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, 1997
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, par value $0.001 per share
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 July 31, 1997, there were 6,287,290 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 Statements of Operations 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial 4
Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of 7
Securityholders
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
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 Three-Months Ended For the Six-Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
Net sales $20,809 $14,565 $39,580 $27,174
Cost of products sold 16,414 11,687 31,473 22,331
------ ------ ------ ------
Gross profit 4,395 2,878 8,107 4,843
Selling and administrative
expenses 1,301 1,371 2,442 2,374
----- ----- ----- -----
Operating income 3,094 1,507 5,665 2,469
Other income (expenses), net (2) 23 (16) 104
-- -- --- ---
Income before taxes 3,092 1,530 5,649 2,573
Income taxes 1,145 581 2,091 977
----- --- ----- ---
Net Income $ 1,947 $ 949 $ 3,558 $ 1,596
======= ====== ======= =======
Net Income per share of Common
Stock $ 0.31 $ 0.15 $ 0.57 $ 0.25
======= ======= ====== =======
Weighted average number of
shares of Common Stock
outstanding 6,283,773 6,270,000 6,283,754 6,270,000
========= ========= ======== =========
The accompanying notes are an integral part of these financial statements.
-1-
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
June 30, 1997 December 31, 1996
------------------- -------------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 571 $ 4,219
Accounts receivable (less allowance for
doubtful accounts of $268 and $238) 15,037 9,409
Inventory (Note 2) 15,598 9,784
Prepaid Expenses 638 629
--- ---
Total current assets 31,844 24,041
------ -------
Property, plant and equipment 21,430 18,545
Accumulated depreciation (1,205) (735)
------ ------
Net property, plant and equipment 20,225 17,810
------ -------
Other assets 227 247
---- ----
Total assets $52,296 $42,098
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,784 $ 5,415
Bank overdrafts 1,381 442
Current portion of long-term debt 328 260
Accrued employment costs 1,653 1,403
Other current liabilities 1,527 540
------ ---
Total current liabilities 13,673 8,060
Long-term debt 3,374 2,534
Deferred taxes 1,168 1,007
------ ------
Total liabilities 18,215 11,601
------ ------
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;
6,287,290 and 6,283,734 shares
issued and outstanding 6 6
Additional paid-in capital 25,477 25,451
Retained earnings 8,598 5,040
----- -----
Total stockholders' equity 34,081 30,497
------ ------
Total liabilities and stockholders'
equity $52,296 $42,098
====== ======
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 Six Months Ended June 30,
1997 1996
---- ----
Cash flow from operating activities:
Net income $3,558 $1,596
Adjustments to reconcile to net
cash used by operating activities:
Depreciation and amortization 498 217
Deferred taxes 161 --
Changes in assets and liabilities:
Accounts receivable, net (5,628) (4,717)
Inventory (5,814) (3,319)
Accounts payable and bank overdrafts 4,308 3,293
Accrued employment costs 250 375
Other, net 984 159
------ ------
Net cash used by operating activities (1,683) (2,396)
------ ------
Cash flow from investing activities:
Capital expenditures (2,887) (5,105)
------ ------
Net cash used by investing activities (2,887) (5,105)
------ ------
Cash flow from financing activities:
Proceeds from issuance of long-term
debt 500 600
Proceeds from issuance of Common Stock 26 --
Net borrowing under revolving line of credit 546 --
Long-term debt payments (138) (55)
Deferred financing costs (12) (25)
---- ---
Net cash provided by financing
activities 922 520
------ ------
Net decrease in cash and cash equivalents (3,648) (6,981)
Cash and cash equivalents at beginning
of period 4,219 10,038
------ ------
Cash and cash equivalents at end of period $571 $3,057
==== =====
Supplemental disclosure of cash flow information:
Interest paid $94 $32
Income taxes paid $1,749 $938
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 1994 for the principal purpose of acquiring substantially
all of the idled equipment and related assets located at the Bridgeville,
Pennsylvania, production facility of Armco, Inc. in August 1994.
The accompanying unaudited, condensed consolidated financial statements of
operations for the three- and six- month periods ended June 30, 1997 and
1996, balance sheets at June 30, 1997 and December 31, 1996, and
statements of cash flows for the six-month periods ended June 30, 1997 and
1996 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, 1996. 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, 1997 and 1996, 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):
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials and
supplies 2,929 1,715
Semi-finished steel
products 10,836 6,205
Operating materials 1,833 1,864
------ -----
Total inventory 15,598 9,784
====== =====
3) The Company has reviewed the status of its environmental contingencies and
believed there are no significant changes from that disclosed in Form 10-K
for the year ended December 31, 1996.
-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
six-month periods ended June 30, 1997 and 1996 were as follows (dollars in
thousands):
Three-Month Period Six-Month Period Ended
Ended June 30 Ended June 30
1997 1996 1997 1996
----------- ----------- ---------- -----------
Net sales
Stainless steel 15,644 11,038 30,367 20,509
Tool steel 2,334 2,379 4,375 4,360
Conversion services 1,148 997 2,290 1,730
Other 1,683 151 2,548 575
----- --- ----- ---
Total net sales $20,809 $14,565 $39,580 $27,174
------- ------- ------- -------
Cost of products sold
Raw materials 8,505 5,693 16,188 10,980
Other 7,909 5,994 15,285 11,351
----- ----- ------ ------
Total cost of
products sold 16,414 11,687 31,473 22,331
------ ------ ------ ------
Gross profit $ 4,395 $ 2,878 $ 8,107 $ 4,843
======= ======= ======= =======
THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 COMPARED TO THREE- AND
SIX-MONTH PERIODS ENDED JUNE 30, 1996
The increase in net sales for the three- and six-month periods ended June 30,
1997 as compared to the similar periods in 1996 reflects increased shipments to
all of the Company's market segments. This increase was partially offset by
lower selling prices in the stainless steel area due to foreign imports.
Cost of products sold, as a percentage of net sales, was 78.9% and 80.2% for the
three-month periods ended June 30, 1997 and 1996, respectively, and was 79.5%
and 82.2% for the six-month periods ended June 30, 1997 and 1996, respectively.
The decreases in the cost of products sold as a percentage of net sales are
primarily due to an improved sales mix and cost savings achieved through capital
improvements completed in 1996.
Selling and administrative expenses of $1,301,000 in the three-month period
ended June 30, 1997 decreased from $1,371,000 for the three-month period ended
June 30, 1996 primarily due to lower insurance costs. Selling and administrative
expenses for the six-month periods ended June 30, 1997 and 1996 were $2,442,000
and $2,374,000, respectively. The increase primarily relates to the addition of
personnel as a result of the continued growth of the Company's business,
partially offset by lower insurance costs.
Other income (expense), net decreased by $25,000 and $120,000, respectively, for
the three- and six-month periods ended June 30, 1997, as compared to the
three-and six-month periods ended June 30, 1996. The decrease is primarily
related to a decrease in interest income earned on cash available for investment
and an increase in interest expense on borrowings. The Company used available
cash and the issuance of government loans to fund capital expenditures incurred
during 1996 and 1997. In addition, the Company utilized a portion of its $6.5
million revolving line of credit during the three-month period ended June 30,
1997 to fund working capital needs.
The effective income tax rate utilized in the three- and six-month periods ended
June 30, 1997 and 1996 was 37.0% and 38.0%, respectively. The lower effective
income tax rate in the 1997 period reflects a lower effective state tax rate,
net of the federal benefit, and is consistent with the ultimate effective income
tax rate utilized for the year ended December 31, 1996.
-5-
Financial Condition
The Company has financed its 1997 activities to date primarily through cash
flows from operations, borrowings and cash on hand at the beginning of the
period. The ratio of current assets to current liabilities decreased from 3.0:1
at December 31, 1996 to 2.3:1 at June 30, 1997, primarily due to continued
growth of the Company's business and the funding of capital expenditures during
1997.
Accounts receivable, net increased by $5.6 million for the six-month period
ended June 30, 1997 as compared to an increase of $4.7 million for the six-month
period ended June 30, 1996. Inventory increased by $5.8 million for the
six-month period ended June 30, 1997 as compared to an increase of $3.3 million
for the six-month period ended June 30, 1996. Accounts payable and bank
overdrafts increased by $4.3 million for the six-month period ended June 30,
1997 as compared to an increase of $3.3 million for the six-month period ended
June 30, 1996. Each of these increases can be primarily attributed to the
continued growth of the business.
The Company's capital expenditures approximated $2.9 million for the six-month
period ended June 30, 1997, which primarily related to the completion of the
1995-96 capital expenditures program. At June 30, 1997, the Company has
outstanding purchase commitments in addition to the expenditures incurred to
date of approximately $2.4 million.
In April 1997, the Company executed loan documents in connection with the
issuance of a $500,000 loan from the Commonwealth of Pennsylvania's Machinery
and Equipment Loan Fund. On May 1, 1997, the Company extended its $6.5 million
Working Capital Agreement with PNC Bank to April 2000. In addition, the
amendment reduced the annual interest rate charged on the unpaid principal
balance from PNC Bank's prime rate plus 0.25% to PNC Bank's prime rate. The
annual interest rate may be further reduced based on the Company maintaining
certain financial ratios.
The Company anticipates that it will be able to fund its 1997 working capital
requirements and its capital expenditures primarily from funds generated by
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.
1997 Outlook
Increased shipments in the six-month period ended June 30, 1997 are primarily
attributed to increased demand from the aerospace sector and new product
introductions. The cost savings associated with the Company's capital
expenditure program has met and, in certain areas, exceeded management's
expectations to date. These trends are expected to continue throughout 1997.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
establishes standards for computing and presenting earnings per share
information for periods ending after December 15, 1997. The Company does not
believe that the adoption of this statement will materially effect its earnings
per share disclosures except for the required presentation of diluted earnings
per share.
-6-
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 22, 1997, for the purpose of electing a board of directors and
approving the appointment of auditors. Proxies for the meeting were solicited
purusant 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:
Shares Voted Shares Shares Not
"For" "Withheld" Voted
B. Bowman 4,297,193 5,000 1,981,541
D. Dunn 4,297,793 4,400 1,981,541
G. Keane 4,297,793 4,400 1,981,541
C. McAninch 4,298,093 4,100 1,981,541
U. Toledano 4,298,093 4,100 1,981,541
D. Wise 4,298,093 4,100 1,981,541
The appointment of Price Waterhouse LLP as independent auditor was approved by
the following vote:
Shares Voted Shares Voted Shares Shares
"For" "Against" "Abstaining" Not Voted
4,296,193 3,300 2,700 1,981,541
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
The following reports on Form 8-K were filed during the second
quarter of 1997:
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: August 12, 1997 /s/ Clarence M. McAninch
------------------ --------------------------------------
Clarence M. McAninch
President and Chief Executive Officer
Date: August 12, 1997 /s/ Richard M. Ubinger
------------------ --------------------------------------
Richard M. Ubinger
Chief Financial Officer,
Principal Accounting Officer and
Treasurer
-8-
5
0000931584
UNIVERSAL STAINLESS ALLOY PRODUCTS, INC.
1
U.S. DOLLARS
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
1.000
571
0
15,305
(268)
15,598
31,844
21,430
(1,205)
52,296
13,673
3,374
0
0
6
34,075
52,296
39,580
39,580
31,473
31,473
2,412
30
(16)
5,649
2,091
3,558
0
0
0
3,558
0.57
0.57
