<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 June 30, 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 ______
---
The number of shares outstanding of the registrant's classes of common
stock as of August 6, 1999:
Title of Class Shares Outstanding
Common Stock, $.001 par value 6,104,454
<PAGE>
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
This Quarterly Report on Form 10-Q contains historical information and forward-
looking statements. Forward-looking statements 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 the discussions of future
performance included 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>
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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
1
<PAGE>
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-Months Ended For the Six-Months Ended
June 30, June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $15,485 $21,163 $29,973 $43,512
Cost of products sold 13,940 17,332 26,901 35,799
Selling and administrative expenses 970 1,336 1,984 2,476
----------- ----------- ---------- ----------
Operating income 575 2,495 1,088 5,237
Other income (expense), net (180) (58) (326) 75
----------- ----------- ---------- ----------
Income before taxes 395 2,437 762 5,312
Income taxes 146 902 282 1,966
----------- ----------- ---------- ----------
Net income $ 249 $ 1,535 $ 480 $ 3,346
=========== =========== ========== ==========
Earnings per common share
Basic $ 0.04 $ 0.24 $ 0.08 $ 0.53
=========== =========== ========== ==========
Diluted $ 0.04 $ 0.24 $ 0.08 $ 0.52
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,268 $ 1,437
Accounts receivable (less allowance for doubtful
accounts of $388 and $358) 10,929 8,843
Inventory 15,498 16,182
Other current assets 1,304 1,980
------- -------
Total current assets 28,999 28,442
Property, plant and equipment, net 37,116 35,710
Other assets 288 298
------- -------
Total assets $66,403 $64,450
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable and bank overdrafts $ 5,918 $ 4,311
Current portion of long-term debt 1,824 1,117
Accrued employment costs 985 957
Other current liabilities 421 228
------- -------
Total current liabilities 9,148 6,613
Long-term debt 10,926 11,841
Deferred taxes 4,133 3,431
------- -------
Total liabilities 24,207 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; and 0 shares issued and
outstanding -- --
Common Stock, par value $.001 per share;
10,000,000 shares authorized; 6,325,254 and
6,320,036 shares issued 6 6
Additional paid-in capital 25,813 25,787
Retained earnings 17,730 17,250
Treasury Stock at cost; 217,500 and 75,000
common shares held (1,353) (478)
------- -------
Total stockholders' equity 42,196 42,565
------- -------
Total liabilities and stockholders' equity $66,403 $64,450
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six-month period ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flow from operating activities:
Net income $ 480 $ 3,346
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization 1,014 686
Deferred taxes 702 550
Changes in assets and liabilities:
Accounts receivable, net (2,086) (2,277)
Inventory 684 (1,136)
Trade accounts payable and bank overdrafts 1,607 7
Accrued employment costs 28 (81)
Other, net 879 (624)
---------- ----------
Net cash provided by operating activities 3,308 471
---------- ----------
Cash flow from investing activities:
Capital expenditures (2,420) (7,229)
---------- ----------
Net cash used in investing activities (2,420) (7,229)
---------- ----------
Cash flow from financing activities:
Borrowings from long-term debt -- 6,346
Proceeds from issuance of Common Stock 26 215
Net borrowing under revolving line of credit -- 427
Long-term debt payments (208) (180)
Deferred financing costs -- (49)
Purchase of Treasury Stock (875) --
---------- ----------
Net cash provided by (used in) financing activities (1,057) 6,759
---------- ----------
Net increase (decrease) in cash and cash equivalents (169) 1
Cash and cash equivalents at beginning of period 1,437 177
---------- ----------
Cash and cash equivalents at end of period $ 1,268 $ 178
========== ==========
Supplemental disclosure of cash flow information:
Interest paid (net of capitalization) $ 345 $ 81
Income taxes paid $ 3 $ 1,730
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
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, 1999 and
1998, balance sheets as of June 30, 1999 and December 31, 1998, and
statements of cash flows for the six-month periods ended June 30, 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 year 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 results of operations and of cash flows for the periods ended
June 30, 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 For the Six-Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of shares
of Common Stock outstanding 6,102,593 6,311,203 6,132,954 6,303,356
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 -- 61,539 -- 102,355
----------- ----------- ----------- -----------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,102,593 6,372,742 6,132,954 6,405,711
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
4) The major classes of inventory are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
Raw materials and supplies $ 2,320 $ 2,358
Semi-finished steel products 10,468 11,152
Operating materials 2,710 2,672
--------------- -------------------
Total inventory $15,498 $16,182
=============== ===================
</TABLE>
5) Property, plant and equipment consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
<S> <C> <C>
Land and land improvements $ 1,024 $ 822
Buildings 2,810 2,591
Machinery and equipment 35,950 31,903
Construction in progress 1,595 3,655
--------------- -------------------
41,379 38,971
Accumulated depreciation (4,263) (3,261)
--------------- -------------------
Property, plant and equipment, net $37,116 $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
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
An analysis of the Company's operations for the three- and six-month periods
ended June 30, 1999 and 1998 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales
Stainless steel $12,383 $16,006 $24,258 $31,692
Tool steel 1,478 1,709 2,935 4,693
High temperature alloy steel 556 1,311 1,202 2,645
Conversion services 669 1,216 1,142 2,540
Other 399 921 436 1,942
------- ------- ------- -------
Total net sales $15,485 $21,163 $29,973 $43,512
------- ------- ------- -------
Cost of products sold
Raw materials 5,699 8,231 10,662 16,947
Other 8,241 9,101 16,239 18,852
------- ------- ------- -------
Total cost of products sold 13,940 17,332 26,901 35,799
------- ------- ------- -------
Selling and administrative
expenses 970 1,336 1,984 2,476
------- ------- ------- -------
Operating income $ 575 $ 2,495 $ 1,088 $ 5,237
======= ======= ======= =======
</TABLE>
THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1999 AS COMPARED TO THE SIMILAR
PERIODS IN 1998
The decrease in net sales for the three- and six-month periods ended June 30,
1999 as compared to the similar periods in 1998 reflects decreased shipments
within each product line primarily due to increased imports. The Company
shipped approximately 11,354 tons and 13,665 tons for the three-month periods
ended June 30, 1999 and 1998 respectively, and 21,514 tons and 28,299 tons for
the six-month periods ended June 30, 1999 and 1998, respectively. The decrease
in net sales was further impacted by lower selling prices due to price
competition created by increased import levels.
Cost of products sold, as a percentage of net sales, was 90.0% and 81.9% for the
three-month periods ended June 30, 1999 and 1998, respectively, and was 89.8%
and 82.3% for the six-month periods ended June 30, 1999 and 1998, respectively.
This increase is primarily due to the impact of lower pricing and competition
described above, increased scrap costs and increased production costs per ton as
a result of operating at lower levels. Mechanical problems at the Bridgeville
bar mill during the three-month period ended March 31, 1999 and start-up costs
incurred at the Bridgeville round bar finishing facility also contributed to the
increased production costs in 1999.
Selling and administrative expenses decreased $366,000 in the three-month period
ended June 30, 1999 as compared to June 30, 1998 and decreased $492,000 for the
six-month period ended June 30, 1999 as compared to June 30, 1998. The
decreases are primarily due to lower charges to the cash incentive plans, sales
commissions and insurance costs.
Other income (expense), net decreased by $122,000 in the three-month period
ended June 30, 1999 as compared to the three-month period ended June 30, 1998
and decreased $401,000 in the six-month period ended June 30, 1999 as compared
to the six-month period ended June 30, 1998. The decreases were primarily due
to interest expense associated with increased borrowings. In addition, other
income (expense), net for the six-month period ended June 30, 1998 was offset
by a $200,000 government grant received in connection with the expansion of
operations at the Bridgeville facility.
7
<PAGE>
The effective income tax rate utilized in the three-and six-month periods ended
June 30, 1999 and 1998 was 37.0%.
FINANCIAL CONDITION
The Company has financed its 1999 operating activities 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 3.2:1 at June 30, 1999. The percentage of debt to capitalization was 23% at
December 31, 1998 and at June 30, 1999. The decrease in the ratio of current
assets to current liabilities is primarily due to an increase in accounts
payable, an increase in the current portion of long-term debt and the repurchase
of Common Stock. The Company repurchased 142,500 shares of Common Stock at an
average price of $6.14 per share during the six-month period ended June 30,
1999. The Company is authorized to repurchase an additional 97,500 shares of
Common Stock.
The Company's capital expenditures approximated $2.4 million for the six-month
period ended June 30, 1999, which primarily related to the completion of the
round bar finishing facility located at the Bridgeville facility. At June 30,
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 June 30, 1999, the Company has $6.5 million
available for borrowings under a revolving line of credit with PNC Bank.
The Company anticipates that it will continue to 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 that can
not be corrected by September 30, 1999. Therefore, the Company believes that
its internal systems will be Year 2000 compliant in all material respects
without incurring significant expenditures. It is anticipated that any
necessary 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 an interrupted supply of orders from the Company's customers. In
order to assess the state of readiness, surveys sent to all major vendors and
customers confirmed that efforts to become Year 2000 compliant are, at a
minimum, in process. A follow-up survey was sent in July 1999 to confirm that
our major vendors and customers are Year 2000 compliant. 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
Price increases initiated in April 1999 have been difficult to implement due to
the continued impact of imports. While scrap costs are expected to remain
high due to foreign demand, domestic pricing should improve as the Asian
economies strengthen and imports decline. In addition, the Bridgeville bar mill
and round bar finishing facility are now fully operational which will permit the
Company to progressively increase its presence in the finished round bar market.
8
<PAGE>
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, 1998.
9
<PAGE>
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 25, 1999, 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:
<TABLE>
<CAPTION>
Shares Voted "For" Shares "Withheld" Shares Not Voted
<S> <C> <C> <C>
D. Dunn 4,886,255 295,690 1,138,091
G. Keane 4,886,155 295,790 1,138,091
C. McAninch 4,886,255 295,690 1,138,091
U. Toledano 5,075,755 106,090 1,138,091
D. Wise 4,886,255 295,690 1,138,091
</TABLE>
The appointment of PricewaterhouseCoopers LLP as independent
auditors was approved by the following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted
<S> <C> <C> <C>
5,177,545 3,300 1,100 1,138,091
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. The Company filed no reports on Form 8-K for the quarter ended
June 30, 1999.
10
<PAGE>
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 12, 1999 /s/ Clarence M. McAninch
-------------------- -------------------------------------
Clarence M. McAninch
President and Chief Executive
Officer
Date: August 12, 1999 /s/ Richard M. Ubinger
------------------- -------------------------------------
Richard M. Ubinger
Chief Financial Officer and
Treasurer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 30,
1999 Financial Statements included in the Company's Form 10-Q and is qualified
in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,268
<SECURITIES> 0
<RECEIVABLES> 11,317
<ALLOWANCES> (388)
<INVENTORY> 15,498
<CURRENT-ASSETS> 28,999
<PP&E> 41,379
<DEPRECIATION> (4,263)
<TOTAL-ASSETS> 66,403
<CURRENT-LIABILITIES> 9,148
<BONDS> 10,926
0
0
<COMMON> 6
<OTHER-SE> 42,190
<TOTAL-LIABILITY-AND-EQUITY> 66,403
<SALES> 29,973
<TOTAL-REVENUES> 29,973
<CGS> 26,901
<TOTAL-COSTS> 26,901
<OTHER-EXPENSES> 1,984
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 762
<INCOME-TAX> 282
<INCOME-CONTINUING> 480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
