10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _____________________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ______ to ______ Commission File Number 0-25032 ___________________________ UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 25-1724540 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 600 Mayer Street Bridgeville, PA 15017 (Address of principal executive offices, including zip code) (412) 257-7600 (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 12 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 August 11, 2000, there were 6,072,564 outstanding shares of the Registrant's Common Stock, $.001 par value. UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. This Quarterly Report on Form 10-Q contains historical information and forward- looking statements. Statements looking forward are included in this Form 10-Q pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. They involve known and unknown risks and uncertainties such as but not limited to expected market conditions that may cause the Company's actual results to differ from future performance suggested herein. In the context of forward-looking information provided in this Form 10-Q and in other reports, please refer to the discussion of risk factors detailed in, as well as the other information contained in, the Company's filings with the Securities and Exchange Commission during the past 12 months. INDEX PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Operations 2 Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Cash Flows 4 Notes to the Unaudited Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 1 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Universal Stainless & Alloy Products, Inc. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Information) (Unaudited)
For the For the Three-month period ended Six-month period ended June 30, June 30, --------------------------------------- ------------------------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net sales $19,012 $15,485 $37,101 $29,973 Cost of products sold 15,227 13,940 30,630 26,901 Selling and administrative expenses 1,433 970 2,535 1,984 --------------- -------------- -------------- -------------- Operating income 2,352 575 3,936 1,088 Interest expense and other financing costs (231) (188) (458) (339) Other income (expense), net (19) 8 2 13 --------------- -------------- -------------- -------------- Income before taxes 2,102 395 3,480 762 Income taxes 736 146 1,218 282 --------------- -------------- -------------- -------------- Net income $ 1,366 $ 249 $ 2,262 $ 480 =============== ============== ============== ============== Earnings per common share Basic $ 0.22 $ 0.04 $ 0.37 $ 0.08 =============== ============== ============== ============== Diluted $ 0.22 $ 0.04 $ 0.37 $ 0.08 =============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. 2 UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands)
June 30, 2000 December 31, 1999 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 358 $ 868 Accounts receivable (less allowance for doubtful accounts of $448 and $418) 12,905 12,113 Inventory 20,483 15,730 Other current assets 1,622 1,564 ------- ------- Total current assets 35,368 30,275 Property, plant and equipment, net 38,079 36,989 Other assets 878 915 ------- ------- Total assets $74,325 $68,179 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable and bank overdrafts $ 8,345 $ 6,584 Current portion of long-term debt 1,828 1,836 Accrued employment costs 1,396 727 Other current liabilities 1,338 328 ------- ------- Total current liabilities 12,907 9,475 Long-term debt 10,225 10,005 Deferred taxes 5,253 5,046 ------- ------- Total liabilities 28,385 24,526 ------- ------- Commitments and contingencies -- -- Stockholders' equity Senior Preferred Stock, par value $.001 per share; liquidation value $100 per share; 2,000,000 shares authorized; and 0 shares issued and outstanding -- -- Common Stock, par value $.001 per share; 10,000,000 shares authorized; 6,334,739 and 6,330,416 shares issued 6 6 Additional paid-in capital 25,863 25,838 Retained earnings 21,615 19,353 Treasury Stock at cost; 257,900 common shares held (1,544) (1,544) ------- ------- Total stockholders' equity 45,940 43,653 ------- ------- Total liabilities and stockholders' equity $74,325 $68,179 ======= =======
The accompanying notes are an integral part of these financial statements. 3 Universal Stainless & Alloy Products, Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
For the Six-month period ended June 30, 2000 1999 ---- ---- Cash flow from operating activities: Net income $ 2,262 $ 480 Adjustments to reconcile to net cash and cash equivalents provided by operating activities: Depreciation and amortization 1,188 1,014 Deferred taxes 65 702 Changes in assets and liabilities: Accounts receivable, net (792) (2,086) Inventory (4,753) 684 Trade accounts payable and bank overdrafts 1,761 1,607 Accrued employment costs 669 28 Other, net 1,144 879 ------------- ------------- Net cash provided by operating activities 1,544 3,308 ------------- ------------- Cash flow from investing activities: Capital expenditures (2,291) (2,420) ------------- ------------- Net cash used in investing activities (2,291) (2,420) ------------- ------------- Cash flow from financing activities: Proceeds from issuance of Common Stock 25 26 Net borrowing under revolving line of credit 1,125 -- Long-term debt payments (913) (208) Purchase of Treasury Stock -- (875) ------------- ------------- Net cash provided by (used in) financing activities 237 (1,057) ------------- ------------- Net decrease in cash (510) (169) Cash and cash equivalents at beginning of period 868 1,437 ------------- ------------- Cash and cash equivalents at end of period $ 358 $ 1,268 ============= ============== Supplemental disclosure of cash flow information: Interest paid (net of amount capitalized) $ 442 $ 345 Income taxes paid $ 627 $ 3
The accompanying notes are an integral part of these financial statements 4 UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1) The accompanying unaudited, consolidated condensed financial statements of operations for the three- and six-month periods ended June 30, 2000 and 1999, balance sheets as of June 30, 2000 and December 31, 1999, and statements of cash flows for the six-month periods ended June 30, 2000 and 1999 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 1999. In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments, all of which were of a normal recurring nature, necessary to present fairly, in all material respects, the consolidated financial position at June 30, 2000 and December 31, 1999 and the consolidated results of operations and of cash flows for the periods ended June 30, 2000 and 1999, and are not necessarily indicative of the results to be expected for the full year. 2) The reconciliation of the weighted average number of shares of Common Stock outstanding utilized for the earnings per common share computations are as follows:
For the For the Three-month period ended Six-month period ended June 30, June 30, 2000 1999 2000 1999 --------- --------- --------- --------- Weighted average number of shares of Common Stock outstanding 6,072,564 6,102,593 6,072,540 6,132,954 Assuming exercise of stock options and warrants reduced by the number of shares which could have been purchased with the proceeds from exercise of such stock options and warrants 3,907 -- 3,738 -- -------------- ------------- --------------- --------------- Weighted average number of shares of Common Stock outstanding, as adjusted 6,076,471 6,102,593 6,076,278 6,132,954 ============== ============= =============== ===============
3) The major classes of inventory are as follows (dollars in thousands):
June 30, 2000 December 31, 1999 Raw materials and supplies $ 1,769 $ 2,427 Semi-finished and finished steel products 15,573 10,208 Operating materials 3,141 3,095 ------------------- --------------------- Total inventory $20,483 $15,730 =================== =====================
5 4) Property, plant and equipment consists of the following (dollars in thousands):
June 30, 2000 December 31, 1999 Land and land improvements $ 822 $ 822 Buildings 3,344 3,337 Machinery and equipment 39,181 37,329 Construction in progress 1,238 835 ---------------------- ---------------------- 44,585 42,323 Accumulated depreciation (6,506) (5,334) ---------------------- ---------------------- Property, plant and equipment, net $38,079 $36,989 ====================== ======================
5) The Company has reviewed the status of its environmental contingencies and believes there are no significant changes from that disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS An analysis of the Company's operations for the three- and six-month periods ended June 30, 2000 and 1999 are as follows (dollars in thousands):
For the For the Three-Month Period Ended Six-Month Period Ended June 30, June 30, 2000 1999 2000 1999 --------- --------- ---------- --------- Net sales Stainless steel $15,604 $12,383 $30,169 $24,258 Tool steel 2,028 1,478 4,255 2,935 High temperature alloy steel 398 556 765 1,202 Conversion services 448 669 788 1,142 Other 534 399 1,124 436 --------- --------- ---------- --------- Total net sales $19,012 $15,485 $37,101 $29,973 --------- --------- ---------- --------- Cost of products sold Raw materials 6,953 5,699 13,542 10,662 Other 8,274 8,241 17,088 16,239 --------- --------- ---------- --------- Total cost of products sold 15,227 13,940 30,630 26,901 --------- --------- ---------- --------- Selling and administrative expenses 1,433 970 2,535 1,984 --------- --------- ---------- --------- Operating income $ 2,352 $ 575 $ 3,936 $ 1,088 ========= ============== ========== =========
Three- and six-month periods ended June 30, 2000 as compared to the similar periods in 1999 The Increase in net sales for the three- and six-month periods ended June 30, 2000 as compared to the similar periods in 1999 reflects an improved sales mix of products and price increases to cover higher material and energy costs, partially offset by a decrease in total tons shipped. The Company shipped approximately 9,700 tons and 11,300 tons for the three-month periods ended June 30, 2000 and 1999 respectively, and 20,549 tons and 21,514 tons for the six-month period ended June 30, 2000 and 1999, respectively. The improved sales mix of products was primarily due to increased shipments of power generation and aerospace products to the Company's reroller and forging market customers and of tool steel and bar mill products to the Company's service center customers. In addition, sales revenue from special shape products shipped to original equipment manufacturers increased by 70% and 56% for the three- and six-month periods ended June 30, 2000 in comparison to the similar periods in 1999. Cost of products sold, as a percentage of net sales, was 80.1% and 90.0% for the three-month periods ended June 30, 2000 and 1999, respectively, and was 82.6% and 89.8% for the six-month periods ended June 30, 2000 and 1999, respectively. This decrease is primarily due to the impact of the change in the mix of products shipped, improved operating results at the bar mill and higher sales prices. Selling and administrative expenses increased $463,000 in the three-month period ended June 30, 2000 as compared to June 30, 1999 and increased $551,000 for the six-month period ended June 30, 2000 as compared to June 30, 1999. The increases reflect higher employment costs and a non-recurring pre-tax bad debt charge of $142,000. Interest expense and other financing costs increased by $43,000 in the three-month period ended June 30, 2000 as compared to the three-month period ended June 30, 1999 and increased $119,000 in the six-month period ended June 30, 2000 as compared to the six-month period ended June 30, 1999. The increases were primarily due to a reduction in capitalized interest, higher interest rates on the PNC Term Loan and interest expense associated with borrowings from the PNC revolving credit facility ("PNC Line"). 7 The effective income tax rate utilized in the three-and six-month periods ended June 30, 2000 and 1999 was 35.0% and 37.0%, respectively. The effective income tax rate utilized in the current period reflects the anticipated effect of the Company's permanent tax deductions against expected income levels in 2000. FINANCIAL CONDITION The Company has financed its 2000 operating activities through cash flows from operations, cash on hand and borrowings from the PNC Line. At June 30, 2000, working capital approximated $22.5 million, as compared to $20.8 million at December 31, 1999. The ratio of current assets to current liabilities decreased from 3.2:1 at December 31, 1999 to 2.7:1 at June 30, 2000. The debt to capitalization was 21% at June 30, 2000 and December 31, 1999. The decrease in the ratio of current assets to current liabilities is primarily due to a decrease in cash and an increase in liabilities to fund operations due to an increase in product demand and higher raw material and energy costs. The Company's capital expenditures approximated $2.3 million for the six-month period ended June 30, 2000, which primarily relates to the installation of a new billet grinder, overhead crane and building repairs at the Bridgeville facility. At June 30, 2000, the Company had outstanding purchase commitments in addition to the expenditures incurred to date of approximately $0.3 million. These expenditures are expected to be funded substantially from internally generated funds and additional borrowings. As of June 30, 2000, the Company has $5.4 million available for borrowings under the PNC Line. On May 25, 2000 the company entered into a second amendment to the second amended and restated credit agreement between Universal Stainless & Alloy Products, Inc. and PNC Bank, National Association which extended the term of the PNC Line to April 30, 2002. There were no shares of Common Stock repurchased by the Company during the six- month period ended June 30, 2000. The Company is authorized to repurchase an additional 57,100 shares of Common Stock as of June 30, 2000. The Company anticipates that it will continue to fund its 2000 working capital requirements, its capital expenditures, and the stock repurchase program primarily from funds generated from operations and borrowings. The Company's long-term liquidity requirements, including capital expenditures, are expected to be financed by a combination of internally generated funds, borrowings and other sources of external financing if needed. 2000 OUTLOOK At June 30, 2000, the Company's backlog was approximately 18% higher than the backlog at June 30, 1999. The current backlog reflects strong demand for power generation products and an improved demand for aerospace products. This combined with continued operational improvements, should continue to generate improved financial results in the second half of 2000. 8 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has reviewed the status of its market risk and believes there are no significant changes from that disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 9 Part II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Stockholders of Universal Stainless & Alloy Products, Inc. was held on May 23, 2000, for the purpose of electing a board of directors and approving the appointment of auditors. Proxies for meeting were solicited pursuant to section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitation. All of the management's nominees for directors as listed in the proxy statement were elected by the following vote:
Shares Voted "For" Shares "Withheld" Shares Not Voted D. Dunn 5,027,361 108,250 936,905 G. Keane 5,028,161 107,450 936,905 C. McAninch 4,676,661 458,950 936,905 U. Toledano 5,028,261 107,350 936,905 D. Wise 5,028,261 107,350 936,905
The appointment of PricewaterhouseCoopers LLP as independent auditors was approved by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted 5,125,911 3,900 5,800 936,905
Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 10.1 Second Amendment to the Second Amended and Restated Credit Agreement dated May 25, 2000 by and between the Company and PNC Bank, National Association (filed herewith). 27.1 Financial Data Schedule b. The Company filed no reports on Form 8-K for the quarter ended June 30, 2000. 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. UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. Date: August 11, 2000 /s/ Clarence M. McAninch ----------------- ----------------------------------------------- Clarence M. McAninch President, Chief Executive Officer and Director (Principal Executive Officer) Date: August 11, 2000 /s/ Richard M. Ubinger ----------------- ----------------------------------------------- Richard M. Ubinger Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 11