SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 0-3415
STV GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1698231
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
205 West Welsh Drive, Douglassville, Pennsylvania 19518
(Address of principal executive offices) (Zip Code)
(610) 385-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of March 31, 2000, there were 3,841,318 shares of common stock of the
registrant outstanding.
<PAGE>
TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 1
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements.......................................2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................6
Item 3. Quantitative and Qualitative Disclosures about Market Risk.7
Part II: OTHER INFORMATION
Item 1. Legal Proceedings..........................................8
Item 2. Changes in Securities......................................8
Item 3. Defaults Upon Senior Securities............................8
Item 4. Submission of Matters to a Vote of Security Holders........8
Item 5. Other Information..........................................8
Item 6. Exhibits and Reports on Form 8-K...........................9
SIGNATURES....................................................................10
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain oral statements made by management from time to time and certain
statements contained herein, including certain statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" such
as statements regarding the Company's ability to meet its liquidity needs and
control costs, certain statements in Notes to Condensed Consolidated Financial
Statements, and other statements contained herein regarding matters which are
not historical facts are forward looking statements (as such term is defined in
the Securities Act of 1933) and because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward looking statements. Factors that could cause actual
results to differ materially include, but are not limited to those discussed
below:
1. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth.
2. The Company's continued ability to operate in a heavily regulated
government environment. The Company's government contracts are subject to
termination, reduction or modification as a result of changes in the
government's requirements or budgetary restrictions. In addition,
government contracts are subject to termination at the conveniences of the
government. Under certain circumstances, the government can also suspend or
debar individuals or firms from obtaining future contracts with the
government.
3. The level of competition in the Company's industry, including companies
with significantly larger operations and resources than the Company.
4. The Company's ability to identify and win suitable projects and to
consummate or complete any such projects.
5. The Company's ability to perform design/build projects which may include
the responsibility of ensuring the actual construction of a project for a
guaranteed price.
These and other factors have been discussed in more detail in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999.
1
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $2,417,000 $7,248,000
Accounts receivable 32,576,000 30,590,000
Costs and estimated profits of uncompleted
contracts in excess of related billings 18,322,000 17,029,000
Prepaid expenses and other current assets 368,000 829,000
------- -------
Total Current Assets 53,683,000 55,696,000
Property and equipment 7,025,000 6,645,000
Less accumulated depreciation 4,266,000 4,832,000
--------- ---------
Net property and equipment 2,759,000 1,813,000
Deferred income taxes 2,664,000 2,443,000
Other assets 913,000 782,000
------- -------
TOTAL $60,019,000 $60,734,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $7,565,000 $7,675,000
Accrued expenses 11,146,000 10,211,000
Billings on uncompleted contracts in excess of
related costs 12,678,000 17,094,000
Current portion of long term debt 105,000 110,000
Deferred income taxes 1,740,000 2,137,000
Income tax payable 921,000 876,000
------- -------
Total Current Liabilities 34,155,000 38,103,000
Long-term debt 3,302,000 2,794,000
Post-retirement benefits 1,140,000 1,070,000
Stockholders' Equity
Common stock 2,045,000 2,041,000
Capital in excess of par 3,478,000 3,445,000
Retained earnings 16,670,000 14,052,000
---------- ----------
Total 22,193,000 19,538,000
Less: Treasury stock 771,000 771,000
------- -------
Total Stockholders' Equity 21,422,000 18,767,000
TOTAL $60,019,000 $60,734,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
March 31 March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues
Total revenues $36,538,000 $33,345,000 $70,784,000 $67,566,000
Less subcontract and procurement costs 8,030,000 9,587,000 14,876,000 20,949,000
--------- --------- ---------- ----------
Operating Revenue $28,508,000 $23,758,000 $55,908,000 $46,617,000
Costs and Expenses
Costs of services and sales 23,828,000 19,955,000 46,730,000 39,357,000
General and administrative 2,264,000 2,115,000 4,394,000 3,863,000
--------- --------- --------- ---------
Total Costs and Expenses 26,092,000 22,070,000 51,124,000 43,220,000
Interest expense (43,000) (40,000) (81,000) (114,000)
Interest income 65,000 78,000 158,000 151,000
------ ------ ------- -------
Income Before Income Taxes 2,438,000 1,726,000 4,861,000 3,434,000
Income taxes 1,125,000 816,000 2,243,000 1,612,000
--------- ------- --------- ---------
Net Income $1,313,000 $910,000 $2,618,000 $1,822,000
========== ======== ========== ==========
Basic earnings per share: $.34 $.24 $.68 $.48
Diluted earnings per share: $.31 $.22 $.62 $.44
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 31
2000 1999
<S> <C> <C>
Operating Activities
Net Income $2,618,000 $1,822,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 577,000 421,000
Deferred income taxes (618,000) -
Loss on disposal of property and equipment 4,000 -
Changes in operating assets and liabilities:
Accounts receivable (1,986,000) (3,289,000)
Costs of uncompleted contracts in
excess of billings and other current assets (832,000) (2,256,000)
Accounts payable and accrued expenses 1,398,000 3,888,000
Billing in excess of related costs (4,416,000) 2,668,000
Income taxes payable 45,000 195,000
------ -------
Net cash (used in) provided by operating activities ($3,210,000) $3,449,000
Investing Activities
Purchase of property and equipment (1,379,000) (364,000)
Purchase of software (312,000) (142,000)
Decrease in other assets 33,000 90,000
------ ------
Net cash used in investing activities ($1,658,000) ($416,000)
Financing Activities
Proceeds from issuance of common stock 37,000 32,000
Principal payments on line of credit and long
term borrowings 0 (456,000)
- --------
Net cash provided by (used in) financing activities $37,000 ($424,000)
(Decrease) increase in cash and cash equivalents (4,831,000) 2,609,000
Cash and cash equivalents at beginning of year 7,248,000 4,444,000
--------- ---------
Cash and cash equivalents at end of period $2,417,000 $7,053,000
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 2000.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States require management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
Actual results could differ from those estimates.
3. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS recognizes the potential dilutive effects of the future exercise of
common stock options.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.34 $0.24 $0.68 $0.48
Shares outstanding 3,839,027 3,806,546 3,837,292 3,803,432
Diluted earnings per share $0.31 $0.22 $0.62 $0.44
Shares outstanding 4,171,620 4,149,513 4,202,871 4,112,210
</TABLE>
5
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operation
Results of Operations
Total revenues for the quarter ended March 31, 2000 (second quarter of fiscal
2000) increased 9.6% as compared to the second quarter of fiscal 1999 and
increased 6.7% as compared to the previous quarter. Operating revenues (total
revenues excluding pass through costs) for the second quarter of fiscal 2000
increased 20.0% as compared to the second quarter of fiscal 1999 and increased
4.0% as compared to the previous quarter.
Pass through costs, expressed as a percentage of total revenues, decreased to
22.0% compared to 28.8% in the second quarter of fiscal 1999 and increased from
20.0% in the previous quarter. Pass through costs will vary depending on the
need for specialty subconsultants and governmental subcontract requirements.
Costs of services, expressed as a percentage of operating revenues, decreased
slightly to 83.6% for the second quarter of fiscal 2000 from 84.0% for the
second quarter of fiscal 1999 and is comparable to 83.6% recorded in the first
quarter of fiscal 2000. The absolute cost of services increased due to an
increase in labor related expenses and information technology costs.
General and administrative expense, expressed as a percentage of operating
revenue, was 7.9% in the second quarter of fiscal 2000 and is lower than the
8.9% recorded in the second quarter of fiscal 1999 and is comparable to the 7.8%
recorded in the previous quarter. The decrease from the second quarter of fiscal
1999 is due primarily to an increase in operating revenues noted above.
Interest income, net of interest expense, decreased to $22,000 for the second
quarter of fiscal 2000 from $38,000 in the second quarter of fiscal 1999 and
from $55,000 in the previous quarter due to lower cash balances as cash has been
used to finance operating activities.
Income tax expense for the second quarter of fiscal 2000 was 46.1% of pre-tax
income compared to 46.1% in the first quarter of fiscal 1999 and 47.3% of
pre-tax income for the same period last year.
6
<PAGE>
The decrease from the second quarter of fiscal 1999 is due to non-deductible
expenses being lower as a percentage of increased second quarter pre-tax income
from last year.
Diluted earnings per common share for the second quarter of fiscal 2000 was $.31
cents versus $.22 cents for the second quarter of fiscal 1999.
Financial Condition and Liquidity
Working capital increased to $19,528,000 from $18,805,000 in the previous
quarter. Cash has declined by $4,831,000 since the beginning of the fiscal year
due primarily to an increase in accounts receivable and costs and estimated
profits on uncompleted contracts in excess of related billings of $3,279,000 and
purchases of property, equipment, and software of $1,619,000. On February 3,
2000 the Company obtained a new $12,000,000 committed line of credit from
another financial institution replacing the previously existing line of credit.
The agreement provides that the Company may borrow up to ten million dollars
($10,000,000) and issue letters of credit for up to two million dollars
($2,000,000) and requires the Company to meet certain financial covenants. Of
the total $12,000,000 line, approximately $11,000,000 is available. The Company
believes that it and the lender will maintain a line of credit adequate to meet
the current and future financial needs of the Company. The Company is planning
to continue its program of purchasing computer-assisted design and drafting
equipment.
The Company's backlog at March 31, 2000 is approximately $220 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk exposures to the Company are not material.
7
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In 1992, the Company's former professional liability insurer was
found liable for approximately $4,000,000 due to a previous arbitration
proceeding allegedly relating to an asset acquisition. The judgment was reversed
on appeal in 1994. The plaintiffs in that action filed an action to enforce the
arbitration in the Supreme Court of New York in 1992 against the Company. On
March 3, 1994 the plaintiffs sought to garnish the proceeds of the professional
liability policy by commencing a proceeding in the Philadelphia Court of Common
Pleas against the Company's professional liability insurer. The Company
intervened in the garnishment proceeding. This proceeding had been stayed
pending resolution of the Skinner Litigation. This litigation is now moving
forward. The Company and the Company's professional liability insurer continue
to deny liability and intend to vigorously pursue defenses available to them. If
the outcome of the litigation is adverse to the Company and the Company is
required to pay amounts in excess of the policy limits of its insurance policy,
it could have a material adverse effect on the earnings and financial condition
of the Company in the year such determination is made; however, management
believes that the final resolution of this litigation will not have a material
adverse effect on the Company's financial condition.
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
The Annual Meeting of Shareholders of STV Group, Incorporated was
held, Wednesday, March 29, 2000 at which the following directors were
elected for a term of three (3) years:
William J. Doyle
Richard L. Holland
Michael Haratunian
Item 5. Other Information
Not applicable.
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10Q:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
March 31, 2000.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STV GROUP, INCORPORATED
(Registrant)
May 15, 2000 By: /s/ Dominick M. Servedio
- ----------------- -------------------------------------
Date Dominick M. Servedio
President and Chief Executive Officer
May 15, 2000 By: /s/ Peter W. Knipe
- ----------------- -------------------------------------
Date Peter W. Knipe
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRANSMITTING STV GROUP'S FISCAL 2000 SECOND QUARTER FORM 10Q.
</LEGEND>
<CIK> 0000095045
<NAME> STV GROUP, INCORPORATED
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,417,000
<SECURITIES> 27,000
<RECEIVABLES> 32,756,000
<ALLOWANCES> 180,000
<INVENTORY> 18,322,000
<CURRENT-ASSETS> 53,683,000
<PP&E> 7,025,000
<DEPRECIATION> 4,266,000
<TOTAL-ASSETS> 60,019,000
<CURRENT-LIABILITIES> 34,155,000
<BONDS> 0
0
0
<COMMON> 2,045,000
<OTHER-SE> 19,377,000
<TOTAL-LIABILITY-AND-EQUITY> 60,019,000
<SALES> 70,784,000
<TOTAL-REVENUES> 70,784,000
<CGS> 46,730,000
<TOTAL-COSTS> 51,124,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,000
<INCOME-PRETAX> 4,861,000
<INCOME-TAX> 2,243,000
<INCOME-CONTINUING> 2,618,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,618,000
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.62
</TABLE>
