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, 1996
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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock
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 March 31, 1996, there were 6,270,000 shares of the Registrant's Common
Stock issued and outstanding.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time 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 that may cause the Company's actual results in future
periods to be materially different from any 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. Condensed Consolidated Statement of Operations 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Securityholders 7
Item 5. Other Information 7
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
- ii -
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
Quarter Ended Quarter Ended
March 31, 1996 March 31, 1995
------------------------ ------------------------
Net sales $12,609 $10,605
Cost of products sold 10,644 9,545
------------------------ ------------------------
Gross profit 1,965 1,060
Selling and administrative expenses 1,003 646
------------------------ ------------------------
Operating income 962 414
Interest and other income 105 40
Interest and other financing costs (24) (77)
------------------------ ------------------------
Income before taxes 1,043 377
Income taxes 396 102
------------------------ ------------------------
Net income $647 $275
======================== ========================
Net income per share of Common Stock $0.10 $0.06
======================== ========================
Weighted average number of shares of
Common Stock outstanding 6,270,000 4,550,884
======================== ========================
The accompanying notes are an integral part of these financial statements.
- 1 -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, 1996 December 31, 1995
----------------------- -------------------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $6,793 $10,038
Accounts receivable (less allowance for doubtful accounts of
$193 and $178) 9,918 7,832
Inventory (Note 2) 9,875 7,105
Prepaid Expenses 532 470
----------------------- -------------------------
Total current assets 27,118 25,445
----------------------- -------------------------
Property, plant and equipment 9,000 6,928
Accumulated depreciation (352) (264)
----------------------- -------------------------
Net property, plant and equipment 8,648 6,664
----------------------- -------------------------
Other assets 327 328
----------------------- -------------------------
Total assets $36,093 $32,437
======================= =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $6,429 $4,085
Bank overdrafts 1,151 992
Current portion of long-term debt 86 73
Accrued employment costs 728 687
Other current liabilities 630 547
----------------------- -------------------------
Total current liabilities 9,024 6,384
Long-term debt 831 462
----------------------- -------------------------
Total liabilities 9,855 6,846
----------------------- -------------------------
Commitments and contingencies (Note 5) -- --
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; 6,270,000 shares issued and outstanding 6 6
Additional paid-in capital 25,338 25,338
Retained earnings 894 247
----------------------- -------------------------
Total stockholders' equity 26,238 25,591
----------------------- -------------------------
Total liabilities and stockholders' equity $36,093 $32,437
======================= =========================
The accompanying notes are an integral part of these financial statements.
- 2 -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the For the
Quarter Ended Quarter Ended
March 31, 1996 March 31, 1995
---------------------- ---------------------
Cash flows from operating activities:
Net income $647 $275
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization 103 52
Changes in assets and liabilities:
Accounts receivable, net (2,086) (3,219)
Inventory (2,770) (895)
Accounts payable and bank overdrafts 2,503 835
Other, net 60 (103)
---------------------- ---------------------
Net cash used by operating activities (1,541) (3,055)
---------------------- ---------------------
Cash flows from investing activities:
Capital expenditures (2,072) (231)
---------------------- ---------------------
Net cash used by investing activities (2,072) (231)
---------------------- ---------------------
Cash flows from financing activities:
Net proceeds from revolving line of credit -- 2,732
Proceeds from issuance of long-term debt 400 --
Long-term debt repayment (18) (2)
Proceeds from issuance of Common Stock -- 353
Deferred financing costs (12) (15)
---------------------- ---------------------
Net cash provided by financing activities 368 3,068
---------------------- ---------------------
Net decrease in cash (3,245) (218)
Cash at beginning of period 10,038 3,123
---------------------- ---------------------
Cash at end of period $6,793 $2,905
====================== =====================
Supplemental disclosure of cash flow information:
Interest paid $9 $32
Income taxes paid $313 --
The accompanying notes are an integral part of these financial statements.
- 3 -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Universal Stainless & Alloy Products, Inc. (the "Company") was
incorporated in June 1994, and is the successor by merger (the
"Merger") to a corporation incorporated in January 1994, for the
principal purpose of acquiring substantially all of the idled
equipment and related assets (the "Assets") located at the
Bridgeville, Pennsylvania, production facility of Armco, Inc.
("Armco"). On August 15, 1994, the Company entered into an Asset
Purchase Agreement (the "Asset Agreement") with Armco to purchase the
Assets.
On June 2, 1995, the Company and Armco entered into an Asset and Real
Property Purchase Agreement (the "Purchase Agreement") pursuant to
which the Company agreed to buy the precision rolled products
business (the "PRP Business") and the vacuum arc remelting equipment
(the "VAR Assets") of Armco's Cytemp Division located in Titusville,
Pennsylvania (the "PRP Division").
The accompanying unaudited, consolidated condensed financial
statements as of and for the quarters ended March 31, 1996 and 1995
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, 1995. In the
opinion of management, the accompanying unaudited, 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 quarters ended March 31, 1996 and 1995, and are not
necessarily indicative of the results to be expected for the full
year.
2) The major classes of inventory are as follows (dollars in thousands):
March 31, 1996 December 31, 1995
-------------- -----------------
Raw materials and supplies $1,710 $1,473
Semi-finished steel products 6,567 4,278
Operating materials 1,598 1,354
--------------- ---------------
Total inventory $9,875 $7,105
============== ==============
3) The Company has reviewed the status of its environmental
contingencies and continues to believe there are no material changes
from that disclosed in Form 10-K for the year ended December 31,
1995.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
The Company had net income of $894,000 or $0.10 per share of Common Stock for
the quarter ended March 31, 1996, as compared to net income of $275,000 or
$0.06 per share of Common Stock for the quarter ended March 31, 1995.
- 4 -
Net sales by product line and cost of products sold were as follows (dollars
in thousands):
For the
Quarter Ended March 31
1996 1995
----------------------------- ------------------------------
Amount % Amount %
------------ -------------- -------------- -------------
Net sales
Stainless steel $ 9,471 75.1% $ 8,209 77.4%
Tool steel 1,981 15.7% 1,349 12.7%
Conversion services 733 5.8% 562 5.3%
Other 424 3.4% 485 4.6%
------------ -------------- -------------- -------------
Total net sales $ 12,609 100.0% $ 10,605 100.0%
------------ -------------- -------------- -------------
Cost of products sold
Raw materials 5,287 41.9% 6,004 56.6%
Other 5,357 42.5% 3,541 33.4%
------------ -------------- -------------- -------------
Total cost of products sold 10,644 84.4% 9,545 90.0%
------------ -------------- -------------- -------------
Gross profit $ 1,965 15.6% $ 1,060 10.0%
============ ============== ============== =============
The increase in net sales for the quarter ended March 31, 1996 as compared to
the quarter ended March 31, 1995 reflects the June 1995 acquisition of the PRP
Business and VAR Assets, and an increase in shipments of tool steel. First
quarter sales for 1996 were impacted by generally soft market conditions in
the stainless steel area, primarily as it relates to the Company's sale of
ingot and rerolled billet products.
Cost of products sold, as a percent of net sales, decreased in the quarter
ended March 31, 1996 as compared to the corresponding 1995 period primarily
due to lower acquisition costs for the Company's primary raw materials which
was partially offset by the level of manufacturing required by the mix of
products sold in 1996. First quarter 1996 results were also adversely affected
by lower than expected manufacturing yields experienced on production of both
tool steel and forging billets.
Selling and administrative expenses increased from $646,000 in the first
quarter of 1995 to $1,003,000 in the first quarter of 1996 primarily due to
the continued growth of the business, including the acquisition of the PRP
Business and the VAR Assets.
Interest and other income increased to $105,000 in the first quarter of 1996
as compared to $40,000 in the first quarter of 1995 due to an increase in cash
available for investing purposes. The increased cash availability is directly
related to the sale of 1,700,000 shares of Common Stock in a public offering
completed in November 1995. In addition, the Company was not required to
borrow funds under its $6.5 million revolving line of credit which resulted in
a decrease in interest and other financing costs from $77,000 in the first
quarter of 1995 to $24,000 in the first quarter of 1996.
The effective income tax rate utilized in the first quarter of 1996 and 1995
was 38.0% and 27.0%, respectively. The lower effective income tax rate in the
1995 period reflects the benefit of net operating loss carryforwards generated
in 1994. The effective income tax rate was ultimately adjusted to 8.1% based on
the actual results of operations for the year ended December 31, 1995.
Financial Condition
The Company financed its activities during the first quarter of 1996 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 4.0:1 at
December 31, 1995 to 3.0:1 at March 31, 1996 primarily due to the funding of
capital expenditures during the quarter ended March 31, 1996.
- 5 -
Accounts receivable, net increased by $2.1 million for the three months ended
March 31, 1996 as compared to an increase of $3.2 million for the three months
ended March 31, 1995. Inventory increased by $2.8 million for the three months
ended March 31, 1996 as compared to an increase of $0.9 million for the three
months ended March 31, 1995. Accounts payable and bank overdrafts increased by
$2.5 million for the three months ended March 31, 1996 as compared to an
increase of $0.8 million for the three months ended March 31, 1995. Each of
these increases can be primarily attributed to the continued growth of the
business since its formation in August 1994.
The increase in long term debt is due to the issuance of a $400,000 loan from
the Commonwealth of Pennsylvania's Business Infrastructure Development Program
in March 1996. In April 1996, the Company executed loan documents in
connection with the issuance of a $200,000 loan from the Commonwealth of
Pennsylvania's Economic Development Program.
Capital Expenditure Program
The Company's capital expenditures approximated $2.1 million in the 1996 first
quarter, bringing aggregate expenditures under its 1995-96 capital
expenditures program to $4.2 million. At March 31, 1996, the Company had
outstanding purchase commitments of approximately $5.8 million. Planned
projects at the Company's Melt Shop, Electro-Slag Remelt Shop and Universal
Rolling Mill are in process and are expected to provide full benefit to the
Company in the 1996 fourth quarter.
In the opinion of the Company's management, the most important capital
expenditures planned for 1996 were the acquisition of an oil quench facility
for heat treatment of power generation products and a roller leveler to
flatten plate products. These acquisitions would significantly reduce, if not
eliminate, the Company's dependence on outside conversion sources for these
critical processing steps. The acquisition of the oil quench facility has been
delayed due to the uncertainties surrounding the Company's level of
participation in the power generation market. The Company continues to hold
substantive discussions with its major power generation customers to seek a
better understanding of the long-term prospects to justify proceeding with
this project. The roller leveller is scheduled for delivery in August 1996 and
is expected to begin processing material projected for September shipment.
1996 Outlook
Soft market conditions in the stainless steel market and lower than expected
manufacturing yields at the Universal Rolling Mill negatively impacted the
1996 first quarter results. As a result of management changes made at the
Universal Rolling Mill on March 18, 1996, manufacturing yields have returned
to, and in many cases exceeded, internal yield expectations. Therefore,
manufacturing yields are not expected to adversely affect the financial
results of future periods.
The soft market conditions experienced in the 1996 first quarter have
continued during the second quarter due to increasing pressure from foreign
imports of rod, wire, bar and slab products. Strong growth in the sales of
tool steel products and steady performance by our forging billet and
Titusville special shapes businesses are expected to partially offset the
lower stainless steel, ingot and rolled billet sales activity. In light of
several factors including the additional capacity for higher margin tool steel
that will be available in August and other benefits derived from our capital
expenditure program, the Company expects second half results to be greater
than those achieved in the first half of the year.
Actual results, however, will be affected by a wide range of factors,
including timing, cancellation or delay of customer orders, changes in product
mix, variations in selling prices and the price of raw materials included in
the Company's product, variations in the utilization of the manufacturing
capacity and product yields, market acceptance of the Company's and its
customers' products, other competitive factors, and seasonal fluctuations due
to planned plant vacation closings and holidays. Any unfavorable change in the
foregoing or other factors could have a material adverse effect on the
Company's business, financial condition and results of operations. Many of the
factors that can affect the Company's financial condition, results of
operations or business are not
- 6 -
within the Company's control, and there can be no assurances regarding the
Company's future sales or earnings.
Part II. Other Information
Item 1. Legal Proceedings
There are no legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
27.1 Financial Data Schedule.
b. The following reports on Form 8-K were filed during the first
quarter of 1996:
None
- 7 -
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 14, 1996 /s/ Clarence M. McAninch
---------------------- ------------------------
Clarence M. McAninch
President and Chief Executive Officer
Date: May 14, 1996 /s/ Richard M. Ubinger
---------------------- ----------------------
Richard M. Ubinger
Chief Financial Officer, Principal
Accounting Officer and Assistant Secretary
- 8 -
INDEX TO EXHIBITS
Exhibit
Number
- ---------
27.1 Financial Data Schedule
EXHIBIT 27
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AS OF
MARCH 31, 1996 AND THE CONDENSED CONSOLIDATED BALANCE SHEETS FOR THE
QUARTER ENDED MARCH 31, 1996.
[ARTICLE] 5
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 6,793
[SECURITIES] 0
[RECEIVABLES] 10,049
[ALLOWANCES] (193)
[INVENTORY] 9,875
[CURRENT-ASSETS] 27,118
[PP&E] 9,000
[DEPRECIATION] (352)
[TOTAL-ASSETS] 36,093
[CURRENT-LIABILITIES] 9,024
[BONDS] 831
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 6
[OTHER-SE] 26,232
[TOTAL-LIABILITY-AND-EQUITY] 36,093
[SALES] 12,609
[TOTAL-REVENUES] 12,609
[CGS] 10,644
[TOTAL-COSTS] 10,644
[OTHER-EXPENSES] 988
[LOSS-PROVISION] 15
[INTEREST-EXPENSE] (81)
[INCOME-PRETAX] 1,043
[INCOME-TAX] 396
[INCOME-CONTINUING] 647
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 647
[EPS-PRIMARY] 0.10
[EPS-DILUTED] 0.10
