SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission File Number 0-25032
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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1724540
(State or other jurisdiction (IRS Employer
of Identification No.)
incorporation or organization)
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 October 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. Consolidated Condensed Statements of Operations 3
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements of Cash Flows 5
Notes to the Consolidated Condensed Financial 6
Statements
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
- 2 -
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 Nine-Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 22,081 $ 16,708 $ 61,661 $ 43,882
Cost of products sold 17,539 13,005 49,012 35,336
----------- ----------- ----------- -----------
Gross profit 4,542 3,703 12,649 8,546
Selling and administrative
expenses 1,223 1,184 3,665 3,558
----------- ----------- ----------- -----------
Operating income 3,319 2,519 8,984 4,988
Other income (expenses), net (61) (15) (77) 89
----------- ----------- ----------- -----------
Income before taxes 3,258 2,504 8,907 5,077
Income taxes 1,205 952 3,296 1,929
----------- ----------- ----------- -----------
Net Income $ 2,053 $ 1,552 $ 5,611 $ 3,148
=========== =========== =========== ===========
Earnings per share (Note 2)
Primary $ 0.33 $ 0.25 $ 0.89 $ 0.50
=========== =========== =========== ===========
Fully diluted
$ 0.31 $ 0.25 $ 0.87 $ 0.50
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
- 3 -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1997 December 31, 1996
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 471 $ 4,219
Accounts receivable (less 15,621 9,409
allowance for doubtful accounts
of $283 and $238)
Inventory (Note 3) 15,173 9,784
Prepaid Expenses 654 629
------- -------
Total current assets 31,919 24,041
Property, plant and equipment, net (Note 4) 21,989 17,810
Other assets 288 247
------- -------
Total assets $54,196 $42,098
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,670 $ 5,415
Bank overdrafts 605 442
Current portion of long-term debt 333 260
Accrued employment costs 1,683 1,403
Other current liabilities 1,188 540
------- -------
Total current liabilities 12,479 8,060
Long-term debt 4,334 2,534
Deferred taxes 1,249 1,007
------- -------
Total liabilities 18,062 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 6 6
share; 10,000,000 shares
authorized; 6,287,290 and
6,283,734 shares issued and
outstanding
Additional paid-in capital 25,477 25,451
Retained earnings 10,651 5,040
------- -------
Total stockholders' equity 36,134 30,497
------- -------
Total liabilities and stockholders'
equity $54,196 $42,098
======= =======
The accompanying notes are an integral part of these financial statements.
- 4 -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the Nine-Months Ended
September 30
1997 1996
---- ----
Cash flow from operating activities:
Net income $ 5,611 $ 3,148
Adjustments to reconcile to net cash used by
operating activities:operating activities:
Depreciation and amortization 786 351
Deferred taxes 242 --
Changes in assets and liabilities:
Accounts receivable, net (6,212) (4,937)
Inventory (5,389) (3,780)
Accounts payable and bank overdrafts 3,418 3,252
Accrued employment costs 280 793
Other, net 557 593
-------- --------
Net cash used by operating activities (707) (580)
-------- --------
Cash flow from investing activities:
Capital expenditures (4,928) (8,124)
-------- --------
Net cash used by investing activities (4,928) (8,124)
-------- --------
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 1,585 --
Long-term debt payments (212) (90)
Deferred financing costs (12) (25)
-------- --------
Net cash provided by financing activities 1,887 485
-------- --------
Net decrease in cash and cash equivalents (3,748) (8,219)
Cash and cash equivalents at beginning of period 4,219 10,038
-------- --------
Cash and cash equivalents at end of period $ 471 $ 1,819
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 151 $ 52
Income taxes paid $ 2,762 $ 938
The accompanying notes are an integral part of these financial statements.
- 5 -
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, consolidated condensed financial statements of
operations for the three- and nine-month periods ended September 30, 1997
and 1996, balance sheets at September 30, 1997 and December 31, 1996, and
statements of cash flows for the nine-month periods ended September 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 September 30, 1997 and 1996, and are not necessarily
indicative of the results to be expected for the full year.
2) Primary earnings per share are computed by dividing net income by the
weighted average number of shares of Common Stock outstanding. Fully
diluted earnings per share are computed by dividing net income by the
weighted average number of shares of Common Stock outstanding adjusted for
the assumed exercise of stock options and warrants and the proceeds used
to acquire common stock at period-end market values. The reconciliation of
the weighted average number of shares of Common Stock outstanding utilized
for the earnings per share computations are as follows:
For the Three-Months Ended For the Nine-Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
Weighted average number of
shares of Common Stock
outstanding 6,287,290 6,270,000 6,284,932 6,270,000
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 237,416 5,914 138,532 12,982
----------- ----------- ----------- -----------
Weighted average number
of shares of Common
Stock outstanding,
as adjusted 6,524,706 6,275,914 6,423,464 6,282,982
=========== =========== =========== ===========
3) The major classes of inventory are as follows (dollars in thousands):
SEPTEMBER 30, 1997 DECEMBER 31, 1997
Raw materials and $ 3,004 $ 1,715
supplies
Semi-finished steel 10,281 6,205
products
Operating materials 1,888 1,864
------- -------
Total inventory $15,173 $ 9,784
======= =======
4) Property, plant and equipment consists of the following (dollars in
thousands):
- 6 -
SEPTEMBER 30, 1997 DECEMBER 31, 1996
Land and land improvements $ 715 $ 674
Buildings 1,553 1,248
Machinery and equipment 19,914 12,726
Construction in progress 1,286 3,898
-------- --------
23,468 18,546
Accumulated depreciation (1,479) (736)
-------- --------
Property, plant and
equipment, net $ 21,989 $ 17,810
======== ========
5) The Company has reviewed the status of its environmental contingencies and
believes there are no significant changes from that disclosed in Form 10-K
for the year ended December 31, 1996.
- 7 -
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, 1997 and 1996 were as follows (dollars in
thousands):
For the Three-Months Ended For the Nine-MonthsEnded
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
Net sales
Stainless steel $16,140 $13,562 $46,507 $34,071
Tool steel 3,051 1,617 7,426 5,977
Conversion services 1,213 966 3,504 2,696
Other 1,677 563 4,224 1,138
------- ------- ------- -------
Total net sales $22,081 $16,708 $61,661 $43,882
------- ------- ------- -------
Cost of products sold
Raw materials 8,925 6,747 25,113 17,727
Other 8,614 6,258 23,899 17,609
------- ------- ------- -------
Total cost of
products sold 17,539 13,005 49,012 35,336
------- ------- ------- -------
Gross profit $ 4,542 $ 3,703 $12,649 $ 8,546
======= ======= ======= =======
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE- AND
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996
The increase in net sales for the three-and nine-month periods ended September
30, 1997 as compared to the similar periods in 1996 reflects increased shipments
to all of the Company's market segments. Increased shipments to forgers for the
1997 year-to-date period are a result of the higher demand from the aerospace
sector and the introduction of new products. The Company's growing service
center customer base generated increased shipments of plate products during the
three-month period ended September 30, 1997. This increase was partially offset
by lower selling prices in the stainless steel area due to imports.
Cost of products sold, as a percent of net sales, was 79.4% and 77.8% for the
three-month periods ended September 30, 1997 and 1996, respectively, and was
79.5% and 80.5% for the nine-month periods ended September 30, 1997 and 1996,
respectively. The increase for the three-month period is primarily due to the
lower selling prices in the stainless steel area noted above. The decrease for
the nine-month period is primarily due to an improved sales mix. Cost savings
achieved through completed capital improvements favorably impacted both the
three-and nine-month periods ended September 30, 1997 as compared to the similar
periods in 1996.
Selling and administrative expenses increased from $1,184,000 and $3,558,000 in
the three-and nine-month periods ended September 30, 1996 to $1,223,000 and
$3,665,000 in the three-and nine-month periods ended September 30, 1997. The
increase primarily related 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 $46,000 and $166,000, respectively, for
the three- and nine-month periods ended September 30, 1997, as compared to the
three-and nine-month periods ended September 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 due to increased borrowings. The Company
used available cash and borrowings under 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 and
nine-month periods ended September 30, 1997 to fund working capital needs.
- 8 -
The effective income tax rate utilized in the three- and nine-month periods
ended September 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.
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 2.6:1 at September 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 $6.2 million for the nine-month period
ended September 30, 1997 as compared to an increase of $4.9 million for the
nine-month period ended September 30, 1996. Inventory increased by $5.4 million
for the nine-month period ended September 30, 1997 as compared to an increase of
$3.8 million for the nine-month period ended September 30, 1996. Accounts
payable and bank overdrafts increased by $3.4 million for the nine-month period
ended September 30, 1997 as compared to an increase of $3.3 million for the
nine-month period ended September 30, 1996. Each of these increases can be
primarily attributed to the continued growth of the business.
The Company's capital expenditures approximated $4.9 million for the nine-month
period ended September 30, 1997, which primarily related to the completion of
the 1995-96 capital expenditures program and the installation of the 12-inch bar
mill. At September 30, 1997, the Company has outstanding purchase commitments in
addition to the expenditures incurred to date of approximately $2.4 million.
In October 1997, the Company announced its intent to spend approximately $11
million for the purchase and installation of heat treating and processing
equipment to completely finish 2-inch to 6-inch round bar product. The new
equipment is scheduled to be operational by the end of the second quarter of
1998. The Company has received commitments for debt financing to fund this
project.
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 ("PNC Line") 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. At September 30, 1997, the Company borrowed $1.6
million under its PNC Line.
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.
OUTLOOK
The demand for products from the aerospace sector, the introduction of new
products and the positive impact of the Company's capital expenditure programs
continue to generate improved results of operation. In the 1997 fourth quarter,
the Company believes that its operating results should benefit from shipments of
semi-finished product from the 12-inch bar mill. The Company believes that the
impact of the bar mill, complemented by the addition of the finished round bar
products, should generate further growth in 1998.
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.
- 9 -
PART II. OTHER INFORMATION
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 third
quarter of 1997:
None
- 10 -
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: November 14, 1997 /s/ Clarence M. McAninch
------------------ -------------------------------
Clarence M. McAninch
President and Chief Executive
Officer
Date: November 14, 1997 /s/ Richard M. Ubinger
------------------ ---------------------------------
Richard M. Ubinger
Chief Financial Officer,
Principal Accounting Officer and
Treasurer
- 11 -
5
0000931584
UNIVERSAL STAINLESS ALLOY PRODUCTS INC.
1
U.S. DOLLARS
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
1.000
471
0
15,904
(283)
15,173
31,919
23,468
(1,479)
54,196
12,479
4,334
0
0
6
36,128
54,196
61,661
61,661
49,012
49,012
3,620
45
(82)
8,907
3,296
5,611
0
0
0
5,611
0.89
0.87
