10-Q 1 d10q.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, 2001 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 13, 2001, there were 6,085,405 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 7 of Operations 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, ----------------------- ---------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net sales $24,233 $18,522 $45,492 $36,292 Cost of products sold 19,207 15,882 36,328 30,609 Selling and administrative expenses 1,816 1,433 3,374 2,535 --------- --------- --------- --------- Operating income 3,210 1,207 5,790 3,148 Interest expense and other financing costs (160) (231) (341) (453) Other income (expense), net 2 (19) 22 (3) --------- --------- --------- --------- Income before taxes 3,052 957 5,471 2,692 Income taxes 1,144 335 2,051 942 Income before cumulative effect of accounting change 1,908 622 3,420 1,750 Cumulative effect of accounting change, net of tax -- -- -- (1,546) --------- --------- --------- --------- Net income $ 1,908 $ 622 $ 3,420 $ 204 ========= ========= ========= ========= EARNINGS PER COMMON SHARE Basic Income before cumulative effect of accounting change $ 0.31 $ 0.10 $ 0.56 $ 0.29 Cumulative effect of accounting change, net of tax -- -- -- (0.26) --------- --------- --------- --------- Net income $ 0.31 $ 0.10 $ 0.56 $ 0.03 ========= ========= ========= ========= Diluted Income before cumulative effect of accounting change $ 0.31 $ 0.10 $ 0.56 $ 0.29 Cumulative effect of accounting change, net of tax -- -- -- (0.26) --------- --------- --------- --------- Net income $ 0.31 $ 0.10 $ 0.56 $ 0.03 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 2 UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands)
June 30, 2001 December 31, 2000 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 128 $ 1,109 Accounts receivable (less allowance for doubtful accounts of $522 and $192) 17,142 12,819 Inventory 21,060 18,788 Other current assets 1,823 1,347 ------- ------- Total current assets 40,153 34,063 Property, plant and equipment, net 40,184 39,090 Other assets 501 594 ------- ------- Total assets $80,838 $73,747 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable $ 7,265 $ 5,624 Outstanding checks in excess of bank balance 1,642 1,445 Current portion of long-term debt 1,833 1,808 Accrued employment costs 1,834 1,297 Other current liabilities 1,705 331 ------- ------- Total current liabilities 14,279 10,505 Long-term debt 7,598 8,199 Deferred taxes 6,748 6,276 ------- ------- Total liabilities 28,625 24,980 ------- ------- Commitments and contingencies -- -- Stockholders' equity Senior Preferred Stock, par value $.001 per share; liquidation value $100 per share; 2,000,000 shares authorized; 0 shares issued and outstanding -- -- Common Stock, par value $.001 per share; 10,000,000 shares authorized; 6,343,305 and 6,339,128 shares issued 6 6 Additional paid-in capital 25,914 25,888 Retained earnings 27,837 24,417 Treasury Stock at cost; 257,900 common shares held (1,544) (1,544) ------- ------- Total stockholders' equity 52,213 48,767 ------- ------- Total liabilities and stockholders' equity $80,838 $73,747 ======= =======
The accompanying notes are an integral part of these consolidated 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, 2001 2000 ---- ---- Cash flow from operating activities: Net income $ 3,420 $ 204 Cumulative effect of accounting change -- 1,546 Adjustments to reconcile to net cash and cash equivalents provided by operating activities: Depreciation and amortization 1,310 1,188 Deferred taxes 472 65 Changes in assets and liabilities: Accounts receivable, net (4,323) 12,113 Inventory (2,272) (17,146) Accounts payable 1,641 1,163 Accrued employment costs 537 669 Other, net 982 1,144 ------- -------- Net cash provided by operating activities 1,767 946 ------- -------- Cash flows from investing activities: Capital expenditures (2,395) (2,291) ------- -------- Net cash used in investing activities (2,395) (2,291) ------- -------- Cash flows from financing activities: Proceeds from issuance of Common Stock 26 25 Borrowings under revolving line of credit 8,710 7,026 Repayments under revolving line of credit (8,516) (5,901) Proceeds from long-term debt 139 -- Long-term debt repayment (909) (913) Increase in outstanding checks in excess of bank balance 197 598 ------- -------- Net cash provided by (used in) financing activities (353) 835 ------- -------- Net decrease in cash (981) (510) Cash and cash equivalents at beginning of period 1,109 868 ------- -------- Cash and cash equivalents at end of period $ 128 $ 358 ======= ======== Supplemental disclosure of cash flow information: Interest paid (net of amount capitalized) $ 298 $ 442 Income taxes paid $ 1,264 $ 627
The accompanying notes are an integral part of these consolidated 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, 2001 and 2000, balance sheets as of June 30, 2001 and December 31, 2000, and statements of cash flows for the six-month periods ended June 30, 2001 and 2000 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, 2000. 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, 2001 and December 31, 2000 and the consolidated results of operations and of cash flows for the periods ended June 30, 2001 and 2000, and are not necessarily indicative of the results to be expected for the full year. 2) In the fourth quarter of 2000, the Company adopted the provisions of the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). As a result of the adoption, the Company's statements of operations and cash flows for the three- and six-month periods ended June 30, 2000 have been restated to include the effect of conforming to SAB 101. Previously reported net sales and net income for the three- and six-month periods ended June 30, 2000 were $19,012,000 and $1,366,000, and $37,101,000 and $2,262,000, respectively. The application of the SEC's guidance to language in the Company's previous Standard Terms and Conditions of Sale required Universal Stainless to defer revenue recognition until cash was collected, even though risk of loss passed to the buyer at time of shipment. In the fourth quarter of 2000, management modified the Company's Standard Terms and Conditions of Sale to more closely reflect the substance of its sales transactions and permit the recognition of revenue on a basis consistent with past practices. 3) 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, 2001 2000 2001 2000 --------- --------- --------- --------- Weighted average number of shares of Common Stock outstanding 6,081,274 6,072,564 6,081,251 6,072,540 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 22,439 3,907 16,053 3,738 ---------- ---------- ---------- ---------- Weighted average number of shares of Common Stock outstanding, as adjusted 6,103,713 6,076,471 6,097,304 6,076,278 ========== ========== ========== ==========
5 4) The major classes of inventory are as follows (dollars in thousands):
June 30, 2001 December 31, 2000 Raw materials and supplies $ 1,603 $ 1,695 Semi-finished and finished steel products 16,832 13,916 Operating materials 2,625 3,177 ------------- ----------------- Total inventory $21,060 $18,788 ============= =================
5) Property, plant and equipment consists of the following (dollars in thousands):
June 30, 2001 December 31, 2000 Land and land improvements $ 822 $ 822 Buildings 3,937 3,889 Machinery and equipment 41,727 39,838 Construction in progress 2,769 2,311 ------------- ----------------- 49,255 46,860 Accumulated depreciation (9,071) (7,770) ------------- ----------------- Property, plant and equipment, net $40,184 $39,090 ============= =================
6) 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, 2000. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS During 2000, the Company adopted the provisions of the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The application of the SEC's guidance to the language contained in the Company's Standard Terms and Conditions of Sale existing at the time of adoption required the Company to defer revenue until cash was collected, even though risk of loss passed to the buyer at time of shipment. This had the effect of deferring certain sale transactions previously recognized in 1999 into 2000. During the fourth quarter of 2000, the Company modified its Standard Terms and Conditions of Sale to more closely reflect the substance of its sale transactions, which resulted in revenue being recorded at the time of shipment rather than when cash was received. Because this did not occur until the fourth quarter, the revenue and cost information for the three- and six-month periods ended June 30, 2000 relates to cash collections. In order to facilitate analysis of the Company's results of operations, amounts in the table below summarize revenue and cost information based on shipments made by the Company in the respective quarter, rather than cash collected for 2000. Such amounts are then reconciled to reported amounts as necessary (dollars in thousands):
For the For the Three-Month Period Ended Six-Month Period Ended June 30, June 30, 2001 2000 2001 2000 --------- -------- -------- -------- Net sales Stainless steel $21,200 $15,604 $38,623 $30,169 Tool steel 848 2,028 2,365 4,255 High-strength low alloy steel 1,103 427 1,768 986 High temperature alloy steel 326 398 935 765 Conversion services 693 448 1,564 788 Other 63 107 237 138 --------- -------- -------- -------- Net sales on shipments 24,233 19,012 45,492 37,101 Effect of accounting change -- (490) -- (809) --------- -------- -------- -------- Total net sales $24,233 18,522 $45,492 $36,292 --------- -------- -------- -------- Cost of products sold Raw materials 6,483 6,953 12,649 13,542 Other 12,724 8,274 23,679 17,088 --------- -------- -------- -------- Total cost of products shipped 19,207 15,227 36,328 30,630 Effect of accounting change -- 655 -- (21) --------- -------- -------- -------- Total cost of products sold 19,207 15,882 36,628 30,609 --------- -------- -------- -------- Selling and administrative expenses 1,816 1,433 3,374 2,535 --------- -------- -------- -------- Operating income from shipments 3,210 2,352 5,790 3,936 Effect of accounting change -- (1,145) -- (788) ========= ======== ======== ======== Operating income $ 3,210 $ 1,207 $ 5,790 $ 3,148 ========= ======== ======== ========
Three- and six-month periods ended June 30, 2001 as compared to the similar periods in 2000 The increase in net sales for the three- and six-month periods ended June 30, 2001 as compared to the similar periods in 2000 reflects substantially increased shipments to OEM and forging markets. This increase is primarily due to continued high levels of demand in the power generation, aerospace and petrochemical markets. This increase was partially offset by lower shipments of stainless steel commodity products and tool steel products as a result of increased imports and the slowing economy. The Company shipped approximately 12,300 tons and 9,700 tons for the three-month periods ended June 30, 2001 and 2000 respectively, and 23,300 tons and 20,500 tons for the six-month periods ended June 30, 2001 and 2000, respectively. 7 Cost of products shipped, as a percentage of net sales on shipments, was 79.3% and 80.1% for the three-month periods ended June 30, 2001 and 2000, respectively, and was 79.9% and 82.6% for the six-month periods ended June 30, 2001 and 2000, respectively. This decrease is primarily due to the impact of the mix of products shipped. Selling and administrative expenses increased by $383,000 in the three-month period ended June 30, 2001 as compared to June 30, 2000 and increased by $839,000 for the six-month period ended June 30, 2001 as compared to June 30, 2000. This is primarily due to higher bad debt expense resulting from negative economic impacts on certain steel industry customers and increased employment and insurance costs related to the increased level of business. Interest expense and other financing costs decreased by $71,000 in the three- month period ended June 30, 2001 as compared to the three-month period ended June 30, 2000 and decreased by $112,000 in the six-month period ended June 30, 2001 as compared to the six-month period ended June 30, 2000. The decreases were primarily due to a reduction in debt levels between the periods. The effective income tax rate utilized in the three-and six-month periods ended June 30, 2001 and 2000 was 37.5% and 35.0%, 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 2001. FINANCIAL CONDITION The Company has financed its 2001 operating activities through cash flows from operations, cash on hand, borrowings from the PNC revolving line of credit and capitalized leases. At June 30, 2001, working capital approximated $25.9 million, as compared to $23.5 million at December 31, 2000. The ratio of current assets to current liabilities decreased from 3.2:1 at December 31, 2000 to 2.8:1 at June 30, 2001. The decrease in the ratio of current assets to current liabilities is primarily due to a decrease in cash, which was used to fund debt payments and an increase in liabilities to fund operations. The debt to capitalization was 15.3% at June 30, 2001 and 17% at December 31, 2000. The Company's capital expenditures approximated $2.4 million for the six-month period ended June 30, 2001, which primarily related to the purchase of a new electro slag remelt furnace and the installation of the billet grinder and Oliver plate saw at the Bridgeville facility. At June 30, 2001, the Company had outstanding purchase commitments in addition to the expenditures incurred to date of approximately $2.2 million. These expenditures are expected to be funded substantially from internally generated funds and additional borrowings. As of June 30, 2001, the Company had $6.3 million available for borrowings under a revolving line of credit with PNC Bank. On June 29, 2001, the Company entered into a third amendment to the second amended and restated credit agreement with PNC Bank which amended the existing agreement to extend the term of the $6.5 million revolving credit facility to April 30, 2003. In July 2001, the Company entered into a supply contract agreement with Talley Metals Technology, Inc., a subsidiary of Carpenter Technologies, Inc., covering a period of at least 18 months. Under terms of the agreement, the Company will supply Talley Metals with an average of 1,250 tons of stainless reroll billet products per month. The value of the contract on a monthly basis will depend on product mix and key raw material prices. There were no shares of Common Stock repurchased by the Company during the six- month period ended June 30, 2001. The Company is authorized to repurchase an additional 57,100 shares of Common Stock as of June 30, 2001. The Company anticipates that it will fund its 2001 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. 8 2001 OUTLOOK The Company estimates that its sales for the third quarter of 2001 will be between $20 and $24 million, versus sales of $19 million in the prior year period. Diluted earnings per share for the third quarter of 2001 are currently projected to range from $0.27 to $0.32, compared with $0.24 reported in the third quarter of 2000 before the SAB 101 accounting adjustment. The following factors were considered in developing these estimates: . The Company's backlog approximated $40 million on June 30, 2001 as compared to $35 million on March 31, 2001. The mix of orders booked for delivery in the third quarter by market segment is in line with the 2001 second quarter shipments. . The Company believes that the high level of demand for its forging and OEM products will continue throughout 2001, while orders for its commodity and tool steel products are expected to remain at existing levels due to current economic conditions and imports. . The Company experienced a total of eight electrical curtailments in the second quarter, but was successful in rescheduling all affected production. The Company's third quarter estimates also take into account possible electrical curtailments in the summer months. Natural gas prices declined in the second quarter and are expected to remain at those levels in the third quarter. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141 (FAS 141), "Business Combinations" and Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets". These statements will be adopted in 2002 and are not expected to impact the Company's results of operations or financial condition. 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, 2000. 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, 2001, 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 5,647,762 8,767 424,699 G. Keane 5,647,762 8,767 424,699 C. McAninch 4,717,229 939,300 424,699 U. Toledano 5,647,762 8,767 424,699 D. Wise 5,647,762 8,767 424,699
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 5,641,142 1,870 13,517 424,699
Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits. 10.1 Third Amendment to Second Amended and Restated Credit Agreement dated June 29, 2001 by and between the Company and PNC Bank, National Association (filed herewith). 10.2 Supply Contract Agreement, dated as of July 2001, between the Company and Talley Metals Technology, Inc., a subsidiary of Carpenter Technologies, Inc. (filed herewith). b. No reports on Form 8-K were filed during the second quarter of 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. UNIVERSAL STAINLESS & ALLOY-PRODUCTS, INC. Date: August 13, 2001 /s/ C. M. McAninch ---------------- ----------------------------------------------- Clarence M. McAninch President, Chief Executive Officer and Director (Principal Executive Officer) Date: August 13, 2001 /s/ Richard M. Ubinger ---------------- ----------------------------------------------- Richard M. Ubinger Vice President of Finance, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 11