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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 September 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 November 13, 2000, there were 6,076,839 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 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.
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INDEX PAGE NO.
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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 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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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)
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<CAPTION>
For the For the
Three-month period ended Nine-month period ended
September 30, September 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $20,809 $16,110 $57,910 $46,083
Cost of products sold 16,839 14,210 47,469 41,111
Selling and administrative expenses 1,271 1,007 3,806 2,991
------- ------- ------- -------
Operating income 2,699 893 6,635 1,981
Interest expense and other financing costs (233) (179) (667) (514)
Other income (expense), net (26) 9 (48) 18
------- ------- ------- -------
Income before taxes 2,440 723 5,920 1,485
Income taxes 1,002 268 2,220 550
------- ------- ------- -------
Net income $ 1,438 $ 455 $ 3,700 $ 935
======= ======= ======= =======
Earnings per common share
Basic $ 0.24 $ 0.07 $ 0.61 $ 0.15
======= ======= ======= =======
Diluted $ 0.24 $ 0.07 $ 0.61 $ 0.15
======= ======= ======= =======
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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)
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<CAPTION>
September 30, 2000 December 31, 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 303 $ 868
Accounts receivable (less allowance for doubtful
accounts of $463 and $418) 15,107 12,113
Inventory 19,109 15,730
Other current assets 1,266 1,564
------- -------
Total current assets 35,785 30,275
Property, plant and equipment, net 38,383 36,989
Other assets 647 915
------- -------
Total assets $74,815 $68,179
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable and bank overdrafts $ 7,927 $ 6,584
Current portion of long-term debt 1,818 1,836
Accrued employment costs 1,752 727
Other current liabilities 613 328
------- -------
Total current liabilities 12,110 9,475
Long-term debt 9,374 10,005
Deferred taxes 5,953 5,046
------- -------
Total liabilities 27,437 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 23,053 19,353
Treasury Stock at cost; 257,900
common shares held (1,544) (1,544)
------- ------
Total stockholders' equity 47,378 43,653
------- -------
Total liabilities and stockholders' equity $74,815 $68,179
======= =======
</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)
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<CAPTION>
For the Nine-month period ended
September 30,
2000 1999
------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 3,700 $ 935
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 1,820 1,549
Deferred taxes 927 1,087
Changes in assets and liabilities:
Accounts receivable, net (2,994) (2,533)
Inventory (3,379) (975)
Trade accounts payable and bank overdrafts 1,343 2,578
Accrued employment costs 1,025 (156)
Other, net 867 523
------- -------
Net cash provided by operating activities 3,309 3,008
------- -------
Cash flow from investing activities:
Capital expenditures (3,250) (2,825)
------- -------
Net cash used in investing activities (3,250) (2,825)
------- -------
Cash flow from financing activities:
Proceeds from issuance of Common Stock 25 26
Net borrowing under revolving line of credit 724 285
Long-term debt payments (1,373) (662)
Purchase of Treasury Stock -- (973)
------- -------
Net cash used in financing activities (624) (1,324)
------- -------
Net decrease in cash (565) (1,141)
Cash and cash equivalents at beginning of period 868 1,437
------- -------
Cash and cash equivalents at end of period $ 303 $ 296
======= =======
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $ 551 $ 560
Income taxes paid $ 1,081 $ 158
</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- and nine-month periods ended September 30, 2000
and 1999, balance sheets as of September 30, 2000 and December 31, 1999,
and statements of cash flows for the nine-month periods ended September 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 September 30, 2000 and December 31, 1999
and the consolidated results of operations and of cash flows for the
periods ended September 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:
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For the For the
Three-month period ended Nine-month period ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of shares
of Common Stock outstanding 6,076,839 6,097,417 6,073,973 6,121,108
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 4,888 -- 4,121 --
--------- --------- --------- ---------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,081,727 6,097,417 6,078,094 6,121,108
========= ========= ========= =========
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3) The major classes of inventory are as follows (dollars in thousands):
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<CAPTION>
September 30, 2000 December 31, 1999
<S> <C> <C>
Raw materials and supplies $ 1,942 $ 2,427
Semi-finished and finished steel products 14,014 10,208
Operating materials 3,153 3,095
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Total inventory $19,109 $15,730
======= =======
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5
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4) Property, plant and equipment consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
<S> <C> <C>
Land and land improvements $ 822 $ 822
Buildings 3,889 3,337
Machinery and equipment 39,686 37,329
Construction in progress 1,115 835
------- -------
45,512 42,323
Accumulated depreciation (7,129) (5,334
------- -------
Property, plant and equipment, net $38,383 $36,989
======= =======
</TABLE>
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
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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- and nine-month periods
ended September 30, 2000 and 1999 are as follows (dollars in thousands):
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<CAPTION>
For the For the
Three-Month Period Ended Nine-Month Period Ended
September 30, September 30,
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
Stainless steel $17,110 $13,555 $47,279 $37,813
Tool steel 1,794 1,347 6,049 4,282
High temperature alloy steel 503 447 1,268 1,649
Conversion services 814 365 1,602 1,507
Other 588 396 1,712 832
------- ------- -------- -------
Total net sales $20,809 $16,110 $57,910 $46,083
------- ------- -------- -------
Cost of products sold
Raw materials 7,277 6,004 20,819 16,665
Other 9,562 8,206 26,650 24,446
------- ------- -------- -------
Total cost of products sold 16,839 14,210 47,469 41,111
Selling and administrative expenses 1,271 1,007 3,806 2,991
Operating income $ 2,699 $ 893 $ 6,635 $ 1,981
======= ======= ======== =======
</TABLE>
Three- and nine-month periods ended September 30, 2000 as compared to the
similar periods in 1999
The increase in net sales for the three- and nine-month periods ended September
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.
The Company shipped approximately 11,600 tons and 10,600 tons for the three-
month periods ended September 30, 2000 and 1999, respectively, and 32,100 tons
for each of the nine-month periods ended September 30, 2000 and 1999. The
improved sales mix of products was primarily due to increased shipments of power
generation, aerospace and petrochemical products to the Company's reroller and
forging market customers, and 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 19% and 42%
for the three-and nine-month periods ended September 30, 2000 in comparison to
the similar periods in 1999.
Cost of products sold, as a percentage of net sales, was 80.9% and 88.2% for the
three-month periods ended September 30, 2000 and 1999, respectively, and was
82.0% and 89.2% for the nine-month periods ended September 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 $264,000 in the three-month period
ended September 30, 2000 and $815,000 for the nine-month period ended September
30, 2000 as compared to year-ago periods. The increases reflect higher
employment costs and a non-recurring pre-tax bad debt charge of $142,000
recognized in the three-month period ended June 30, 2000.
Interest expense and other financing costs increased by $54,000 in the three-
month period ended September 30, 2000 as compared to the three-month period
ended September 30, 1999 and increased $153,000 in the nine-month period ended
September 30, 2000 as compared to the nine-month period ended September 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
increased borrowings from the PNC revolving credit facility ("PNC Line").
7
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During the three-month period ended September 30, 2000, the Company increased
the estimated annual effective income tax rate to 37.6%. This compares to a
rate of 37.0% used for the three- and nine-month periods ended September 30,
1999. 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 September 30,
2000, working capital approximated $23.7 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 3.0:1 at September 30, 2000. The
debt to capitalization was 19% at September 30, 2000 and 21% at 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 $3.3 million for the nine-month
period ended September 30, 2000, which primarily relates to the installation of
a new billet grinder, overhead crane and building repairs at the Bridgeville
facility. At September 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 September 30, 2000,
the Company has $5.8 million available for borrowings under the PNC Line.
There were no shares of Common Stock repurchased by the Company during the nine-
month period ended September 30, 2000. The Company is authorized to repurchase
an additional 57,100 shares of Common Stock as of September 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
The current backlog continues to reflect strong demand for power generation,
aerospace and petrochemical products. However, the combination of increased
imports and higher than normal inventory levels is resulting in a softening of
the service center market. While this will have an impact on revenues for the
three-month period ended December 31, 2000, we believe the current year levels
of profitability can be sustained.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998, and
amended in June 1999 and in June 2000, pursuant to FASB Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities: Deferral of the
Effective Date of FASB Statement No. 133" and FASB Statement No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities:
an amendment of FASB No. 133", respectively. These statements require that an
entity recognize certain derivative instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The adoption of these statements, beginning January 1, 2001, is not
expected to impact the Company's results of operations or financial condition.
8
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In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements.
SAB 101 is not expected to have a material impact on the Company's results of
operations or financial condition.
9
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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.
10
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Part II. OTHER INFORMATION
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
September 30, 2000.
11
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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.
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<S> <C>
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
Date: November 13, 2000 /s/ Clarence M. McAninch
-------------------------- -----------------------------------------------------------
Clarence M. McAninch
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 13, 2000 /s/ Richard M. Ubinger
--------------------------- -----------------------------------------------------------
Richard M. Ubinger
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
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