10-Q 1 march01.txt STV GROUP FY 2001 SECOND QUARTER 10Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2001 COMMISSION FILE NO. 0-3415 STV GROUP, INCORPORATED -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1698231 ------------------------------- ------------------------------- (State or other jurisdiction of I.R.S. Employer Identification) incorporation or organization) 205 West Welsh Drive, Douglassville, Pennsylvania 19518 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 385-8200 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of March 31, 2001, there were 3,880,128 shares of common stock of the registrant outstanding. TABLE OF CONTENTS Page ---- CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS......................1 Part I: FINANCIAL INFORMATION Item 1. Financial Statements...........................................2 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation...........................................6 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....7 Part II: OTHER INFORMATION Item 1. Legal Proceedings.............................................8 Item 2. Changes in Securities.........................................8 Item 3. Defaults Upon Senior Securities...............................8 Item 4. Submission of Matters to a Vote of Security Holders...........8 Item 5. Other Information.............................................8 Item 6. Exhibits and Reports on Form 8-K..............................8 SIGNATURES.....................................................................9 CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS Certain oral statements made by management from time to time and certain statements contained herein, including certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" such as the Company's ability to meet its liquidity needs and control costs, certain statements in Notes to Condensed Consolidated Financial Statements, and other statements contained herein regarding matters which are not historical facts such as statements regarding the proposed merger pursuant to the merger agreement with the Company's ESOP are forward looking statements (as such term is defined in the Securities Act of 1933) and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to those discussed below: 1. Whether all the conditions to closing the proposed merger are met or the merger is not consummated for any other reason. 2. The Company's ability to secure the capital and the related cost of such capital necessary to fund its future growth. 3. The Company's continued ability to operate in a heavily regulated government environment. The Company's government contracts are subject to termination, reduction or modification as a result of changes in the government's requirements or budgetary restrictions. In addition, government contracts are subject to termination at the conveniences of the government. Under certain circumstances, the government can also suspend or debar individuals or firms from obtaining future contracts with the government. 4. The level of competition in the Company's industry, including companies with significantly larger operations and resources than the Company. 5. The Company's ability to identify and win suitable projects and to consummate or complete any such projects. 6. The Company's ability to perform design/build projects which may include the responsibility of ensuring the actual construction of a project for a guaranteed price. Certain of these and other factors have been discussed in more detail in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. 1 PART I: FINANCIAL INFORMATION Item 1. Financial Statements STV GROUP, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

2 STV GROUP, INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

3 STV GROUP, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

4 Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2001 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended March 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2001. 2. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS recognizes the potential dilutive effects of the future exercise of common stock options.

4. RECLASSIFICATION Certain amounts for 2000 in the accompanying consolidated financial statements have been reclassified to conform to the 2001 presentation. 5 5. SUBSEQUENT EVENT On April 30, 2001, the company announced that it entered into an Agreement and Plan of Merger with the company's employee stock ownership plan (the "ESOP") pursuant to which all shares of the company's common stock not owned by the ESOP will be exchanged for $11.25 per share in cash. The shares of the company's common stock owned by the ESOP will be retained by the ESOP. Completion of the merger is subject to the receipt of proposed financing, the approval of the company's non-ESOP stockholders and ESOP participants and to other conditions contained in the merger agreement. There can be no assurance that the merger will be consummated. Item 2. Management Discussion and Analysis of Financial Condition and Results of Operation ----------------------------------------------------------------------- Results of Operations --------------------- Total revenues for the quarter ended March 31, 2001 (second quarter of fiscal 2001) increased 23.5% as compared to the second quarter of fiscal 2000 and increased 2.9% as compared to the previous quarter. Operating revenues (total revenues excluding pass through costs) for the second quarter of fiscal 2001 increased 9.5% as compared to the second quarter of fiscal 2000 and increased 3.5% as compared to the previous quarter. Pass through costs, expressed as a percentage of total revenues, increased to 30.8% compared to 22.0% in the second quarter of fiscal 2000 and decreased from 31.2% in the previous quarter. Pass through costs will vary depending on the need for specialty subconsultants and governmental subcontract requirements. Costs of services, expressed as a percentage of operating revenues, increased to 84.9% for the second quarter of fiscal 2001 from 83.6% for the second quarter of fiscal 2000 and decreased from 86.1% recorded in the previous quarter. The increase from the second quarter of fiscal 2000 is due mainly to an increase in labor and labor related costs while the decrease from the previous quarter is due primarily to the increase in operating revenues noted above. 6 General and administrative expense, expressed as a percentage of operating revenue, was 7.7% in the second quarter of fiscal 2001 and is slightly lower than the 7.9% recorded in the second quarter of fiscal 2000 and is comparable to the 7.5% recorded in the previous quarter. Miscellaneous income, net increased to $4,000 for the second quarter of fiscal 2001 from zero in the second quarter of fiscal 2000 and decreased from $6,000 in the previous quarter. Interest income, net of interest expense, decreased to net interest expense of $7,000 for the second quarter of fiscal 2001 from net interest income of $22,000 in the second quarter of fiscal 2000 and from $39,000 in the previous quarter due to lower cash balances as cash has been used to finance operating activities. Income tax expense for the second quarter of fiscal 2001 was 46.6% of pre-tax income compared to 46.1% in the second quarter of fiscal 2000 and 47.0% in the previous quarter. The decrease from the previous quarter is due to non-deductible expenses being lower as a percentage of increased second quarter pre-tax income. Diluted earnings per common share for the second quarter of fiscal 2001 was $.30 cents versus $.31 cents for the second quarter of fiscal 2000. Financial Condition and Liquidity --------------------------------- Working capital increased to $25,064,000 at March 31, 2001 from $23,678,000 at December 31, 2000. The Company has a $12,000,000 committed line of credit. The agreement provides that the Company may borrow up to $10,000,000 and issue letters of credit for up to $2,000,000. Approximately $10,000,000 is available on the $12,000,000 line of credit. The Company is planning to continue its program of purchasing computer-assisted design and drafting equipment. The Company's backlog at March 31, 2001 is approximately $250 million. Item 3. Quantitative and Qualitative Disclosures about Market Risk. ----------------------------------------------------------- Market risk exposures to the Company are not material. 7 PART II: OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to Vote of Security Holders Not applicable. Item 5. Other Information On April 30, 2001, the company announced that it entered into an Agreement and Plan of Merger with the company's employee stock ownership plan (the "ESOP") pursuant to which all shares of the company's common stock not owned by the ESOP will be exchanged for $11.25 per share in cash. The shares of the company's common stock owned by the ESOP will be retained by the ESOP. Completion of the merger is subject to the receipt of proposed financing, the approval of the company's non-ESOP stockholders and ESOP participants and to other conditions contained in the merger agreement. There can be no assurance that the merger will be consummated. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Not applicable. (b) Reports on Form 8-K The Company filed no reports on Form 8-K for the quarter ended March 31, 2001. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STV GROUP, INCORPORATED ----------------------- (Registrant) May 11, 2001 By: /s/ Dominick M. Servedio ----------------- ------------------------------------- Date Dominick M. Servedio President and Chief Executive Officer May 11, 2001 By: /s/ Peter W. Knipe ---------------- ------------------------------------- Date Peter W. Knipe Chief Financial Officer 9

STV GROUP INC 10-Q