<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, 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.
<PAGE>
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
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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 For the
Three-month period ended Six-month period ended
June 30, June 30,
--------------------------------------- -------------------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
=============== ============== ============== ==============
</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>
June 30, 2000 December 31, 1999
(Unaudited)
<S> <C> <C>
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
======= =======
</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,
2000 1999
---- ----
<S> <C> <C>
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
</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, 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:
<TABLE>
<CAPTION>
For the For the
Three-month period ended Six-month period ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
============== ============= =============== ===============
</TABLE>
3) The major classes of inventory are as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
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
=================== =====================
</TABLE>
5
<PAGE>
4) Property, plant and equipment consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
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
====================== ======================
</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
<PAGE>
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):
<TABLE>
<CAPTION>
For the For the
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
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
========= ============== ========== =========
</TABLE>
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
<PAGE>
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
<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, 1999.
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 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:
<TABLE>
<CAPTION>
Shares Voted "For" Shares "Withheld" Shares Not Voted
<S> <C> <C> <C>
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
</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>
5,125,911 3,900 5,800 936,905
</TABLE>
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
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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: 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
