10-Q 1 june01.txt FY 2001 THIRD 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 JUNE 30, 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 June 30, 2001, there were 3,884,318 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...9 Part II: OTHER INFORMATION Item 1. Legal Proceedings...........................................10 Item 2. Changes in Securities.......................................10 Item 3. Defaults Upon Senior Securities.............................10 Item 4. Submission of Matters to a Vote of Security Holders.........10 Item 5. Other Information...........................................10 Item 6. Exhibits and Reports on Form 8-K............................10 SIGNATURES...................................................................11 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) June 30, 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 nine month periods ended June 30, 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. PLAN OF MERGER 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 at a meeting on August 29, 2001 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 nine months ended June 30, 2001 increased 25.5% as compared to the nine months ended June 30, 2000. Operating revenues for the same nine month period increased 11.3% from the comparable nine months of fiscal 2000. Pass-through costs, expressed as a percentage of total revenues, increased to 32.4% for the first nine months of fiscal 2001 as compared to 23.7% in the comparable period of fiscal 2000. 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 85.5% for the first nine months of fiscal 2001 from 84.1% in the comparable period of fiscal 2000. The increase in the percentage from fiscal 2000 was due to labor related expenses increasing at a greater rate than operating revenues. General and administrative expense, expressed as a percentage of operating revenue, increased to 8.3% for the nine months ended June 30, 2001 from 7.8% in the comparable nine months of fiscal 2000. The increase in this percentage is due primarily to increased legal and accounting costs associated with the Company's planned merger with the Employee Stock Ownership Plan. 6 Miscellaneous income, net decreased to $20,000 for the nine months ended June 30 of fiscal 2001 from $35,000 in the comparable period of fiscal 2000. Interest income, net of interest expense, decreased to $32,000 for the first nine months of fiscal 2001 from $87,000 in the comparable period of fiscal 2000. Income tax expense for the first nine months of fiscal 2001 was 52.0% of pre-tax income compared to 46.5% for the same period last year. The increase reflects the non-deductibility of certain costs associated with the Company's planned merger with the Employee Stock Ownership Plan. Diluted earnings per common share for the nine month period ended June 30, 2001 was $.66 cents versus $.90 cents for the same period last year. Total revenues for the quarter ended June 30, 2001 (third quarter fiscal 2001) increased 25.2% as compared to the third quarter of fiscal 2000 and increased 10.4% 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 2000 and increased 3.9% as compared with the previous quarter. Pass-through costs, expressed as a percentage of total revenues, increased to 34.9% as compared to 28.6% in the third quarter of fiscal 2000 and increased from 30.8% 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 85.6% for the third quarter of fiscal 2001 from 85.0% in the third quarter of fiscal 2000 and from 84.9% in the previous quarter. The increase in this percentage was due mainly to labor related expenses increasing at a greater rate than operating revenues for the comparable periods. 7 General and administrative expense, expressed as a percentage of operating revenue, increased to 9.6% in the third quarter of fiscal 2001 from 7.6% in the third quarter of fiscal 2000 and from 7.7% recorded in the previous quarter. The increase in this percentage is due primarily to increased legal and accounting costs associated with the Company's planned merger with the Employee Stock Ownership Plan. Miscellaneous income, net decreased to $10,000 for the third quarter of fiscal 2001 from $34,000 in the third quarter of fiscal 2000 and increased from $4,000 in the previous quarter. Interest income, net of interest expense, decreased to zero for the third quarter of fiscal 2001 from $10,000 in the third quarter of fiscal 2000 and increased from net interest expense of $7,000 in the previous quarter. Income tax expense for the third quarter of fiscal 2001 was 66.3% of pre-tax income compared to 46.6% in the second quarter of fiscal 2001 and 47.3% of pre-tax income for the same period last year. The increase in the effective tax rate reflects the non-deductibility of certain costs associated with the Company's planned merger with the Employee Stock Ownership Plan. Diluted earnings per common share for the third quarter of fiscal 2001 was $.12 cents versus $.27 cents for the third quarter of fiscal 2000. Financial Condition and Liquidity --------------------------------- Working capital increased to $25,742,000 at June 30, 2001 from $25,064,000 at March 31, 2001. 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 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. If the planned merger is effected pursuant to the Proxy Statement for the Special Meeting of Shareholders to be held on August 29, 2001, substantial debt will be incurred. 8 The Company's backlog at June 30, 2001 is approximately $240 million. Item 3. Quantitative and Qualitative Disclosures about Market Risk. ---------------------------------------------------------- Market risk exposures to the Company are not material. 9 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 at a meeting to be held on August 29, 2001 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 (2) Agreement and Plan of Merger dated April 30, 2001 between the Company and the ESOP.* (b) Reports on Form 8-K The Company filed a report on form 8-K dated April 30, 2001 to report execution of the Merger Agreement. *Incorporated by reference to the Company's Form 8-K dated April 30, 2001. 10 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, 2001 By: /s/ Dominick M. Servedio -------------------- ------------------------------------- Date Dominick M. Servedio President and Chief Executive Officer August 14, 2001 By: /s/ Peter W. Knipe ------------------- ------------------------------------- Date Peter W. Knipe Chief Financial Officer 11

STV GROUP INC 10-Q