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, 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 September 30, 1996, there were 6,270,000 shares of the Registrant's
Common Stock issued and outstanding.
424412.1
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 use 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 Statements 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 5-7
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
-ii-
424412.1
Part I. Financial Information
Item 1. Financial Statements
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, except per share information)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $16,708 $9,961 $43,882 $34,482
Cost of products sold 13,005 8,719 35,336 30,106
----------- ----------- ----------- ----------
Gross profit 3,703 1,242 8,546 4,376
Selling and administrative expenses 1,184 1,019 3,558 2,529
----------- ----------- ----------- ----------
Operating income 2,519 223 4,988 1,847
Interest and other income 21 29 186 101
----------- ----------- ----------- ----------
Interest and other financing costs (36) (108) (97) (310)
----------- ----------- ----------- -----------
Income before taxes 2,504 144 5,077 1,638
Income taxes 952 (238) 1,929 164
------------ ----------- ----------- ----------
Net income $1,552 $382 $3,148 $1,474
=========== ============ =========== ==========
Net income per share of Common Stock $0.25 $0.08 $0.50 $0.32
============ ============ ============ ===========
Weighted average number of shares of
Common Stock outstanding 6,270,000 4,570,000 6,270,000 4,563,628
=========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements
-1-
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1996 December
(Unaudited) 31, 1995
ASSETS
Current assets
Cash and cash equivalents $1,819 $10,038
Accounts receivable (less allowance for doubtful accounts of
$223 and $178) 12,769 7,832
Inventory (Note 2) 10,885 7,105
Prepaid Expenses 571 470
--------------- -------------
Total current assets 26,044 25,445
-------------- ------------
Property, plant and equipment 15,287 6,928
Accumulated depreciation (559) (264)
-------------- -------------
Net property, plant and equipment 14,728 6,664
------------- ------------
Other assets 575 328
-------------- ------------
Total assets $41,347 $32,437
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $6,929 $4,085
Bank overdrafts 1,400 992
Current portion of long-term debt 144 73
Accrued employment costs 1,480 687
Other current liabilities 1,484 547
------------- ------------
Total current liabilities 11,437 6,384
Long-term debt 1,171 462
------------- ------------
Total liabilities 12,608 6,846
------------- ------------
Commitments and contingencies (Note 3) -- --
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 3,395 247
------------- -----------
Total stockholders' equity 28,739 25,591
------------- -----------
Total liabilities and stockholders' equity $41,347 $32,437
============= ===========
The accompanying notes are an integral part of these financial statements.
-2-
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Nine Months Ended
September 30, September 30,
1996 1995
Cash flow from operating activities:
Net income $3,148 $1,474
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization 351 201
Changes in assets and liabilities:
Accounts receivable, net (4,937) (5,185)
Inventory (3,780) (1,424)
Accounts payable and bank overdrafts 3,252 1,981
Accrued employment costs 793 397
Other, net 593 (84)
---------- -----------
Net cash used by operating activities (580) (2,640)
----------- -----------
Cash flows from investing activities:
Acquisition of assets through purchase agreement (Note 3) -- (859)
Capital expenditures (8,124) (2,005)
----------- -----------
Net cash used by investing activities (8,124) (2,864)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 600 --
Proceeds from issuance of Common Stock -- 353
Net borrowing under revolving line of credit -- 4,229
Long-term debt payments (90) (7)
Deferred financing costs (25) (15)
------------ ----------
Net cash provided by financing activities 485 4,560
------------ ----------
Net decrease in cash (8,219) (944)
Cash at beginning of period 10,038 1,123
------------ ----------
Cash at end of period $1,819 $179
============ ==========
Supplemental disclosure of cash flow information:
Interest paid $52 $242
Income taxes paid $938 $225
The accompanying notes are an integral part of these financial statements.
-3-
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE CONDENSED CONSOLIDATED 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, condensed consolidated financial
statements of operations for the three- and nine-month periods ended
September 30, 1996 and 1995, balance sheets at September 30, 1996 and
December 31, 1995, and statement of cash flows for the nine-month
periods ended September 30, 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, 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 September 30, 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):
September 30, 1996 December 31, 1995
------------------ -----------------
Raw materials and supplies $1,922 $1,473
Semi-finished steel products 7,155 4,278
Operating materials 1,808 1,354
----------- ----------
Total inventory $10,885 $7,105
=========== ==========
3) The Company has reviewed the status of its environmental contingencies
and believes there are no material changes from that disclosed in Form
10-K for the year ended December 31, 1995.
-4-
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Net sales by product line and cost of products sold for the three- and
nine-month periods ended September 30, 1996 and 1995 were as follows (dollars
in thousands):
Three-month period ended September Nine-month period ended September
30, 30,
1996 1995 1996 1995
Net sales
Stainless steel $13,562 $8,876 $34,071 $27,904
Tool steel 1,617 403 5,977 3,359
Conversion services 966 525 2,696 2,414
Other 563 157 1,138 805
------------ ----------- ------------ ------------
Total net sales $16,708 $9,961 $43,882 $34,482
----------- ----------- ------------ -----------
Cost of products sold
Raw materials 6,747 4,853 17,727 18,006
Other 6,258 3,866 17,609 12,100
----------- ----------- ----------- -----------
Total cost of products sold 13,005 8,719 35,336 30,106
----------- ----------- ----------- -----------
Gross profit $3,703 $1,242 $8,546 $4,376
=========== =========== =========== ===========
THREE- AND NINE- MONTH PERIODS ENDED SEPTEMBER 30, 1996 VS. THREE- AND
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995
The increase in net sales for the three- and nine-month periods ended September
30, 1996 as compared to the similar periods in 1995 reflects the June 1995
acquisition of the PRP Business and VAR Assets, and an increase in shipments of
stainless steel within the reroller and original equipment manufacturer market
segments. The 1995 third quarter and nine-month periods sales and earnings were
unfavorably impacted by the approximately six-week production halt of the
universal rolling mill at the Bridgeville facility in July and August of last
year.
Cost of products sold, as a percent of net sales, was 77.8% and 87.5% for the
three-month periods ended September 30, 1996 and 1995, respectively, and was
80.5% and 87.3% for the nine-month periods ended September 30, 1996 and 1995,
respectively. This improvement is primarily due to lower acquisition costs for
the Company's primary raw materials, improved manufacturing yields, and the
absence of the production halt described above, which were partially offset by
the level of manufacturing required by the mix of products sold in 1996.
Selling and administrative expenses increased from $1,019,000 and $2,529,000 in
the three- and nine-month periods ended September 30, 1995 to $1,184,000 and
$3,558,000 in the three- and nine-month periods ended September 30, 1996. The
increase primarily relates to insurance costs and the addition of personnel as
a result of the continued growth of the business, including the June 1995
acquisition of the PRP Business and VAR Assets.
Interest and other income decreased in the three-month period ended September
30, 1996 in comparison to the same period in 1995. Interest and other income
increased in the nine-month period ended September 30, 1996 in comparison to
the same period in 1995. These changes are primarily due to cash available for
investing purposes during the respective periods. The increased cash
availability in 1996 is directly related to the sale of 1,700,000
-5-
shares of Common Stock in a public offering completed in November 1995. The
public offering proceeds have been utilized to fund the Company's capital
expenditure program. 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 $108,000 and $310,000 in the three- and
nine-month periods ended September 30, 1995 to $36,000 and $97,000 in the
three- and nine-month periods ended September 30, 1996.
The effective income tax rate utilized in the three- and nine-month periods
ended September 30, 1996 was 38.0%. The effective income tax rate utilized for
the nine-month period ended September 30, 1995 was reduced from 27.0% to 10.0%,
reflecting the impact of the production halt at the Bridgeville facility during
the 1995 third quarter. The lower effective income tax rate in 1995 reflects
the recognition of the benefit of net operating loss carryforwards generated in
1994.
Financial Condition
The Company has primarily financed its 1996 activities to date 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 2:3:1 at September 30, 1996 primarily due to the funding of capital
expenditures during 1996.
Accounts receivable, net increased by $4.9 million for the nine-month period
ended September 30, 1996 as compared to an increase of $5.2 million for the
nine-month period ended September 30, 1995. Inventory increased by $3.8 million
for the nine-month period ended September 30, 1996 as compared to an increase
of $1.4 million for the nine-month period ended September 30, 1995. Accounts
payable and bank overdrafts increased by $3.3 million for the nine-month period
ended September 30, 1996 as compared to an increase of $2.0 million for the
nine-month period ended September 30, 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 and a $200,000 loan from the Commonwealth of Pennsylvania's
Economic Development Program in April 1996. The Company also entered into a
$270,000, 5-year capital lease for mobile equipment in June 1996.
The Company maintains a $6.5 million revolving credit facility through April
1998. In addition, the Company continues to seek low-interest government
financing opportunities to supplement the liquidity available to fund its
capital expenditures. In August 1996, the Company executed a commitment letter
with the County of Allegheny's Department of Development to enter into a $1.5
million, 10-year loan agreement at a 6% interest rate. In November 1996, the
Company executed a commitment letter with the Commonwealth of Pennsylvania
Department of Community and Economic Development to enter into a $500,000,
7-year loan agreement at a 6% interest rate. The Company expects to execute
final loan documents during the 1996 fourth quarter.
Capital Expenditure Program
The Company's capital expenditures approximated $8.1 million in the nine-month
period ended September 30, 1996, bringing aggregate expenditures under its
1995-96 capital expenditures program to $10.2 million. At September 30, 1996,
the Company has outstanding purchase commitments of approximately $3.8 million.
The roller leveler, utilized to flatten plate products, was delivered and
placed into operation in August 1996. Planned projects at the Company's Melt
Shop and Universal Rolling Mill are in process and are expected to be completed
early in 1997.
-6-
1996 Outlook
The Company is experiencing increased demand from the power generation sector,
which is expected to generate sales growth within the original equipment
manufacturers market segment. While the Company's volume of reroll product
shipments is expected to increase, the soft pricing environment due to pressure
from imports of bar, rod, wire and slab products is expected to impact the
Company's operating results in the 1996 fourth quarter. In light of these
factors and anticipated benefits derived from the Company's capital expenditure
program, the Company continues to expect second half results to be
substantially greater than those achieved in the first half of the year.
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
The following reports on Form 8-K were filed during the third
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: 11/13/96 /s/ Clarence M. McAninch
Clarence M. McAninch
President and Chief Executive Officer
Date: 11/13/96 /s/ Richard M. Ubinger
Richard M. Ubinger
Chief Financial Officer
Principal Accounting Officer and
Treasurer
-8-
5
3-MOS
DEC-31-1996
JUL-01-1996
SEP-30-1996
1,819
0
12,961
(223)
10,885
26,044
15,287
(559)
41,347
11,437
1,171
0
0
0
28,733
41,347
43,882
43,882
35,336
35,336
3,513
45
89
5,077
1,929
3,148
0
0
0
3,148
0.50
0.50
