SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 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 June 30, 2000, there were 3,855,318 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.............................8
SIGNATURES....................................................................9
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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
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 2000 September 30, 1999
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $72,000 $7,248,000
Accounts receivable 34,758,000 30,590,000
Costs and estimated profits of uncompleted
contracts in excess of related billings 18,612,000 17,029,000
Prepaid expenses and other current assets 1,228,000 829,000
--------- -------
Total Current Assets 54,670,000 55,696,000
Property and equipment 7,489,000 6,645,000
Less accumulated depreciation 4,494,000 4,832,000
--------- ---------
Net property and equipment 2,995,000 1,813,000
Deferred income taxes 2,802,000 2,443,000
Other assets 861,000 782,000
------- -------
TOTAL $61,328,000 $60,734,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes and accounts payable $9,821,000 $7,675,000
Accrued expenses 10,100,000 10,211,000
Billings on uncompleted contracts in excess of
related costs 11,600,000 17,094,000
Current portion of long term debt 116,000 110,000
Deferred income taxes 1,716,000 2,137,000
Income tax payable 620,000 876,000
------- -------
Total Current Liabilities 33,973,000 38,103,000
Long-term debt 3,556,000 2,794,000
Post-retirement benefits 1,190,000 1,070,000
Stockholders' Equity
Common stock 2,052,000 2,041,000
Capital in excess of par 3,538,000 3,445,000
Retained earnings 17,790,000 14,052,000
---------- ----------
Total 23,380,000 19,538,000
Less: Treasury stock 771,000 771,000
------- -------
Total Stockholders' Equity 22,609,000 18,767,000
TOTAL $61,328,000 $60,734,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
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STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues
Total revenues $39,806,000 $34,670,000 $110,590,000 $102,236,000
Less subcontract and procurement costs 11,404,000 9,813,000 26,280,000 30,762,000
---------- --------- ---------- ----------
Operating Revenue $28,402,000 $24,857,000 $84,310,000 $71,474,000
Costs and Expenses
Costs of services and sales 24,119,000 20,902,000 70,849,000 60,259,000
General and administrative 2,169,000 2,228,000 6,563,000 6,091,000
--------- --------- --------- ---------
Total Costs and Expenses 26,288,000 23,130,000 77,412,000 66,350,000
Interest expense (49,000) (35,000) (130,000) (149,000)
Interest income 59,000 77,000 217,000 228,000
------ ------ ------- -------
Income Before Income Taxes 2,124,000 1,769,000 6,985,000 5,203,000
Income taxes 1,004,000 857,000 3,247,000 2,469,000
--------- ------- --------- ---------
Net Income $1,120,000 $912,000 $3,738,000 $2,734,000
========== ======== ========== ==========
Basic earnings per share: $.29 $.24 $.97 $.72
Diluted earnings per share: $.27 $.22 $.90 $.65
</TABLE>
See notes to condensed consolidated financial statements.
3
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STV GROUP, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
June 30
2000 1999
<S> <C> <C>
Operating Activities
Net Income $3,738,000 $2,734,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 888,000 632,000
Deferred income taxes (780,000) -
Loss on disposal of property and equipment 4,000 -
Changes in operating assets and liabilities:
Accounts receivable (4,168,000) (5,164,000)
Costs of uncompleted contracts in
excess of billings and other current assets (1,982,000) (2,136,000)
Accounts payable and accrued expenses 2,123,000 1,364,000
Billing in excess of related costs (5,494,000) 3,469,000
Income taxes payable (256,000) (3,000)
-------- ------
Net cash (used in) provided by operating activities ($5,927,000) $896,000
Investing Activities
Purchase of property and equipment (1,843,000) (653,000)
Purchase of software (346,000) (272,000)
Decrease in other assets 36,000 104,000
------ -------
Net cash used in investing activities ($2,153,000) ($821,000)
Financing Activities
Proceeds from issuance of common stock 104,000 75,000
Proceeds from line of credit and long term borrowings 3,250,000 -
Principal payments on line of credit and long
term borrowings (2,450,000) (521,000)
---------- --------
Net cash provided by (used in) financing activities $904,000 ($446,000)
Decrease in cash and cash equivalents (7,176,000) (371,000)
Cash and cash equivalents at beginning of year 7,248,000 4,444,000
--------- ---------
Cash and cash equivalents at end of period $72,000 $4,073,000
======= ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 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 nine month periods ended June 30, 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 NINE MONTHS ENDED
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share $0.29 $0.24 $0.97 $0.72
Shares outstanding 3,844,021 3,815,686 3,839,535 3,807,517
Diluted earnings per share $0.27 $0.22 $0.90 $0.65
Shares outstanding 4,120,069 4,231,841 4,175,270 4,175,114
</TABLE>
5
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Item 2. Management Discussion and Analysis of Financial Condition and Results of
Operation
Results of Operations
Total revenues for the quarter ended June 30, 2000 (third quarter fiscal 2000)
increased 14.8% as compared to the third quarter of fiscal 1999 and increased
8.9% as compared to the previous quarter. Operating revenues (total revenues
excluding pass-through costs) increased 14.2% as compared to the third quarter
of fiscal 1999 and remained constant with the previous quarter.
Pass-through costs, expressed as a percentage of total revenues, increased to
28.7% as compared to 28.3% in the third quarter of fiscal 1999 and increased
from 22.0% in the previous quarter. Pass-through costs will vary depending on
the need for specialty subconsultants and governmental subcontract requirements.
Cost of services, expressed as a percentage of operating revenues, increased to
84.9% for the third quarter of fiscal 2000 from 84.1% in the third quarter of
fiscal 1999 and increased from 83.6% in the previous quarter. The increase in
the percentage from the previous quarter was due mainly to an increase in
marketing opportunities.
General and administrative expense, expressed as a percentage of operating
revenue, decreased to 7.6% in the third quarter of fiscal 2000 from 9.0% in the
third quarter of fiscal 1999 and is comparable to 7.9% recorded in the previous
quarter. The decrease from the third quarter of fiscal 1999 is due primarily to
the increase in operating revenues noted above.
Interest income, net of interest expense, decreased to $10,000 for the third
quarter of fiscal 2000 from $42,000 in the third quarter of fiscal 1999 and from
$22,000 in the previous quarter due to lower cash balances as cash has been used
to finance growing operating activities.
Income tax expense for the third quarter of fiscal 2000 was 47.3% of pre-tax
income compared to 46.1% in the second quarter of fiscal 2000 and 48.4% of
pre-tax income for the same period last year. The increase from the second
quarter is due to non-deductible expenses being higher on lower
6
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pre-tax income. The decrease from the third quarter of fiscal 1999 is due to
non-deductible expenses being lower as a percentage of increased third quarter
pre-tax income.
Diluted earnings per common share for the third quarter of fiscal 2000 was $.27
cents versus $.22 cents for the third quarter of fiscal 1999.
Financial Condition and Liquidity
Working capital increased to $20,697,000 from $19,528,000 in the previous
quarter. Cash has declined by $7,176,000 since the beginning of the fiscal year.
This is due primarily to a decline in pre-billings in excess of costs of
$5,494,000, an increase in accounts receivable related to growth of $4,168,000,
and the purchases of property, equipment, and software of $2,189,000. 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 $10,000,000 and
issue letters of credit up to $2,000,000 and requires the Company to meet
certain financial covenants. Approximately $10,300,000 is available on the
$12,000,000 line of credit. The Company believes that it and the lender will
maintain a line of credit adequate to meet the current and future financial
needs of the Company. The Company is planning to continue its program of
purchasing computer-assisted design and drafting equipment.
The Company's backlog at June 30, 2000 is approximately $200 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk exposures to the Company are not material.
7
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
The "STV Group, Incorporated Non-Qualified Management Savings Plan"
has been adopted effective June 1, 2000. It is primarily for the purpose of
providing a deferred compensation alternative for a select group of management
or highly compensated employees. The Company may elect to contribute a matching
contribution at its discretion. Selected participants are allowed to save up to
50% of wages and/or bonuses in their selected investment accounts on a
pre-income tax basis. This benefit will allow participants to save for
retirement or receive benefits on a predetermined basis and should help attract
and maintain key employees.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to Part I of this Form 10Q:
Exhibit 10.39 - STV Group, Incorporated Non-Qualified Management
Savings Plan
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K for the quarter ended
June 30, 2000.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STV GROUP, INCORPORATED
(Registrant)
August 14, 2000 By: /s/ Dominick M. Servedio
------------------- -------------------------------------
Date Dominick M. Servedio
President and Chief Executive Officer
August 14, 2000 By: /s/ Peter W. Knipe
------------------- -------------------------------------
Date Peter W. Knipe
Chief Financial Officer
9
