surveys.
o Defense Systems Engineering -- design and development of systems relating to
naval aircraft, weapons systems, land-based systems, jet blast deflectors,
ship-weapon capability, etc.
o Industrial Process Engineering -- technical analyses, feasibility studies,
plant layouts, and machinery and construction inspection services.
o Transportation Engineering -- planning and design of track, terminals,
stations, yards, and shop for the railway industry.
o Design Build -- this area involves the joint and simultaneous design and
construction of a project under a single contract with an owner.
Houlihan Lokey Howard & Zukin 5
Analysis of Publicly Traded Stock Price
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Assessment of STV's Public Stock Price
Houlihan Lokey analyzed STV's public stock price, float and trading volume by:
o reviewing the Company's historical stock price and volume relative to Company
significant events;
o calculating the Company's public float as a percent of total shares
outstanding;
o calculating the ratio of average daily trading volume (over the most recent 90
days) to float and total shares outstanding; and
o comparing the Company's ratios to similar ratios of comparable publicly traded
companies.
Houlihan Lokey concluded that the Company's common stock: (i) trades less
actively than the comparable public companies and (ii) has a significantly
smaller float than the comparable public companies (as a percentage of shares
outstanding.)
Houlihan Lokey Howard & Zukin 7
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Transaction Shares Analysis
(Shares in Millions)
Number of Percentage of Basic
STV Stock Holders as of 12/31/2000 per Form 10-K/A Shares Owned Shares Outstanding
- --------------------------------------------------- ------------ -------------------
STV ESOP 2.435843 62.81%
William J. Doyle, Director 0.222600 5.74%
Michael Haratunian, Chairman of the Board 0.103792 2.68%
Richard L. Holland, Director 0.093274 2.41%
Dominick M. Servedio, CEO 0.055424 1.43%
Whitney A. Sanders 0.046200 1.19%
Peter W. Knipe, CFO 0.026136 0.67%
Maurice L. Meier, Director 0.001328 0.03%
G. Michael Stakias, Director 0.001000 0.03%
----------- -------
Total "Insider" and 5% or more ownership 2.985597 76.99%
Shares and Options Outstanding
- -------------------------------
Basic 3.878128
Options 1.082980
-----------
Total Shares Including Options 4.961108
Shares Being Purchased in the Transaction
- -----------------------------------------
Total Shares Outstanding less ESOP Shares 1.442285
Options 1.082980
-----------
Total Shares Being Purchased 2.525265
===========
Houlihan Lokey Howard & Zukin 8
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Summary of Recent Trading Activity
STV GROUP, INC.
WEEKLY PRICE/VOLUME GRAPH
[GRAPHIC OMITTED]
Houlihan Lokey Howard & Zukin 9
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Summary of Recent Trading Activity
NUMBER OF DAYS STV STOCK TRADED
WITHIN CERTAIN PRICE RANGES (FROM 12/31/97 TO 4/24/01)
[GRAPHIC OMITTED]
Houlihan Lokey Howard & Zukin 10
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Float and Trading Volume Activity
Average Daily Public Float Diluted Shares Public Float / Average Daily Avg. Daily Vol. /
Public Comparable Companies Volume (1) Estimate (2) Outstanding (3) Shares Outstanding Vol. / Public Float Shares Outstanding
- --------------------------- ---------- ------------ --------------- ------------------ ------------------- ------------------
BAKER (MICHAEL) CORP 0.014 4.170 8.288 50.3% 0.3% 0.2%
EA ENGINEERING SCI & TECH 0.007 NA 6.000 NA NA 0.1%
ECOLOGY AND ENVIRON -CL A 0.002 1.370 4.107 33.4% 0.1% 0.0%
HLM DESIGN INC 0.004 1.430 2.189 65.3% 0.3% 0.2%
JACOBS ENGINEERING GROUP INC 0.202 22.590 26.934 83.9% 0.9% 0.7%
KEITH COMPANIES INC 0.152 1.890 5.686 33.2% 8.1% 2.7%
URS CORP 0.064 16.260 22.816 71.3% 0.4% 0.3%
WESTON (ROY F) -SER A 0.045 6.730 10.090 66.7% 0.7% 0.4%
- ------------------------------------------------------------------------------------------------------------------------------------
High (4) 0.202 22.590 26.934 83.9% 8.1% 2.7%
Low (4) 0.002 1.370 2.189 33.2% 0.1% 0.0%
Mean (4) 0.061 7.777 10.764 57.7% 1.5% 0.6%
Median (4) 0.029 4.170 7.144 65.3% 0.4% 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
STV Group, Inc. 0.003 0.770 4.216 18.3% 0.3% 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Notes:
- ------
(1) Based on 90-day average trading activity as of April 24, 2001.
(2) Source: Bloomberg.
(3) Based on publicly available information.
(4) Statistics include only comparable companies values.
Houlihan Lokey Howard & Zukin 11
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Implied Trading Multiples
STV HISTORICAL EV/EBIT MULTIPLES
VS. HLHZ INDEX OF ENGINEERING COMPANIES
[GRAPHIC OMITTED]
Note: Excludes certain outlying engineering company multiples in 1st Quarter
2001.
Houlihan Lokey Howard & Zukin 12
STV Group, Incorporated
Analysis of Publicly Traded Stock Price
- --------------------------------------------------------------------------------
Conclusion of Analysis of STV's Publicly Traded Stock Price
- ----------------------------------------------------------------------------------------------------------
Conclusion of Analysis of STV's Publicly Traded Stock Price
Price Price
Per Share Per Share
--------- ---------
(1) Spot Price $5.35 $5.35
5 Day Average $5.29 $5.29
30 Day Average $5.33 $5.33
52-Week Average $6.94 $6.94
52-Week High $9.50 $9.50
52-Week Low $4.75 $4.75
------ ------
Indicated Stock Price $5.35 $5.35
Premium for:
- Lack of volume and small float;
(2) - Going Private; and
(2) - Acquisition of Minority Interest 40.0% 60.0%
------ ------
--------------------------------------------------------------------------------
Concluded Equity Value $7.49 $8.56
--------------------------------------------------------------------------------
Notes:
------
(1) Spot Price as of 4/24/01.
(2) See Appendices for acquisition of minority interest and
going-private studies.
Houlihan Lokey Howard & Zukin 13
Fundamental Valuation
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Valuation Summary
($Millions, except per share values)
Enterprise Equity Indication from Operations
Market Multiple Approach (a) $50.400 -- $56.400
Comparable Transaction Approach $51.000 -- $64.000
Discounted Cash Flow Approach $45.000 -- $51.000
Enterprise Equity Value
-------------------------------------------------------------------------------
Enterprise Equity Conclusion (rounded) $49.000 $56.000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Selected Enterprise Equity Conclusion $49.000 $56.000
-------------------------------------------------------------------------------
Plus: Cash Proceeds from Stock Options $5.508 $5.508
-------- --------
-------------------------------------------------------------------------------
Enterprise Equity Value $54.508 $61.508
Per Share Value (b) $10.99 $12.40
-------------------------------------------------------------------------------
Notes:
- ------
(a) Includes a Premium of 20.0%
(b) Number of Shares Outstanding (in millions) 4.961
Houlihan Lokey Howard & Zukin 15
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Market Multiple Approach
($Millions)
Interest-
Representative Selected Bearing Indicated
LTM Level Multiple Range Debt Enterprise Value
- ------------- --------------- --------------- ----------- ----------------
Revenues $167.830 0.25x -- 0.30x $41.960 -- $50.350
EBITDA $10.890 4.0x -- 4.5x $43.560 -- $49.010
EBIT $9.460 5.0x -- 5.5x $47.300 -- $52.030
Net Income $5.100 8.5x -- 9.0x $3.000 $46.350 -- $48.900
-------- --------
NFY
- -------------
EBITDA $11.670 3.5x -- 4.0x $40.850 -- $46.680
EBIT $9.970 4.5x -- 5.0x $44.870 -- $49.850
Net Income $5.380 8.0x -- 8.5x $3.000 $46.040 -- $48.730
-------- --------
Mean $44.419 -- $49.364
Median $44.870 -- $49.010
-------- --------
Selected Minority Enterprise Value Conclusion $45.000 $50.000
Less: Total Interest-Bearing Debt 3.000 3.000
-------- --------
Marketable Minority Equity Conclusion $42.000 $47.000
======== ========
Control Premium @ 20.0% $8.400 $9.400
-------- --------
- ----------------------------------------------------------------------------------------------------------
Concluded Control Equity Value (rounded) $50.400 $56.400
- ----------------------------------------------------------------------------------------------------------
Plus: Cash Proceeds from Stock Options $5.508 $5.508
Enterprise Equity Value $55.908 $61.908
- ----------------------------------------------------------------------------------------------------------
Per Share Value (1) $11.27 $12.48
- ----------------------------------------------------------------------------------------------------------
Note:
- -----
(1) Number of Shares Outstanding (in millions) 4.961
Houlihan Lokey Howard & Zukin 16
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Multiple Analysis
Range Actual STV
----- Multiples Selected Range as a Selected Range as a
LTM Low High Mean Median as of 4/24/01 Selected Range Percent of Median Percent of Actual STV Multiples
- --- --- ---- ---- ------ ------------- -------------- ----------------- -------------------------------
Revenues 0.21 x 1.84 x 0.56 x 0.42 x 0.16 x 0.25 x -- 0.30 x 59.4% -- 71.2% 155.8% -- 187.0%
EBITDA 3.0 x 10.5 x 7.0 x 6.9 x 2.6 x 4.0 x -- 4.5 x 57.8% -- 65.0% 154.8% -- 174.1%
EBIT 4.5 x 13.7 x 9.7 x 11.2 x 3.0 x 5.0 x -- 5.5 x 44.8% -- 49.3% 167.1% -- 183.8%
Net Income 5.6 x 22.4 x 15.2 x 17.1 x 5.1 x 8.5 x -- 9.0 x 49.6% -- 52.5% 165.8% -- 175.6%
NFY
- ---
EBITDA 3.1 x 9.2 x 5.9 x 4.8 x NA 3.5 x -- 4.0 x 72.2% -- 82.5%
EBIT 4.3 x 11.6 x 7.2 x 6.1 x NA 4.5 x -- 5.0 x 74.0% -- 82.2%
Net Income 7.3 x 19.3 x 11.2 x 7.8 x NA 8.0 x -- 8.5 x 102.9% -- 109.4%
Houlihan Lokey Howard & Zukin 17
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Control Premium Analysis
Relevant Transactions:
- ----------------------
Transaction
Closing Date Target Company Name Control Premium
------------ ------------------------------------- ---------------
3/12/01 Weston (Roy F) 14.6%
1/11/01 GZA GeoEnvironmental Technologies Inc 16.4%
4/20/00 Agra, Inc. 46.0%
3/24/00 Harding Lawson 25.0%
---------------
6/24/99 Dames & Moore Group 30.0%
12/4/98 Fluor Daniel GTI 35.3%
1/29/98 ATC Group Services 29.7%
4/1/96 Greiner Engineering 64.8%
1/15/96 Earth Technology Corp. 49.4%
-------------------------------------------------------
Median 30.0%
Average 34.6%
-------------------------------------------------------
-------------------------------------------------------
Median (2001 and 2000) 20.7%
Average (2001 and 2000) 25.5%
-------------------------------------------------------
Mergerstat Control Premium Study:
- ---------------------------------
4th Quarter 2000 Summary Figures (1)
Number of Transactions 147
Range of Premiums -96.4% to 255.2%
Median 45.0%
Average 49.1%
12-Month Summary Figures (1/1/00 to 12/31/00)
Number of Transactions 923
Range of Premiums -96.4% to 432.4%
Median 37.1%
Average 48.6%
- -------------------------------------------------------------------------------
Selected Control Premium 20.0%
- -------------------------------------------------------------------------------
Note:
- -----
(1) All domestic transactions that occurred during the second quarter.
Note: Mergerstat Control Premium Study Statistics exclude negative premiums.
Houlihan Lokey Howard & Zukin 18
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Representative Levels
($Millions)
Fiscal Year Ended September 30,
Adjusted LTM Ended ------------------------------------------------ 3-Year
LTM NFY 3/31/01 2000 1999 1998 1997 1996 Average
-------- ----------------------------------------------------------------------- -------
Revenue $172.759 $167.834 $149.680 $138.940 $105.178 $94.676 $94.073
Adjustments 0.000 0.000 0.000 0.000 0.000 0.000 0.000
-------------------------------------------------------------------------
Adjusted Revenue $167.830 $172.759 $167.834 $149.680 $138.940 $105.178 $94.676 $94.073 $131.266
======== ========
Operating Income $ 8.951 $ 8.458 $ 9.003 $ 7.165 $ 4.761 $ 3.148 $2.802
Adjustments:
SERPS Accrual(1) 1.023 1.000 1.000 0.000 0.000 0.000 0.000
-------------------------------------------------------------------------
Adjustments Subtotal 1.023 1.000 1.000 0.000 0.000 0.000 0.000
-------------------------------------------------------------------------
Adjusted EBIT $ 9.460 $ 9.974 $ 9.458 $ 10.003 $ 7.165 $ 4.761 $ 3.148 $2.802 $ 7.310
======== ===================================================================================
Depreciation & Amortization 1.700 1.429 1.250 0.887 0.741 0.795 0.997
Adjustments 0.000 0.000 0.000 0.000 0.000 0.000 0.000
-------------------------------------------------------------------------
Adjusted Depreciation & Amortization 1.700 1.429 1.250 0.887 0.741 0.795 0.997
=========================================================================
Adjusted EBITDA $ 10.890 $ 11.674 $ 10.887 $ 11.253 $ 8.052 $ 5.502 $ 3.943 $3.799 $ 8.269
======== ===================================================================================
Adjusted EBIT $ 9.460 $ 9.974 $ 9.458 $ 10.003 $ 7.165 $ 4.761 $ 3.148 $2.802
========
Interest Expense 0.193 0.193 0.182 0.195 0.469 1.380 1.501
Adjustments 0.000 0.000 0.000 0.000 0.000 0.000 0.000
-------------------------------------------------------------------------
Adjusted Interest Expense 0.193 0.193 0.182 0.195 0.469 1.380 1.501
Adjusted Pretax Earnings $ 9.781 $ 9.265 $ 9.821 $ 6.970 $ 4.292 $ 1.768 $1.301
Less Taxes @ 45.0% 4.402 4.169 4.419 3.136 1.931 0.796 0.585
-------------------------------------------------------------------------
Adjusted Net Income $ 5.100 $ 5.380 $ 5.096 $ 5.402 $ 3.833 $ 2.361 $ 0.972 $0.716 $ 3.865
======== ===================================================================================
Adjusted Depreciation & Amortization 1.700 1.429 1.250 0.887 0.741 0.795 0.997
Adjusted Cash Flow $ 6.520 $ 7.080 $ 6.525 $ 6.652 $ 4.720 $ 3.102 $ 1.767 $1.713 $ 4.825
======== ===================================================================================
Net Book Value (tangible) $ 26.463 $ 10.658 $ 26.463 $ 24.146 $ 18.767 $ 13.472 $11.202 $10.342 $ 18.795
======== ===================================================================================
Total Assets $ 67.062 $ 77.533 $ 67.062 $ 62.244 $ 53.486 $ 42.044 $40.672 $39.967 $ 52.591
======== ===================================================================================
Notes:
- ------
(1) According to management, the SERPS Accrual Adjustment for the LTM period
approximates $1 million.
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Representative Levels Adjustments Discussion
o Specific Financial Adjustment made in Representative Levels Calculation
o SERP accrual: In 1998, the Company entered into a Supplemental Executive
Retirement Plan for its Chairman and President. In order to fund the plan,
which will begin to pay out upon retirement, the Company has accrued
approximately $1.0 million per year. As part of the transaction, the Company
will terminate the Plan in exchange for a one-time payment of $4.8 million.
Since the Company is using debt to pay off the Plan, we are including that
figure (after tax adjustments) as indebtedness. We have excluded the annual
SERP accrual from the financial statements as an extraordinary,
non-recurring event.
o Other Adjustments Considered
o Public versus private expenses: The Company believes that its overhead will
decrease as a result of going private. STV has estimated the amount of
savings to be approximately $250,000 to $500,000. However, we believe these
adjustments are embodied in the control premium of control transaction
multiples.
o Sale process expenses: While the Company has been engaged in the strategic
alternatives and sale process since 1999, Management believes that (other
than time spent by very few members of Management), the expenses associated
with the sale process have been minimal.
o Strategic Partners joint venture: The Company contributed cash equity in
this joint venture to explore international opportunities. The Company
assigns no material value to this opportunity. The Company incurred minimal
expenses associated with the Strategic Partners effort in 2000 and projects
incurring minimal expenses in 2001 and thereafter.
o Legal Expenses: The Company has incurred excess legal costs over the last
few years to defend itself on certain matters and anticipates these costs
may continue for several more years.
Houlihan Lokey Howard & Zukin 20
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Market Performance Parameters
(Millions, except for per share prices)
Current P/E Multiples
Stock Price Fully Diluted Common 1-Year ----------------
Per Share as of Shares Equity Enterprise Proj. Earn. Implied
4/24/01 Outstanding Value Value Growth LTM NFY (a)
---------------- -------------- ------- ----------- ----------- ----- --------
BAKER (MICHAEL) CORP $9.50 8.288 $78.7 $81.0 100% 14.6x 7.3x
EA ENGINEERING SCI & TECH 1.45 6.000 8.7 12.5 182% 20.4x 7.3x
ECOLOGY AND ENVIRON -CL A 7.80 4.107 32.0 32.3 NA 22.4x NA
HLM DESIGN INC 2.23 2.189 4.9 15.9 NA 5.6x NA
JACOBS ENGINEERING GROUP INC 62.00 26.934 1,669.9 1,812.9 13% 21.7x 19.3x
KEITH COMPANIES INC 16.30 5.686 92.7 98.4 35% 19.6x 14.6x
URS CORP 19.00 22.816 433.5 1,086.1 32% 10.3x 7.8x
WESTON (ROY F) -SER A 4.75 10.090 47.9 62.3 NMF 7.0x NA
--------------------------------------
Low 13% 5.6x 7.3x
High 182% 22.4x 19.3x
Median 35% 17.1x 7.8x
Mean 72% 15.2x 11.2x
--------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
STV GROUP INC 5.35 4.216 22.6 25.6 NMF 5.1x NA
- ------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
Price/Cash Flow Latest Twelve Month Multiples Implied NFY Multiples
----------------- ------------------------------- -------------------------
EV/ EV/ EV/ EV/ EV/
LTM NFY Revenue EBITDA(b) EBIT EBITDA(c) EBIT(d)
------- ------ --------- --------- ------ ------------ ---------
BAKER (MICHAEL) CORP 6.3x 4.4x 0.21x 4.5x 7.3x 3.1x 4.3x
EA ENGINEERING SCI & TECH 11.1x 5.6x 0.30x 8.5x 11.3x 4.5x 5.2x
ECOLOGY AND ENVIRON -CL A 11.2x NA 0.43x 7.4x 11.1x NA NA
HLM DESIGN INC 1.8x NA 0.25x 3.0x 4.5x NA NA
JACOBS ENGINEERING GROUP INC 14.3x 13.2x 0.51x 10.5x 13.7x 9.2x 11.6x
KEITH COMPANIES INC 14.8x 11.7x 1.84x 10.1x 12.0x 7.9x 9.0x
URS CORP 4.9x 4.3x 0.49x 5.2x 6.6x 4.8x 6.1x
WESTON (ROY F) -SER A 4.4x NA 0.41x 6.4x 11.2x NA NA
-----------------------------------------------------------------------------------
Low 1.8x 4.3x 0.21x 3.0x 4.5x 3.1x 4.3x
High 14.8x 13.2x 1.84x 10.5x 13.7x 9.2x 11.6x
Median 8.7x 5.6x 0.42x 6.9x 11.2x 4.8x 6.1x
Mean 8.6x 7.8x 0.56x 7.0x 9.7x 5.9x 7.2x
-----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
STV GROUP INC 3.9x NA 0.16x 2.6x 3.0x NA NA
- ------------------------------------------------------------------------------------------------------------------
Source: Compustat
NA - Not Available
NMF - Not Meaningful Figure
LTM - Latest Twelve Months
NFY - Next Fiscal Year
EV - Enterprise Value
EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization
P/E - Price to Earnings
(a) NFY estimate is interpolated from analysts' consensus estimates.
(b) EBITDA equals EBIT plus LTM depreciation.
(c) EBITDA equals projected EBIT plus either projected or LTM depreciation.
(d) EBIT equals projected net income multiplied by an assumed tax rate plus
interest expense.
Houlihan Lokey Howard & Zukin 21
STV Group, Incorporated
Fundamental Valuation
- ------------------------------------------------------------------------------------------------------------------------------------
Risk Analysis Rankings
- ------------------------------------------------------------------------------------------------------------------------------------
Size Growth Growth
(Revenue) (2 yr Rev.) (Annual Revenue)
JACOBS ENGINEERING GROUP INC $3,539.0 URS CORP 65.4% URS CORP 55.5%
URS CORP $2,208.3 KEITH COMPANIES INC 35.2% HLM DESIGN INC 40.6%
BAKER (MICHAEL) CORP $390.7 HLM DESIGN INC 34.6% KEITH COMPANIES INC 34.7%
STV Group, Inc. $167.8 JACOBS ENGINEERING GROUP INC 27.6% JACOBS ENGINEERING GROUP INC 18.9%
WESTON (ROY F) -SER A $151.7 STV Group, Inc. 19.3% ECOLOGY AND ENVIRON -CL A 10.3%
ECOLOGY AND ENVIRON -CL A $75.0 ECOLOGY AND ENVIRON -CL A 6.6% STV Group, Inc. 7.7%
HLM DESIGN INC $62.3 WESTON (ROY F) -SER A 4.0% EA ENGINEERING SCI & TECH 4.1%
KEITH COMPANIES INC $53.4 EA ENGINEERING SCI & TECH 0.3% WESTON (ROY F) -SER A 2.7%
EA ENGINEERING SCI & TECH $41.2 BAKER (MICHAEL) CORP -13.4% BAKER (MICHAEL) CORP -22.8%
====================================================================================================================================
Profitability Profitability Profitability
(EBIT to Revenue) (EBITDA to Revenue) (Gross Profit Margin)
KEITH COMPANIES INC 15.3% KEITH COMPANIES INC 18.3% HLM DESIGN INC 44.5%
URS CORP 7.4% URS CORP 9.5% ECOLOGY AND ENVIRON -CL A 40.8%
HLM DESIGN INC 5.7% HLM DESIGN INC 8.5% URS CORP 39.3%
STV Group, Inc. 5.6% STV Group, Inc. 6.5% KEITH COMPANIES INC 35.6%
ECOLOGY AND ENVIRON -CL A 3.9% WESTON (ROY F) -SER A 6.4% EA ENGINEERING SCI & TECH 17.8%
JACOBS ENGINEERING GROUP INC 3.7% ECOLOGY AND ENVIRON -CL A 5.8% BAKER (MICHAEL) CORP 13.3%
WESTON (ROY F) -SER A 3.7% JACOBS ENGINEERING GROUP INC 4.9% WESTON (ROY F) -SER A 12.9%
BAKER (MICHAEL) CORP 2.9% BAKER (MICHAEL) CORP 4.7% JACOBS ENGINEERING GROUP INC 12.6%
EA ENGINEERING SCI & TECH 2.7% EA ENGINEERING SCI & TECH 3.5% STV Group, Inc. 10.3%
====================================================================================================================================
Liquidity Activity Activity
(Current Ratio) (Inventory Turnover) (A/R collection period)
ECOLOGY AND ENVIRON -CL A 3.8 ECOLOGY AND ENVIRON -CL A NMF KEITH COMPANIES INC 66.2
URS CORP 2.2 JACOBS ENGINEERING GROUP INC NMF HLM DESIGN INC 67.0
WESTON (ROY F) -SER A 1.9 URS CORP NMF JACOBS ENGINEERING GROUP INC 67.6
EA ENGINEERING SCI & TECH 1.9 STV Group, Inc. NMF BAKER (MICHAEL) CORP 68.2
STV Group, Inc. 1.8 BAKER (MICHAEL) CORP 18.3 EA ENGINEERING SCI & TECH 80.3
KEITH COMPANIES INC 1.6 WESTON (ROY F) -SER A 9.7 STV Group, Inc. 82.7
HLM DESIGN INC 1.4 KEITH COMPANIES INC 6.0 ECOLOGY AND ENVIRON -CL A 106.4
BAKER (MICHAEL) CORP 1.4 EA ENGINEERING SCI & TECH 4.7 URS CORP 114.9
JACOBS ENGINEERING GROUP INC 1.3 HLM DESIGN INC 3.6 WESTON (ROY F) -SER A 141.0
- ------------------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- -------------------------------------------------------------------------------
Growth Growth
(2 Year EBITDA) (Annual EBITDA)
URS CORP 79.5% EA ENGINEERING SCI & TECH 287.4%
STV Group, Inc. 43.0% KEITH COMPANIES INC 82.4%
EA ENGINEERING SCI & TECH 40.2% WESTON (ROY F) -SER A 59.4%
KEITH COMPANIES INC 39.3% URS CORP 55.1%
WESTON (ROY F) -SER A 21.7% ECOLOGY AND ENVIRON -CL A 44.2%
JAOBS ENGINEERING GROUP INC 21.2% STV Group, Inc. 39.8%
HLM DESIGN INC 18.8% JACOBS ENGINEERING GROUP INC 18.0%
ECOLOGY AND ENVIRON -CL A 12.4% HLM DESIGN INC 15.5%
BAKER (MICHAEL) CORP 1.9% BAKER (MICHAEL) CORP -31.0%
================================================================================
Dividend Relative Depreciation
(Payout Ratio) (Depreciation to EBITDA)
ECOLOGY AND ENVIRON -CL A 163.9% WESTON (ROY F) -SER A 43.1%
BAKER (MICHAEL) CORP 0.0% BAKER (MICHAEL) CORP 38.8%
EA ENGINEERING SCI & TECH 0.0% HLM DESIGN INC 33.5%
HLM DESIGN INC 0.0% ECOLOGY AND ENVIRON -CL A 32.7%
JACOBS ENGINEERING GROUP INC 0.0% EA ENGINEERING SCI & TECH 24.7%
KEITH COMPANIES INC 0.0% JACOBS ENGINEERING GROUP INC 23.2%
URS CORP 0.0% URS CORP 21.6%
WESTON (ROY F) -SER A 0.0% KEITH COMPANIES INC 16.0%
STV Group, Inc. 0.0% STV Group, Inc. 13.1%
================================================================================
Leverage
(Debt to EV)
ECOLOGY AND ENVIRON -CL A 0.2%
BAKER (MICHAEL) CORP 2.8%
KEITH COMPANIES INC 5.8%
JACOBS ENGINEERING GROUP INC 7.6%
STV Group, Inc. 11.7%
WESTON (ROY F) -SER A 23.1%
EA ENGINEERING SCI & TECH 30.2%
URS CORP 60.1%
HLM DESIGN INC 69.3%
- --------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 22
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Comparable Transaction Approach
($Millions)
Representative Selected Indicated
LTM Level Multiple Range Enterprise Value
- ---------- -------------- ----------------- ------------------
Revenues $167.830 0.30 x -- 0.40 x $50.350 -- $67.130
EBITDA $10.890 5.0 x -- 6.0 x $54.450 -- $65.340
EBIT $9.460 6.0 x -- 7.0 x $56.760 -- $66.220
Mean $53.853 -- $66.230
Median $54.450 -- $66.220
------- -------
Selected Concluded Enterprise Value $54.000 $67.000
Less: Total Interest-Bearing Debt 3.000 3.000
------- -------
- -----------------------------------------------------------------------------------------
Concluded Control Equity Value (rounded) $51.000 $64.000
=========================================================================================
Plus: Cash Proceeds from Stock Options $5.508 $5.508
Enterprise Equity Value $56.508 $69.508
- -----------------------------------------------------------------------------------------
Per Share Value (1) $11.39 $14.01
=========================================================================================
Note:
- ----
(1) Number of Shares Outstanding (in millions) 4.961
Houlihan Lokey Howard & Zukin 23
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Comparable Transactions Analysis
($Millions)
Target
Transaction Control Revenue
Date Target Acquiror Price Premium ($ Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Recent Transactions
- -------------------
3/12/01 Weston (Roy F) American Capital Strategies, Ltd. 50.88 15% 151.7
1/11/01 GZA GeoEnvironmental Technologies Inc. (1) Futureco Environmental Inc. 26.49 16% 65.4
7/14/00 Stone & Webster Inc. Shaw Group Inc. 140.7 NA 1327.5
5/9/00 W&H Pacific IT Group Inc. 18.0 NA 35.0
4/20/00 Agra, Inc. Amec PLC 513.6 46% 1,293.7
3/24/00 Harding Lawson MACTEC 59.2 25% 168.9
12/14/99 Benham Companies, Inc. W.S. Atkins 52.3 NA 113.3
Historical Transactions
- -----------------------
6/24/99 Dames & Moore Group URS Corp. 600.0 30% 921.0
4/12/99 ICF Kaiser International (Division) IT Group, Inc. 74.0 NA 105.9
3/31/99 Roche Limited, Consulting Group IT Group, Inc. 10.0 NA 28.3
1/14/99 Sverdrup Corporation Jacobs Engineering 198.0 NA 996.0
12/4/98 Fluor Daniel GTI IT Group 69.3 35% 196.0
1/29/98 ATC Group Services Weiss, Peck & Greer 117.2 30% 114.0
11/17/97 Woodward Clyde URS Corp. 100.0 NA 339.0
4/1/96 Greiner Engineering URS Corp 73.0 65% 155.0
1/15/96 Earth Technology Corp. Tyco International Ltd. 64.7 49% 115.0
Relevant Summary Statistics
-------------------------------------
Low 15% 28.3
High 65% 1327.5
Median 30% 153.4
Mean 35% 382.9
-------------------------------------
(RESTUBBED TABLE)
($Millions)
EV/ EV/ EV/
Date Target Acquiror EBIT EBITDA Revenues
- --------------------------------------------------------------------------------------------------------------------------
Recent Transactions
- -------------------
3/12/01 Weston (Roy F) American Capital Strategies, Ltd. 11.8x 6.7x 0.43x
1/11/01 GZA GeoEnvironmental Technologies Inc. (1) Futureco Environmental Inc. 14.9x 7.1x 0.38x
7/14/00 Stone & Webster Inc. Shaw Group Inc. 4.7x 4.1x 0.42x
5/9/00 W&H Pacific IT Group Inc. NA NA 0.51x
4/20/00 Agra, Inc. Amec PLC 12.4x 8.7x 0.53x
3/24/00 Harding Lawson MACTEC 5.6x 3.9x 0.25x
12/14/99 Benham Companies, Inc. W.S. Atkins NA NA 0.46x
Historical Transactions
- -----------------------
6/24/99 Dames & Moore Group URS Corp. 11.6x 8.8x 0.57x
4/12/99 ICF Kaiser International (Division) IT Group, Inc. 12.1x 12.0x 0.79x
3/31/99 Roche Limited, Consulting Group IT Group, Inc. 64.9* 18.5x 0.39x
1/14/99 Sverdrup Corporation Jacobs Engineering 10.6x 8.6x 0.26x
12/4/98 Fluor Daniel GTI IT Group 20.9x 10.3x 0.35x
1/29/98 ATC Group Services Weiss, Peck & Greer 11.0x 8.6x 1.00x
11/17/97 Woodward Clyde URS Corp. 8.7x 6.2x 0.40x
4/1/96 Greiner Engineering URS Corp 23.0x 9.4x 0.40x
1/15/96 Earth Technology Corp. Tyco International Ltd. 9.7x 6.3x 0.90x
Relevant Summary Statistics
------------------------------------------
Low 4.7x 3.9x 0.25x
High 23.0x 18.5x 1.00x
Median 11.6x 8.6x 0.42x
Mean 12.1x 8.5x 0.50x
------------------------------------------
Notes:
- ------
(1) The multiples stated are based on publicly available information. However,
HLHZ acted as the financial advisor to GZA in this transaction and believes that
the representative adjusted multiples are materially lower than stated herein.
* Not representative; excluded from range. Source: HLHZ and Mergerstat.
Houlihan Lokey Howard & Zukin 24
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Selected Engineering "Going Private" Transactions
Roy F. Weston
o March 12, 2001--Roy F. Weston, Inc. (NASDAQ:WSTNA) and affiliates of American
Capital Strategies, Ltd. (NASDAQ:ACAS) entered into a definitive merger
agreement under which Weston would be acquired for cash consideration of $5.02
per share for each of Weston's publicly traded Series A common shares and
$5.38 per share for each of Weston's privately held common shares.
o The total purchase price for the shares is approximately $51 million. After
the merger, Weston will continue to operate from its headquarters in West
Chester, Pennsylvania.
o In the merger transaction, Weston will become a wholly owned subsidiary of a
holding company owned by American Capital Strategies and by senior managers of
Weston. Those senior managers, led by William L. Robertson, Chief Executive
Officer, will remain in place following the merger.
o In the five years following the merger, a broad-based employee stock ownership
plan will receive contributions of shares in the holding company that will
constitute approximately 40% of the holding company's equity.
o Commenting on the merger, Mr. Robertson said: "After careful consideration of
Weston's strategic alternatives over more than a year, the Board of Directors
of Weston has reached an agreement that it believes is in the best interests
of Weston's shareholders, employees and clients. We are particularly delighted
that through our retirement plan, our employees will have a significant
ownership stake in our business. We are convinced that a privately-owned
Weston, in which employees have substantial ownership, has the best potential
for long-term success in the marketplace, better aligning employees' and
executives' personal interests with the interests of the corporation and its
clients."
o The Weston Board of Directors, based in part on the unanimous recommendation
of a Special Committee of the Board of Directors, approved the merger
agreement. The Board also called a special meeting of shareholders to be held
on May 29, 2001, to approve the merger. The merger will be presented for
approval by the holders of Weston's non-publicly traded common shares and
publicly traded Series A common shares, voting separately.
Houlihan Lokey Howard & Zukin 25
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Selected Engineering "Going Private" Transactions (Continued)
o Certain members of the Weston family, who control substantially more than a
majority of the voting power of all outstanding Weston non-publicly traded
common shares, agreed to vote their shares in favor of the merger.
o The merger, which is also subject to customary closing conditions, is expected
to close by the end of the second quarter of 2001. The acquiring entities have
received financing commitments for the transaction from Bank of America, Fleet
Capital and American Capital Strategies, subject to customary conditions.
o The following chart details the proposed offer and premium that American
Capital Strategies is proposing to pay:
- ---------------------------------------------------------------------------------------------------------------------------------
Method
of 5 Day EV - Enterprise
Announced Seller Buyer Payment Premium Value ($mm) EV/EBIT EV/EBITDA EV/REV
- ---------------------------------------------------------------------------------------------------------------------------------
12-Mar-01 Weston (Roy F) Inc American Capital Strategies Cash 14.61% 65.28 11.8 x 6.7 x 0.43 x
Ltd/ESOP
- ---------------------------------------------------------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 26
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Selected Engineering "Going Private" Transactions (Continued)
GZA GeoEnvironmental Technologies
o August 17, 2000--GZA GeoEnvironmental Technologies, Inc. (formerly NASDAQ:
GZEA) announced that it executed an Agreement and Plan of Merger with Futureco
Environmental, Inc. and Futureco's wholly owned subsidiary, GeoEnvironmental
Acquisition, Inc. The Agreement provided for Futureco to acquire all the
outstanding shares of GZEA common stock which Futureco does not own or have
the right to acquire, at a price of $6.40 per share.
o The initial agreement to purchase outstanding stock was signed in August 2000.
The conversion to private ownership was accomplished through a merger with
GeoEnvironmental Acquisition, Inc., a wholly-owned subsidiary of Futureco
Environmental, Inc., the privately-held firm organized by the GZA senior
management team which led the transition effort. On December 28, 2000, all
outstanding shares of GZA's common stock not already affiliated with Futureco
were acquired. Key Bank National Association of Portland, ME provided funding
for the merger.
o New CEO William R. Beloff, a 26-year GZA veteran who has seen the company run
as both a public and a private entity, said that he and the other new owners
are very enthused about the transition, and their firm's future. "We
recognized both the value and the potential of GZA, and believe that private
ownership will better enable us to meet our goals of retaining senior staff,
expanding our services and increasing client satisfaction."
o Beloff continued, "As a publicly held entity, our first obligation was to our
stockholders. Yet, many of GZA's employees have fueled the success of the
firm, and we can now reward them more appropriately for their efforts." He
added, "We entered this arrangement with the strong support of our clients,
and our management staff. And, we have purchased a very financially healthy
company. Last year's revenues were the firm's strongest in its history, and
during the last four year period, each year showed an increase in
profitability."
o Beloff said that the firm has a number of specific plans for expansion, both
short and long-term and that the privatization of the company will allow for
increased emphasis on and success for growth.
Houlihan Lokey Howard & Zukin 27
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
o The following chart details the transaction price and premium paid by Futureco
Environmental:
- ------------------------------------------------------------------------------------------------------------------------------------
Method
of 5 Day EV - Enterprise
Announced Seller Buyer Payment Premium Value ($mm) EV/EBIT EV/EBITDA EV/REV
- ------------------------------------------------------------------------------------------------------------------------------------
17-May-00 GZA GeoEnvironmental
Technologies Inc Futureco Environmental Inc Cash 16.36% $ 24.660 14.9x 7.1x 0.38x
- ------------------------------------------------------------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 28
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Selected Engineering "Going Private" Transactions (Continued)
Harding Lawson
o June 2, 2000--Harding Lawson Associates Group, Inc. (formerly NASDAQ: HRDG)
and privately held MACTEC, Inc. (MACTEC), announced that their merger
arrangement was final.
o After unanimous approval of the Merger Agreement by the Board of Directors in
early March, the merger was approved at a special meeting of Harding Lawson
shareholders held on May 25, 2000. As a result, MACTEC has acquired all of the
outstanding shares of Harding Lawson common stock at a price of $11.50 per
share, allowing most of Harding Lawson's long-term shareholders to realize a
substantial premium on their shares.
o Robert L. Costello, Jr., Harding Lawson's President and Chief Executive
Officer commented on the merger, "This transaction will allow our stockholders
to receive a substantial premium over recent trading prices of our stock.
Competitive issues related to the consolidation in the engineering services
industry are the key drivers in our decision to pursue this transaction. Our
clients are demanding a higher degree of responsiveness to their technical
services needs. This can be achieved more readily by bringing together a
broader base of technical resources giving our clients an expanded network of
high quality professional and technical consulting talent, and our employees
gain greatly enhanced career opportunities."
o Scott State, Chief Executive Officer of MACTEC, commented that: "I am pleased
to welcome the employees and clients of Harding Lawson to the MACTEC family.
Our new size will present our employees with increased career potential and
rewards commensurate with our expanded business opportunities. Our clients
will benefit from this merger in that we will now be a much larger company
with new economies of scale, greater geographical coverage, and a broader
scope of services."
Houlihan Lokey Howard & Zukin 29
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
o The following chart details the transaction price and premium paid by MACTEC:
- ----------------------------------------------------------------------------------------------------------------------------------
Method
of 5 Day EV - Enterprise
Announced Seller Buyer Payment Premium Value ($mm) EV/EBIT EV/EBITDA EV/REV
- ----------------------------------------------------------------------------------------------------------------------------------
24-Mar-00 Harding Lawson MACTEC Cash 25.00% 42.10 5.6 x 3.9 x 0.25 x
- ----------------------------------------------------------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 30
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Conclusion
- ---------------------------------------------------------------------------------------------------
($Millions)
Range
--------------------
Low High
------- -------
Gordon Growth Method $49.064 -- $56.356
Exit Multiple Method $44.004 -- $50.543
Selected Concluded Enterprise Value $48.000 $54.000
Less: Interest Bearing Debt $3.000 $3.000
-------- --------
- --------------------------------------------------------------------------------------------
Concluded Control Equity Value (rounded) $45.000 $51.000
- --------------------------------------------------------------------------------------------
Plus: Cash Proceeds from Stock Options $5.508 $5.508
Enterprise Equity Value $50.508 $56.508
- --------------------------------------------------------------------------------------------
Per Share Value (1) $10.18 $11.39
- --------------------------------------------------------------------------------------------
Note:
- -----
(1) Number of Shares Outstanding (in millions) 4.961
Houlihan Lokey Howard & Zukin 31
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Gordon Growth
($Millions)
Projections for Fiscal Years Ending September 30,
--------------------------------------------------------------------
2001(1) 2002 2003 2004 2005 Terminal
--------------------------------------------------------------------
Revenues $ 86.380 $ 184.852 $ 197.792 $ 211.637 $ 226.452 $ 226.452
Representative EBITDA 5.679 9.938 10.041 10.043 10.583 10.583
Less: Depreciation and Amortization (0.850) (1.400) (0.905) (0.268) (0.124) (0.124)
--------- --------- --------- --------- --------- ---------
Representative EBIT 4.829 8.538 9.136 9.775 10.459 10.459
Less: Taxes @ 45.0% (2.173) (3.842) (4.111) (4.399) (4.707) (4.707)
--------- --------- --------- --------- --------- ---------
Debt-Free Earnings $ 2.656 $ 4.696 $ 5.025 $ 5.376 $ 5.753 $ 5.753
Add: Depreciation and Amortization(2) 0.850 1.400 0.905 0.268 0.124 = Capex
Less: Working Capital Increase (3.832) (1.731) (1.910) (2.044) (2.187) (2.187)
Less: Capital Expenditures(2) (0.650) -- -- -- -- = D&A
--------- --------- --------- --------- --------- ---------
Debt-Free Cash Flow $ (0.976) $ 4.365 $ 4.019 $ 3.600 $ 3.689 $ 3.565
Years to Receipt of Cash Flow 0.25 1.00 2.00 3.00 4.00
-----------
2001 2002 2003 2004 2005 | Total |
-------------------------------------------------------- | |
Present Value of Interim Cash Flows 10.0% (0.953) 3.968 3.322 2.705 2.520 | 11.561 |
10.5% (0.952) 3.950 3.292 2.668 2.475 | 11.432 |
11.0% (0.951) 3.932 3.262 2.632 2.430 | 11.306 |
11.5% (0.950) 3.915 3.233 2.597 2.387 | 11.181 |
12.0% (0.949) 3.897 3.204 2.562 2.345 | 11.059 |
-----------
Gordon Growth Rate
--------------------------------------------------------
4.0% 4.5% 5.0% 5.5% 6.0%
--------------------------------------------------------
Present Value of Terminal Flow 10.0% 42.209 46.268 51.138 57.091 64.532
10.5% 38.262 41.650 45.654 50.458 56.330
11.0% 34.893 37.758 41.100 45.050 49.790
11.5% 31.987 34.436 37.263 40.560 44.457
12.0% 29.456 31.570 33.987 36.776 40.029
Gordon Growth Rate
--------------------------------------------------------
4.0% 4.5% 5.0% 5.5% 6.0%
--------------------------------------------------------
Total Enterprise Value 10.0% 53.770 57.829 62.699 68.652 76.093
------------------------------
10.5% 49.694 | 53.082 57.086 61.890 | 67.762
11.0% 46.199 | 49.064 52.406 56.356 | 61.096
11.5% 43.168 | 45.618 48.444 51.742 | 55.639
------------------------------
12.0% 40.515 42.630 45.047 47.835 51.089
- -------------------------------------------------------------------------------------------------------------------
Indicated Relevant EV Range: $49.064 to $56.356
Mean $52.854
Median $52.406
- -------------------------------------------------------------------------------------------------------------------
Notes:
- ------
(1) 2001 projections have been halved because STV has a fiscal year end of
9/30.
(2) Depreciation & amortization and capital expenditures equal each other into
perpetuity.
Houlihan Lokey Howard & Zukin 32
STV Group, Incorporated
Fundamental Valuation
- ------------------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis - Exit Multiple
($Millions)
Projections for Fiscal Years Ending September 30,
--------------------------------------------------------------------------
2001 (1) 2002 2003 2004 2005
--------------------------------------------------------------------------
Revenues $ 86.380 $ 184.852 $ 197.792 $ 211.637 $ 226.452
Representative EBITDA 5.679 9.938 10.041 10.043 10.583
Less: Depreciation and Amortization (0.850) (1.400) (0.905) (0.268) (0.124)
---------- ----------- ----------- ---------- ----------
Representative EBIT 4.829 8.538 9.136 9.775 10.459
-------
Less: Taxes @ | 45.0% | (2.173) (3.842) (4.111) (4.399) (4.707)
------- ---------- ----------- ----------- ---------- ----------
Debt-Free Earnings $ 2.656 $ 4.696 $ 5.025 $ 5.376 $ 5.753
Add: Depreciation and Amortization 0.850 1.400 0.905 0.268 0.124
Less: Working Capital Increase (3.832) (1.731) (1.910) (2.044) (2.187)
Less: Capital Expenditures (0.650) - - - -
Debt-Free Cash Flow $ (0.976) $ 4.365 $ 4.019 $ 3.600 $ 3.689
Years to Receipt of Cash Flow 0.25 1.00 2.00 3.00 4.00
----------
2001 2002 2003 2004 2005 | Total |
|------------------------------------------------------------------------- | |
Present Value of Interim Cash Flows 10.0% | (0.953) 3.968 3.322 2.705 2.520 | 11.561 |
10.5% | (0.952) 3.950 3.292 2.668 2.475 | 11.432 |
11.0% | (0.951) 3.932 3.262 2.632 2.430 | 11.306 |
11.5% | (0.950) 3.915 3.233 2.597 2.387 | 11.181 |
12.0% | (0.949) 3.897 3.204 2.562 2.345 | 11.059 |
----------
Exit EBIT Multiple
-------------------------------------------------------------------------
4.50x 5.00x 5.50x 6.00x 6.50x
|-------------------------------------------------------------------------
Present Value of Terminal Flow 10.0% | 30.651 34.057 37.463 40.868 44.274
10.5% | 30.032 33.369 36.706 40.043 43.380
11.0% | 29.428 32.698 35.968 39.237 42.507
11.5% | 28.839 32.043 35.247 38.452 41.656
12.0% | 28.264 31.404 34.545 37.685 40.826
Exit EBIT Multiple
-------------------------------------------------------------------------
4.50x 5.00x 5.50x 6.00x 6.50x
|-------------------------------------------------------------------------
Total Enterprise Value 10.0% | 42.212 45.618 49.024 52.429 55.835
| --------------------------------------------
10.5% | 41.464 | 44.801 48.138 51.475 | 54.812
11.0% | 40.734 | 44.004 47.273 50.543 | 53.813
11.5% | 40.020 | 43.225 46.429 49.633 | 52.838
| --------------------------------------------
12.0% | 39.323 42.464 45.604 48.745 51.885
- ----------------------------------------------------------------------------------------------------------------------------------
Indicated Relevant EV Range: $44.004 to $50.543
Mean $47.280
Median $47.273
- ----------------------------------------------------------------------------------------------------------------------------------
Note:
- -----
(1) 2001 projections have been halved because STV has a fiscal year end of 9/30.
Houlihan Lokey Howard & Zukin 33
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
Implied Growth Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Growth
------------------------
Company Name Cost of Equity (1) NFY P/E LTM P/E One Year Terminal
- --------------------------- -------------------- ---------- ----------- ---------- ----------
BAKER (MICHAEL) CORP 11.6% 7.31 14.65 100.4% 4.4%
EA ENGINEERING SCI & TECH 14.1% 7.25 20.42 181.7% 8.8%
ECOLOGY AND ENVIRON -CL A 9.1% NA 22.43 NA * 4.5%
HLM DESIGN INC 12.6% NA 5.64 NA * -4.3% *
JACOBS ENGINEERING GROUP INC 9.5% 19.31 21.73 12.5% 4.7%
KEITH COMPANIES INC 10.8% 14.55 19.64 34.9% 5.4%
URS CORP 11.8% 7.77 10.27 32.1% 1.9%
WESTON (ROY F) -SER A 9.5% NA 7.03 NA * -4.2% *
- ----------------------------------------------------------------------------------------------------------------------------
Low 9.1% 12.5% 1.9%
High 14.1% 181.7% 8.8%
Median 11.2% 34.9% 4.6%
Mean 11.1% 72.3% 5.0%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Concluded Terminal Growth 5.0%
- ----------------------------------------------------------------------------------------------------------------------------
Notes:
- ------
(1) Cost of Equity = Risk Free Rate + [Levered Beta * Equity Risk Premia] + Size
Risk Premia
* Excluded from the Range
Houlihan Lokey Howard & Zukin 34
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
WACC Analysis
($Millions)
Market Debt to Preferred to Equity to
Preferred Value of Enterprise Debt to Enterprise Enterprise Enterprise
Company Name Debt Stock Equity Value Equity Value Value Value
----- --------- -------- ---------- ------- ---------- ------------ ----------
BAKER (MICHAEL) CORP $2.3 $0.0 $78.7 $81.0 2.9% 2.8% 0.0% 97.2%
EA ENGINEERING SCI & TECH 3.8 0.0 8.7 12.5 43.4% 30.2% 0.0% 69.8%
ECOLOGY AND ENVIRON -CL A 0.1 0.0 32.0 32.1 0.2% 0.2% 0.0% 99.8%
HLM DESIGN INC 11.0 0.0 4.9 15.9 225.9% 69.3% 0.0% 30.7%
JACOBS ENGINEERING GROUP INC 137.8 0.0 1,669.9 1,807.6 8.2% 7.6% 0.0% 92.4%
KEITH COMPANIES INC 5.7 0.0 92.7 98.4 6.2% 5.8% 0.0% 94.2%
URS CORP 652.6 0.0 433.5 1,086.1 150.5% 60.1% 0.0% 39.9%
WESTON (ROY F)-SER A 14.4 0.0 47.9 62.3 30.0% 23.1% 0.0% 76.9%
------------------------------------------------------------------------------------------
Mean $103.5 $0.0 $296.0 $399.5 58.4% 24.9% 0.0% 75.1%
Median $8.4 $0.0 $63.3 $71.7 19.1% 15.4% 0.0% 84.6%
------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
STV GROUP INC 3.0 0.0 22.6 25.6 13.3% 11.7% 0.0% (88.3%)
- --------------------------------------------------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 35
STV Group, Incorporated
Fundamental Valuation
- --------------------------------------------------------------------------------
WACC Analysis (Continued)
Decile Adjusted Equity Size
Levered Unlevered Based Unlevered Risk Risk Cost of Cost of Cost of
Company Name Beta Beta Beta Beta Premia Premia Equity Debt Preferred WACC
- ------------ ---- ---- ---- ---- ------ ------ ------ ---- --------- -----
BAKER (MICHAEL) CORP 0.22 0.22 1.43 0.22 8.1% 3.95% 11.6% 7.8% 0.0% 11.4%
EA ENGINEERING SCI & TECH 0.53 0.42 1.43 0.42 8.1% 3.95% 14.1% 7.5% 0.0% 11.2%
ECOLOGY AND ENVIRON -CL A -0.08 (0.08) 1.43 (0.08) 8.1% 3.95% 9.1% 9.0% 0.0% 9.1%
HLM DESIGN INC 0.35 0.15 1.43 0.15 8.1% 3.95% 12.6% 8.7% 0.0% 7.5%
JACOBS ENGINEERING GROUP INC 0.42 0.40 1.12 0.51 8.1% 0.28% 9.5% 7.9% 0.0% 9.2%
KEITH COMPANIES INC 0.12 0.12 1.43 0.12 8.1% 3.95% 10.8% 9.4% 0.0% 10.5%
URS CORP 0.66 0.35 1.23 0.40 8.1% 0.64% 11.8% 10.3% 0.0% 8.4%
WESTON (ROY F) -SER A -0.04 (0.03) 1.43 (0.03) 8.1% 3.95% 9.5% 7.7% 0.0% 8.4%
---------------------------------------------------------------------------------------------------
Mean 0.38 0.27 1.37 0.30 - - 11.1% 8.5% 0.0% 9.5%
Median 0.39 0.28 1.43 0.31 - - 11.2% 8.3% 0.0% 9.1%
---------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
STV GROUP INC 0.35 0.32 1.43 0.32 8.1% 3.95% 12.6% 9.5% 0.0% 11.8%
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For Comparable Companies Only:
Weighted Average Cost of Capital (WACC) = (Cost of Debt * (1-Tax Rate) * Debt
to Enterprise Value) + (Cost of Equity * Equity to Enterprise Value) + (Cost
of Preferred * Preferred to Enterprise Value)
Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premia) + Size
Risk Premia
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For Subject Company Use Only:
Weighted Average Cost of Capital (WACC) = ((Cost of Debt * (1-Tax Rate)
* Debt to Enterprise Value) + (Cost of Equity * Equity to Enterprise Value)
+ (Cost of Preferred * Preferred to Enterprise Value)) + Projection Risk
Premium
Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premia) + Size
Risk Premia + Company Specific Risk Premium
Company Specific Risk Premium - Used to adjust for issues such as key man
risk
Projection Risk premium - Used to reflect expectation of projection
realization
- --------------------------------------------------------------------------------
Assumptions
- -----------
20-Year Treasury Bond Yield 5.8%
Equity Risk Premia (a) 8.10%
Size Risk Premia (a) 3.95%
Company Specific Risk Premium 0.00%
Projection Risk Premium 0.00%
Company Specific Decile Beta 1.43
Selected Adjusted Unlevered Beta 0.31
Levered Beta 0.34
Tax Rate 40.0%
Preferred to Enterprise Value 0.0%
Debt to Enterprise Value 15.4%
Equity to Enterprise Value 84.6%
Cost of Debt 8.3%
Cost of Preferred 0.0%
Cost of Equity 12.6%
--------
WACC 11.4%
--------
Source: Compustat
(a) Ibbotson Associates, Stocks Bonds Bills and Inflation 2000 Yearbook,
pp. 113, 120 and 266.
Houlihan Lokey Howard & Zukin 36
Other Valuation Considerations
STV Group, Incorporated
Other Valuation Considerations
- --------------------------------------------------------------------------------
Summary of Offers Received by STV
o As illustrated below, the Company received a number of indications of
interest, which averaged approximately $11.00. The companies and offers are
listed roughly in the order from oldest (late 1998) to most recent (early
2001). None of these interested parties ever proceeded to a letter of intent
or purchase agreement. No buyers are currently in negotiation with the
Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Approximate Last Per
Company Type Share Stock Price Reason for No Deal
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Conglomerate $10.00 Company withdrew interest after seeing STV's
transportation focus
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. transportation company $11.00 Withdrew because of its own litigation and
underlying financial problems
- ------------------------------------------------------------------------------------------------------------------------------------
Privately held U.S. engineering company $10.17 to $12.55 STV terminated because buyer offered
significant consideration in privately held
stock and lacked ability to close
- ------------------------------------------------------------------------------------------------------------------------------------
Public U.K. engineering company $10.00 to $12.00 STV terminated because of cultural fit
- ------------------------------------------------------------------------------------------------------------------------------------
Privately held U.S. engineering company $9.00 to $11.00 STV terminated due to low offer
- ------------------------------------------------------------------------------------------------------------------------------------
Public U.S. environmental and transportation $8.00 to $9.00 STV terminated due to low offer
engineering firm
- ------------------------------------------------------------------------------------------------------------------------------------
Public U.S. environmental and transportation $11.00 (verbal indication only) Buyer decided to sell itself rather than
engineering firm pursue purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Private U.S. transporation engineering firm $13.00 Buyer withdrew offer because of aggregate
purchase price and financing considerations
- ------------------------------------------------------------------------------------------------------------------------------------
Public European engineering firm $12.00 STV terminated because of extended due
diligence, significant caveats and expected
inability/unwillingness to complete the deal
- ------------------------------------------------------------------------------------------------------------------------------------
o Relevant Range: $9.00 to $13.00.
Houlihan Lokey Howard & Zukin 38
STV Group, Incorporated
Other Valuation Considerations
- --------------------------------------------------------------------------------
Debt Capacity of STV
o Because this is a going private transaction, utilizing debt, we considered the
ability of the Company to raise the capital to purchase the proposed non-ESOP
shares.
o Condition of the debt markets: As illustrated in the chart below, the debt
markets are experiencing a significant lull in the amounts that lenders are
willing to lend versus EBITDA results. This "credit crunch" is not expected to
immediately soften based on Federal Reserve-led interest rate changes because,
many banks say, the decisions to lend are based on underlying credit
fundamentals of companies rather than interest rates.
[GRAPHIC OMITTED]
Houlihan Lokey Howard & Zukin 39
STV Group, Incorporated
Other Valuation Considerations
- --------------------------------------------------------------------------------
o E&C Company difficulties: Because of the irregular nature of the
contract-driven E&C industry, there are not an abundance of lenders to the
industry. Further, asset-based lenders, the only relatively safe haven for
lending in today's environment, are particularly loathe to lend to E&C
companies because of the arbitrary nature of most accounts receivable (which
are based on percentage of completion contracts). Further, there have
traditionally been very few financial buyers of E&C companies because of the
financial community's inability to leverage an E&C company sufficiently to
achieve their required rates of return.
o Therefore, based on an examination of the prospective loan raised by the
Company to effectuate the transaction, it appears that the Company cannot
raise much more debt than is already contemplated from its proposed
transaction lender, Fleet Bank.
Houlihan Lokey Howard & Zukin 40
STV Group, Incorporated
Other Valuation Considerations
- --------------------------------------------------------------------------------
Selected Private Companies' Market Value Indications
o Due to regulatory requirements associated with large numbers of shareholders
in ESOP-related transactions, several privately held engineering firms are
required to file information with the SEC, including operating and stock price
information. The stock prices are determined either by valuations or by
formula. These companies (PBSJ Corporation, CH2M Hill and Law Gibb) provide an
additional basis upon which Houlihan Lokey can assess STV's value.
o The following sets forth the relevant operating performance and pricing
information for the relevant companies:
($Millions, except for per share prices)
LTM Stock Fully Diluted Common
------------------------------------------- Net Price Per Shares Equity
Revenues EBIT EBITDA Net Income Book Value Share(1) Outstanding Value
-------- ---- ------ ---------- ---------- --------- ------------ ------
CH2M HILL COMPANIES LTD $1,709.500 $49.900 $59.605 $24.531 $116.699 $9.75 29.057 $283.301
LAWGIBB GROUP INC 263.220 16.186 22.416 11.346 42.460 26.34 3.803 100.168
PBSJ CORP /FL/ 269.451 12.295 20.574 10.493 48.710 10.72 9.248 99.138
- ------------------------------------------------------------------------------------------------------------------------------------
Implied STV Multiples at $11.25 167.830 9.460 10.890 5.100 26.463 11.25 4.961 55.812
per share
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
4/24/01 STV Multiples 167.830 9.460 10.890 5.100 26.463 5.35 4.216 22.555
- ------------------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
Latest Twelve Month Multiples
------------------------------------
Interest Enterprise EV/ EV/
Bearing Debt Value EBIT EBITDA P/E P/NBV
------------ ---------- ---- ------ ----- -----
CH2M HILL COMPANIES LTD $14.467 $297.768 6.0x 5.0x 11.5x 2.43x
LAWGIBB GROUP INC 21.347 121.647 7.5x 5.4x 8.8x 2.36x
PBSJ CORP /FL/ 20.934 120.072 9.8x 5.8x 9.4x 2.04x
------------------------------------------
Low 6.0x 5.0x 8.8x 2.04x
High 9.8x 5.8x 11.5x 2.43x
Median 7.5x 5.4x 9.4x 2.36x
Mean 7.7x 5.4x 9.9x 2.27x
------------------------------------------
- --------------------------------------------------------------------------------------------------------
Implied STV Multiples at $11.25 3.000 58.812 6.2x 5.4x 10.9x 2.11x
per share
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
4/24/01 STV Multiples 3.000 25.555 3.0x 2.6x 5.1x 0.85x
- --------------------------------------------------------------------------------------------------------
Notes:
- ------
(1) The stock prices utilized are as of the most recent publicly stated value.
The most recent dates are as follows for the above three companies: March 16,
2001 for CH2M HILL, approximately February 14, 2001 for PBSJ and December 31,
2000 for LAWGIBB.
LTM - Latest Twelve Months
EV - Enterprise Value
EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization
P/E - Price to Earnings
Houlihan Lokey Howard & Zukin 41
Appendices
Acquisition of Minority Interest Study
STV Group, Incorporated
Acquisition of Minority Interest Study
- --------------------------------------------------------------------------------
o The following chart highlights the 72 transactions analyzed.
ACQUISITION OF MINORITY INTEREST STUDY
Summary of Premiums (Discounts) Paid
Median Premium (Discount)
---------------------------
Year # of Transactions 1 Day 1 Week 1 Month
----- ----------------- ----- ------ -------
2000 6 27.6% 32.6% 40.0%
1999 12 41.3% 43.8% 44.0%
1998 10 10.5% 19.0% 14.6%
1997 18 27.3% 27.8% 30.7%
1996 9 17.5% 17.5% 19.2%
1995 9 25.8% 23.1% 25.3%
1994 8 33.2% 36.0% 31.5%
--
Total 72
High 276.9% 290.0% 290.0%
Low -8.5% -11.6% -40.6%
Median 27.0% 27.3% 30.9%
Mean 33.6% 35.7% 38.4%
o For the 72 transactions analyzed, the median implied premium calculated by
comparing the final offer price to the price of the Target's stock one week
prior to announcement was 27.3 percent.
Houlihan Lokey Howard & Zukin 44
STV Group, Incorporated
Acquisition of Minority Interest Study
- --------------------------------------------------------------------------------
o Based on Houlihan Lokey's study, on average, the magnitude of the premiums
witnessed in acquisitions of remaining minority interest transactions were
generally lower than those seen in acquisitions of controlling interest
transactions, as illustrated in the table below.
ACQUISITION OF MINORITY INTEREST STUDY
Historical Comparison of (Median) Premiums Paid in Acquisition of
Controlling vs. Minority Interests
[GRAPHIC OMITTED]
o Since 1994, the median control premium is 32.0% and the median minority
premium is 28.0%.
Houlihan Lokey Howard & Zukin 45
Going Private Study
STV Group, Incorporated
Going Private Study
- --------------------------------------------------------------------------------
Summary Of Analysis
For the purposes of this study, Houlihan Lokey analyzed 111 going private
transactions that were announced between January 1, 1994 and December 31, 2000
in which (i) the Target was a publicly traded company, (ii) the offer price was
greater than $2.00 per share, (iii) the Acquiror purchased approximately 100% of
the Target's equity for cash and (iv) the time between the announcement and
effective dates was less than 270 days.
o The aggregate transaction value of the 111 transactions analyzed was
approximately $33.0 billion.
o While there were some outliers, the median one-month control premium was
31.5%.
o The following chart highlights the 111 transactions analyzed.
GOING PRIVATE STUDY
Median Control Premiums by Year
Aggregate Median Control Premium
# of Deals Value of ---------------------------
Year Completed Transactions(1) 1 Day 1 Week 1 Month
- ---- --------- -------------- ----- ------ -------
2000 31 $10,065 23.1% 40.4% 36.9%
1999 19 7,959 27.5% 29.0% 29.1%
1998 10 2,569 23.3% 35.2% 25.8%
1997 12 3,365 18.2% 23.5% 31.1%
1996 19 4,238 21.9% 21.0% 22.8%
1995 11 2,951 28.7% 36.9% 43.2%
1994 9 1,864 39.1% 38.1% 42.2%
- ---- --------- -------------- ----- ------ -------
Total 111 $33,010
High 216.9% 216.9% 221.1%
Low 2.3% 0.4% -16.9%
Median 24.3% 28.0% 31.5%
Mean 34.1% 37.9% 40.6%
(1) Dollars in millions.
Houlihan Lokey Howard & Zukin 47
STV Group, Incorporated
Going Private Study
- --------------------------------------------------------------------------------
o Based on Houlihan Lokey's study, historically, the magnitude of the control
premiums paid in going private transactions has not been, on a consistent
basis, either higher or lower than the average control premium paid in all
acquisitions.
GOING PRIVATE STUDY
Historical Comparison of (Median) Control Premiums Paid in
Going Private Acquisition vs. All Acquisitions
[GRAPHIC OMITTED]
(1) Control premium was calculated using the Target's price one month prior to
the announcement date
(2) Data obtained from Mergerstat.
o Since 1994, the median control premium is 32.0% and the median going private
premium is 32.0%.
Houlihan Lokey Howard & Zukin 48
STV Group, Incorporated
Going Private Study
- --------------------------------------------------------------------------------
In 94 of the 111 transactions analyzed, or 84.6%, the total transaction value
was less than $500 million.
o In 51 of the 111 transactions analyzed, or 45.9% the total transaction value
was less than $100 million.
o On average, the control premiums paid in smaller transactions where the
transaction value was less than $500 million was greater than the control
premiums paid in larger transactions where the transaction value was greater
than $500 million.
GOING PRIVATE STUDY
Median Control Premiums by Transaction Size
Value Completed 1 Day 1 Week 1 Month
------------- --------- ----- ------ -------
Under $100MM 51 21.6% 26.4% 30.7%
$100 - $500MM 43 28.1% 29.5% 30.5%
Over $500MM 17 15.9% 15.9% 18.4%
--- ----- ----- -----
Total 111 24.3% 28.0% 31.5%
Houlihan Lokey Howard & Zukin 49
STV Group, Incorporated
Going Private Study
- --------------------------------------------------------------------------------
o The median one-month control premium paid in transactions where the offer
price was between $2.00 and $20.00 per share was approximately 33.3% compared
to a median one-month control premium of 25.7% in transactions where the offer
price was greater than $20.00 per share.
o In 71.1% of the transactions analyzed, the offer price per share was greater
than $10.00.
GOING PRIVATE STUDY
Median Control Premiums by Transaction Size
Median Control Premium
Offer Price # of Deals ------------------------------
Per Share Completed 1 Day 1 Week 1 Month
- --------------- --------- ----- ------ -------
$2.00 - $5.00 6 34.6% 37.7% 36.0%
$5.00 - $10.00 26 20.0% 33.3% 33.3%
$10.00 - $20.00 44 26.1% 29.8% 33.3%
Over $20.00 35 21.9% 23.8% 25.7%
--- ---- ---- ----
Total 111 24.3% 28.0% 31.5%
o The median one-month control premium paid in going private transactions where
the buyer was a strategic buyer was 31.6%. In comparison, the median one-month
control premium paid by financial buyers was 28.0%
GOING PRIVATE STUDY
Median Control Premiums by Type of Acquiror
Median Control Premium
# of Deals ------------------------------
Type Completed 1 Day 1 Week 1 Month
- --------------- --------- ----- ------ -------
Financial 59 25.5% 27.5% 28.0%
Strategic 52 21.9% 31.3% 31.6%
--- ---- ---- ----
Total 111 24.3% 28.0% 31.5%
Houlihan Lokey Howard & Zukin
STV Financial Statements
STV Group, Incorporated
Financial Statements
- --------------------------------------------------------------------------------
Comparative Summary Income Statement
(FYE Audited, $Millions)
LTM Fiscal Year Ended September 30, Prior
Ended ---------------------------------------------------------- LTM
3/31/01 2000 1999 1998 1997 1996 3/31/00
------------------------------------------------------------------------------------
Total Revenues $167.834 $149.680 $138.940 $105.178 $94.676 $94.073 $142.158
Cost of Sales (Goods Sold) 150.583 132.164 123.687 94.188 86.242 86.359 124.988
------------------------------------------------------------------------------------
Gross Profit 17.251 17.516 15.253 10.990 8.434 7.714 17.170
------------------------------------------------------------------------------------
Total Operating Expenses 9.040 8.785 8.438 6.307 5.322 4.912 8.783
------------------------------------------------------------------------------------
Operating Income 8.211 8.731 6.815 4.683 3.112 2.802 8.387
Interest Expense 0.193 0.182 0.195 0.469 1.380 1.501 0.162
Other Income (Expense) 0.248 0.272 0.350 0.078 0.036 0.000 0.357
Nonrecurring Gain (Insurance Settlements) 1.000 1.000 2.600 0.000 0.000 0.000 2.600
------------------------------------------------------------------------------------
Pretax Income 9.265 9.821 9.570 4.292 1.768 1.301 11.182
Income Taxes (Credit) 4.308 4.555 4.386 2.098 0.908 0.706 5.017
Minority Interest 0.000 0.000 0.000 0.000 0.000 0.000 0.000
------------------------------------------------------------------------------------
Net Income (Loss), Continuing Operations 4.957 5.266 5.184 2.194 0.860 0.595 6.165
Extraordinary Gains (Loss) 0.000 0.000 0.000 0.000 0.000 0.000 0.000
------------------------------------------------------------------------------------
Net Income (Loss) $4.957 $5.266 $5.184 $2.194 $0.860 $0.595 $6.165
====================================================================================
Depreciation/Amortization $1.429 $1.250 $0.887 $0.741 $0.795 $0.997 $1.086
EBITDA $9.887 $10.253 $8.052 $5.502 $3.943 $3.799 $9.830
====================================================================================
EBIT(1) $8.458 $9.003 $7.165 $4.761 $3.148 $2.802 $8.744
====================================================================================
Notes:
- ------
(1) Includes other income.
Houlihan Lokey Howard & Zukin
STV Group, Incorporated
Financial Statements
- --------------------------------------------------------------------------------
Comparative Summary Balance Sheet
(FYE Audited, $Millions)
As Of September 30,
------------------------------------------
Assets 3/31/01 2000 1999 1998 1997 1996 3/31/00
----------------------------------------------------------------
Current Assets:
Cash & Equivalents $1.094 $3.382 $7.248 $4.444 $1.153 $0.028 $2.417
Accounts Receivable 43.509 36.282 30.590 23.485 20.154 20.504 32.576
Costs and Est. Earn. In Excess of Billings 18.867 18.404 17.029 13.218 15.077 14.290 18.322
Other Current Assets 0.872 0.915 0.829 1.149 1.726 1.757 0.368
----------------------------------------------------------------
Total Current Assets 64.343 58.983 55.696 42.296 38.110 36.579 53.683
----------------------------------------------------------------
Fixed Assets:
Furniture and Equipment 7.729 7.655 6.645 8.195 7.466 12.301 7.025
Less: Accum. Depreciation 4.708 4.767 4.832 6.642 6.127 10.987 4.266
----------------------------------------------------------------
Net Fixed Assets 3.021 2.888 1.813 1.553 1.339 1.314 2.760
----------------------------------------------------------------
Intangible Assets 0.068 0.000 0.000 0.000 0.000 0.000 0.074
L-T Investments 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Deferred Income Taxes 0.000 2.852 2.443 1.882 1.660 1.369 0.000
Other Assets 0.724 0.903 0.782 0.757 0.716 0.733 0.838
----------------------------------------------------------------
Total Assets $68.156 $65.626 $60.734 $46.488 $41.825 $39.995 $57.355
================================================================
Liabilities & Stockholders' Equity
Current Liabilities:
Accounts Payable $11.579 $9.025 $7.675 $6.382 $5.707 $5.603 $7.565
Billings on Uncompleted Contracts in
Excess of Costs 12.025 12.514 17.094 13.375 4.386 4.318 12.678
Current Maturities 0.098 0.100 0.110 0.564 10.860 10.448 0.105
Accrued Expenses 12.388 11.839 10.211 7.676 6.362 7.297 11.147
Other Current Liabilities (0.234 ) 2.916 3.013 1.958 0.696 0.192 (0.003)
----------------------------------------------------------------
Total Current Liabilities 35.857 36.394 38.103 29.955 28.011 27.858 31.490
----------------------------------------------------------------
Long-Term Debt 5.769 5.086 3.864 3.061 2.612 1.795 4.442
----------------------------------------------------------------
Total Liabilities 41.626 41.480 41.967 33.016 30.623 29.653 35.932
----------------------------------------------------------------
Minority Interest 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Stockholders' Equity:
Common Stock $2.064 $2.053 $2.041 $2.025 $1.921 $1.921 $2.045
Paid-in Capital 3.651 3.546 3.445 3.350 3.003 3.003 3.478
Retained Earnings 21.586 19.318 14.052 8.868 6.674 5.814 16.670
Less: Treasury Stock 0.771 0.771 0.771 0.771 0.396 0.396 0.771
----------------------------------------------------------------
Net Stockholders' Equity 26.531 24.146 18.767 13.472 11.202 10.342 21.423
----------------------------------------------------------------
Total Liabilities & Stockholders' Equity $68.156 $65.626 $60.734 $46.488 $41.825 $39.995 $57.355
================================================================
Working Capital
Net $27.490 $19.307 $10.455 $8.461 $19.806 $15.990 $19.880
Total $28.486 $22.589 $17.593 $12.341 $10.099 $8.721 $22.193
Houlihan Lokey Howard & Zukin
STV Group, Incorporated
Financial Statements
- --------------------------------------------------------------------------------
Income Statement Projections (FY01-FY05)
($Millions)
Fiscal Year Ended September 30,
-----------------------------------------------------------------------
2001 2002 2003 2004 2005 CAGR
---------------------------------------------------------------------------------
Total Revenues $172.759 $184.852 $197.792 $211.637 $226.452 7.0%
Less: Subcontract & Procurement Costs 50.000 53.500 57.245 61.252 65.540
---------------------------------------------------------------------
Operating Revenue 122.759 131.352 140.547 150.385 160.912 7.0%
Costs and Expenses:
Costs of Services and Sales 104.691 112.720 120.610 129.053 138.087
General and Administrative 9.434 10.095 10.801 11.557 12.366
---------------------------------------------------------------------
Total Costs and Expenses 114.125 122.814 131.411 140.610 150.453
---------------------------------------------------------------------
Operating Income (EBIT) 8.634 8.538 9.136 9.775 10.459 4.9%
% of Total Revenues 5.0% 4.6% 4.6% 4.6% 4.6%
Other Deductions 6.780 3.506 3.255 2.716 1.976
Income Before Income Taxes 1.854 5.032 5.880 7.059 8.484
Income Taxes (1) (0.574) - - - -
---------------------------------------------------------------------
Net Income $2.429 $5.032 $5.880 $7.059 $8.484 36.7%
=====================================================================
Depreciation/Amortization 1.700 1.400 0.905 0.268 0.124
Capital Expenditures 1.300 - - - -
Acquisition Capital Expenditures - - - - -
Preferred Dividends - - - - -
SERPS Accrual 1.023 - - - -
EBIT $8.634 $8.538 $9.136 $9.775 $10.459
=====================================================================
EBITDA $11.357 $9.938 $10.041 $10.043 $10.583
=====================================================================
Note:
- -----
(1) According to management, STV changes from a "C" corporation to a "S"
corporation concurrent with the transaction.
Houlihan Lokey Howard & Zukin