<PAGE>
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 March 31, 1999
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 April 30, 1999, there were 6,102,536 outstanding shares of the
Registrant's Common Stock, $.001 par value.
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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 and Year 2000 readiness, 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.
<TABLE>
<CAPTION>
INDEX PAGE NO.
<S> <C> <C>
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 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 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
1
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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)
<TABLE>
<CAPTION>
For the
Three-month period ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $14,488 $22,349
Cost of products sold 12,961 18,467
Selling and administrative expenses 1,014 1,140
--------------- ---------------
Operating income 513 2,742
Other income (expense), net (146) 133
--------------- ---------------
Income before taxes 367 2,875
Income taxes 136 1,064
--------------- ---------------
Net income $231 $1,811
=============== ===============
Earnings per common share
Basic $0.04 $0.29
=============== ===============
Diluted $0.04 $0.28
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 501 $ 1,437
Accounts receivable (less allowance for doubtful
accounts of $373 and $358) 10,502 8,843
Inventory 16,121 16,182
Other current assets 1,065 1,980
------- -------
Total current assets 28,189 28,442
Property, plant and equipment, net 36,931 35,710
Other assets 298 298
------- -------
Total assets $65,418 $64,450
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable and bank overdrafts $ 5,802 $ 4,311
Current portion of long-term debt 1,470 1,117
Accrued employment costs 655 957
Other current liabilities 315 228
------- -------
Total current liabilities 8,242 6,613
Long-term debt 11,502 11,841
Deferred taxes 3,753 3,431
------- -------
Total liabilities 23,497 21,885
------- -------
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;
6,320,036 shares issued 6 6
Additional paid-in capital 25,787 25,787
Retained earnings 17,481 17,250
Treasury Stock at cost; 217,500 and 75,000
common shares held (1,353) (478)
Total stockholders' equity 41,921 42,565
------- -------
Total liabilities and stockholders' equity $65,418 $64,450
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three-month period ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $231 $1,811
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 480 345
Deferred taxes 322 400
Changes in assets and liabilities:
Accounts receivable, net (1,659) (2,410)
Inventory 61 (775)
Trade accounts payable and bank overdrafts 1,491 837
Other, net 696 330
---------- ----------
Net cash provided by operating activities 1,622 538
---------- ----------
Cash flow from investing activities:
Capital expenditures (1,697) (4,315)
---------- ----------
Net cash used in investing activities (1,697) (4,315)
---------- ----------
Cash flow from financing activities:
Proceeds from issuance of long-term debt -- 4,080
Net borrowing under revolving line of credit 117 156
Long-term debt payments (103) (84)
Proceeds from issuance of Common Stock -- 181
Deferred financing costs -- (48)
Purchase of Treasury Stock (875) --
---------- ----------
Net cash provided by (used in) financing activities (861) 4,285
---------- ----------
Net increase(decrease) in cash (936) 508
Cash and cash equivalents at beginning of period 1,437 177
---------- ----------
Cash and cash equivalents at end of period $501 $685
========== ==========
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $105 $29
Income taxes paid $3 $80
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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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-month periods ended March 31, 1999 and 1998,
balance sheets as of March 31, 1999 and December 31, 1998, and statements
of cash flows for the three-month periods ended March 31, 1999 and 1998
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 period ended December 31, 1998. 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 March 31, 1999 and December 31, 1998
and the consolidated results of operations and of cash flows for the three-
month periods ended March 31, 1999 and 1998, and are not necessarily
indicative of the results to be expected for the full year.
2) In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires that all public companies report
information about operating segments in annual financial statements and
requires that those companies report selected information about operating
segments in interim financial reports. Operating segments are determined
utilizing the "management approach" which is based on the way the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. The Company operates as a
single segment, and as such, no additional financial disclosure has been
presented in the Company's interim financial statements.
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:
<TABLE>
<CAPTION>
For the Three-Months Ended
March 31
1999 1998
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<S> <C> <C>
Weighted average number of shares
of Common Stock outstanding
6,163,314 6,295,508
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 0 143,173
-------------- -------------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,163,314 6,438,681
============== =============
</TABLE>
5
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4) The major classes of inventory are as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
<S> <C> <C>
Raw materials and supplies $2,515 $2,358
Semi-finished steel products 10,929 11,152
Operating materials 2,677 2,672
--------------------- ---------------------
Total inventory $16,121 $16,182
===================== =====================
</TABLE>
5) Property, plant and equipment consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
<S> <C> <C>
Land and land improvements $1,024 $822
Buildings 2,667 2,591
Machinery and equipment 35,752 31,903
Construction in progress 1,225 3,655
---------------------- ----------------------
40,668 38,971
Accumulated depreciation (3,737) (3,261)
---------------------- ----------------------
Property, plant and equipment, net $36,931 $35,710
====================== ======================
</TABLE>
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, 1998.
6
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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-month periods ended
March 31, 1999 and 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
For the Three-Month Period Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Net sales
Stainless steel $11,875 $15,686
Tool steel 1,457 2,984
High temperature alloy steel 646 1,334
Conversion services 473 1,324
Other 37 1,021
---------------- -----------------
Total net sales $14,488 $22,349
---------------- -----------------
Cost of products sold
Raw materials 4,963 8,716
Other 7,998 9,751
---------------- -----------------
Total cost of products sold 12,961 18,467
---------------- -----------------
Selling and administrative expenses 1,014 1,140
---------------- -----------------
Operating income $513 $2,742
================ =================
</TABLE>
Three-month period ended March 31, 1999 as compared to the similar period in
1998
The decrease in net sales for the three-month period ended March 31, 1999 as
compared to the similar period in 1998 reflects decreased shipments within each
product line primarily due to increased imports. The Company shipped
approximately 10,160 tons during the three-month period ended March 31, 1999,
compared to 14,564 tons during the three-month period ended March 31, 1998. The
decrease in net sales and shipments resulted from lower selling prices due to
price competition created by increased import levels.
Cost of products sold, as a percent of net sales, was 89.5% and 82.6% for the
three-month periods ended March 31, 1999 and 1998, respectively. This increase
is primarily due to the impact of lower pricing described above, increased scrap
costs and increased production costs as a result of operating at lower levels.
Mechanical problems at the Bridgeville Bar Mill, which have been substantially
corrected, contributed to the lower operating levels experienced during the
three-month period ended March 31, 1999. Selling and administrative expenses
remained relatively constant between 1998 and 1999.
Other income (expense), net decreased by $279,000 in the three-month period
ended March 31, 1999 as compared to the three-month period ended March 31, 1998
primarily due to the interest expense associated with increased borrowings. In
addition, the March 31, 1998 results were impacted by a $200,000 government
grant received in connection with the expansion of operations at the Bridgeville
facility.
The effective income tax rate utilized in the three-month periods ended March
31, 1999 and 1998 was 37.0%.
FINANCIAL CONDITION
The Company has financed its operating activities during the first quarter of
1999 through cash flows from operations and cash on hand at the beginning of the
period. The ratio of current assets to current liabilities decreased from 4.3:1
at December 31, 1998 to 3.4:1 at March 31, 1999. The percentage of debt to
capitalization ratio increased from 23% at December 31, 1998 to 24% at March 31,
1999. These changes are primarily due to the repurchase of 142,500
7
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shares of Common Stock at an average price of $6.14 per share during the three-
month period ended March 31, 1999. At March 31, 1999, the Company is authorized
to repurchase an additional 97,500 shares of its Common Stock.
The Company's capital expenditures approximated $1.7 million for the three-month
period ended March 31, 1999, which primarily related to the completion of the
round bar finishing facility located at the Bridgeville facility. At March 31,
1999, 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 March 31, 1999 the Company has $5.0 million
available for borrowings until June 30, 1999 under the PNC Term Loan and $6.4
million available for borrowings under the PNC Revolving Line of Credit.
The Company anticipates that it will fund its 1999 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.
Year 2000 Readiness Disclosure
The following statements are provided pursuant to the provisions of the Year
2000 Information and Readiness Disclosure Act of 1998.
Since inception in August 1994, the Company has been engaged in a program to
modernize and replace its computerized production control and management
information systems. Although not the primary purpose of the program, the new
systems were designed to avoid any Year 2000 problems that might otherwise
arise. In addition, the Company has identified and tested all other critical
pieces of equipment and has not identified any non-compliance issues internally.
Therefore, the Company believes that its internal systems will be Year 2000
compliant in all material respects without incurring significant expenditures.
Any expenditures will be financed with cash from operations.
The Company currently believes the most significant impact of the Year 2000
issue could be an interrupted supply of goods and services from the Company's
vendors and interrupted supply of orders from the Company's customers. In order
to assess the state of readiness, surveys were sent to all major vendors and
customers to determine the current status of their Year 2000 evaluation.
Responses have been received from approximately 83 percent of these vendors and
customers in which each respondent has confirmed that efforts to become Year
2000 compliant are, at a minimum, in process. Due to the uncertainties
associated with the ability of critical vendors and customers to resolve any
known or unknown Year 2000 compliance issues, the Company may experience a
material adverse effect on future results of operations if such issues are not
resolved. While no contingency plans have been established at the present time,
the Company is assessing areas which require contingency planning and expects to
have necessary contingency plans in place by September 30, 1999.
1999 Outlook
The Company's results for the 1999 second quarter will continue to be affected
by imports, especially in the sale of products to service centers. The recently
reported drop-off of imports, the announcement of price increases on shipments
of stainless steel products and an increase in the Company's backlog are
expected to generate improved results in the second half of 1999.
8
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, 1998.
9
<PAGE>
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. No reports on Form 8-K were filed during the first quarter of 1999.
10
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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.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
Date: May 12, 1999 /s/ Clarence M. McAninch
--------------------------- ------------------------------------------
Clarence M. McAninch
President and Chief Executive Officer
Date: May 12, 1999 /s/ Richard M. Ubinger
--------------------------- ------------------------------------------
Richard M. Ubinger
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1999 Financial Statements included in the Company's Form 10-Q and is
qualified in its entirely by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 501
<SECURITIES> 0
<RECEIVABLES> 11,039
<ALLOWANCES> 373
<INVENTORY> 16,121
<CURRENT-ASSETS> 28,189
<PP&E> 40,668
<DEPRECIATION> (3,737)
<TOTAL-ASSETS> 65,418
<CURRENT-LIABILITIES> 8,242
<BONDS> 11,502
0
0
<COMMON> 6
<OTHER-SE> 41,921
<TOTAL-LIABILITY-AND-EQUITY> 65,418
<SALES> 14,488
<TOTAL-REVENUES> 14,488
<CGS> 12,961
<TOTAL-COSTS> 12,961
<OTHER-EXPENSES> 1,014
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 151
<INCOME-PRETAX> 367
<INCOME-TAX> 136
<INCOME-CONTINUING> 231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
