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 March 31, 1998
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 April 30, 1998, there were 6,311,156 outstanding shares of the
Registrant's Common Stock, $.001 par value.
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 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 2
Operations
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Cash 4
Flows
Notes to the Consolidated Condensed 5
Financial Statements
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security 9
Holders
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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-month period ended
March 31,
1998 1997
---- ----
Net sales $22,349 $18,771
Cost of products sold 18,467 15,059
Selling and administrative
expenses 1,140 1,141
---------- ---------
Operating income 2,742 2,571
Other income and (expense),
net 133 (14)
---------- ---------
Income before taxes 2,875 2,557
Income taxes 1,064 946
---------- ---------
Net Income $ 1,811 $1,611
========== =========
Earnings per common share
Basic $ 0.29 $ 0.26
========== =========
Diluted $ 0.28 $ 0.26
========== =========
The accompanying notes are an integral part of these financial statements.
2
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, 1998 December 31, 1997
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 685 $ 177
Accounts receivable (less
allowance for doubtful
accounts
of $313 and $298) 16,913 14,503
Inventory 16,246 15,471
Prepaid Expenses 987 894
------ ------
Total current assets 34,831 31,045
Property, plant and equipment, net 28,873 24,887
Other assets 252 219
------ ------
Total assets $63,956 $56,151
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,838 $ 8,001
Current portion of long-term debt 359 338
Accrued employment costs 1,921 1,704
Other current liabilities 1,095 916
------ -----
Total current liabilities 12,213 10,959
Long-term debt 9,572 5,441
Deferred taxes 2,383 1,983
----- -----
Total liabilities 24,168 18,383
------ ------
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 6 6
share; 10,000,000 shares
authorized; 6,311,156 and
6,290,823 shares issued and
outstanding
Additional paid-in capital 25,725 25,516
Retained earnings 14,057 12,246
------ ------
Total stockholders' equity 39,788 37,768
------ ------
Total liabilities and stockholders'equity $63,956 $56,151
======= =======
The accompanying notes are an integral part of these financial statements.
3
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Three-month period ended
March 31,
1998 1997
---- ----
Cash flow from operating activities:
Net income $1,811 $1,611
Adjustments to reconcile to net cash
and each equivalents provided by
operating activities:
Depreciation and amortization 345 218
Deferred taxes 400 136
Changes in assets and liabilities:
Accounts receivable, net (2,410) (4,506)
Inventory (775) (2,981)
Trade accounts payable 837 3,439
Other, net 330 946
-------- ---------
Net cash provided(used) by operating
activities 538 (1,137)
-------- ---------
Cash flow from investing activities:
Capital expenditures (4,315) (1,477)
-------- ---------
Net cash used by investing activities (4,315) (1,477)
-------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt 4,080 ---
Net borrowing under revolving line of credit 156 ---
Long-term debt payments (84) (64)
Proceeds from issuance of Common Stock 181 ---
Deferred financing costs (48) (4)
--- -----
Net cash provided (used) by financing 4,285 (68)
activities
-------- ---------
Net increase(decrease) in cash 508 (2,682)
Cash and cash equivalents at beginning of
period 177 4,219
-------- ---------
Cash and cash equivalents at end of period $685 $1,537
======== =========
Supplemental disclosure of cash
flow information:
Interest $123 $42
Income taxes $80 $312
The accompanying notes are an integral part of these financial statements.
4
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-month periods ended March 31, 1998 and 1997,
balance sheets as of March 31, 1998 and December 31, 1997, and statements
of cash flows for the three-month periods ended March 31, 1998 and 1997
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, 1997. 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
three-month periods ended March 31, 1998 and 1997, and are not necessarily
indicative of the results to be expected for the full year.
2) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires companies to disclose information regarding comprehensive income
and its components. Comprehensive income is defined as a change in equity
resulting from nonowner sources. The Company does not have any material
adjustments to net income in order to derive comprehensive income;
accordingly, comprehensive income has not been presented in the
accompanying consolidated condensed financial statements.
3) The reconciliation of the weighted average number of shares of Common
Stock outstanding utilized for the earnings per common share computations
are as follows:
For the Three-Months Ended
March 31
1998 1997
---- ----
Weighted average number of
shares of Common Stock 6,295,508 6,283,734
outstanding
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 143,173 28,005
--------- ---------
Weighted average number of
shares of Common Stock
outstanding, as adjusted 6,438,681 6,311,739
========= =========
5
4) The major classes of inventory are as follows (dollars in thousands):
MARCH 31, 1998 DECEMBER 31, 1997
Raw materials and $3,525 $2,869
supplies
Semi-finished steel 10,383 10,569
products
Operating materials 2,338 2,033
-------------- --------------
Total inventory $16,246 $15,471
============== ==============
5) Property, plant and equipment consists of the following (dollars in
thousands):
MARCH 31, 1998 DECEMBER 31, 1997
Land and land improvements $ 876 $ 832
Buildings 1,711 1,699
Machinery and equipment 22,291 21,418
Construction in progress 6,112 2,726
--------------- --------------
30,990 26,675
Accumulated depreciation (2,117) (1,788)
--------------- --------------
Property, plant and
equipment, net $28,873 $24,887
=============== ==============
6) 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, 1997.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
An analysis of the Company's operations is as follows (dollars in
thousands):
For the Three-Month Period Ended
March 31,
1998 1997
---- ----
Net sales
Stainless steel $15,686 $14,723
Tool Steel 2,984 2,041
High temperature alloy steel 1,334 326
Conversion services 1,324 1,142
Other 1,021 539
------- -------
Total net sales $22,349 $18,771
Cost of products sold
Raw Materials 8,716 7,683
Other 9,751 7,376
------- -------
Total cost of products sold 18,467 15,059
Selling and administrative expensive 1,140 1,141
------- -------
Operating income $ 2,742 $ 2,571
======= =======
THREE-MONTH PERIOD ENDED MARCH 31, 1998 AS COMPARED TO THE SIMILAR PERIOD IN
1997
The increase in net sales for the three-month period ended March 31, 1998 as
compared to the similar period in 1997 reflects increased shipments of stainless
steel reroll products, tool steel and high temperature alloy steel, partially
offset by continued soft pricing of stainless steel products due to imports.
Cost of products sold, as a percent of net sales, was 82.6% and 80.2% for the
three-month periods ended March 31, 1998 and 1997, respectively. This increase
is primarily due to the impact of lower pricing for stainless steel products
described above and increased energy costs. Selling and administrative expenses
remained relatively constant between 1997 and 1998.
Other income (expense), net increased from $(14,000) in the three-month period
ended March 31, 1997 to $133,000 in the three-month period ended March 31, 1998
due primarily to a $200,000 government grant related to the Company's expansion
of its Bridgeville Operations.
The effective income tax rate utilized in the three-month periods ended March
31, 1998 and 1997 was 37.0%.
FINANCIAL CONDITION
The Company has financed its operating activities during the first quarter of
1998 through cash flows from operations and cash on hand at the beginning of the
period. The ratio of current assets to current liabilities increased from 2.8:1
at December 31, 1997 to 2.9:1 at March 31, 1998. The percentage of debt to
capitalization ratio increased from 13% at December 31, 1997 to 20% at March 31,
1998 primarily due to the funding of capital expenditures from the $15.0 million
term loan from PNC Bank during the three-month period ended March 31, 1998.
7
Accounts receivable, net increased by $2.4 million for the three-month period
ended March 31, 1998 as compared to an increase of $4.5 million for the
three-month period ended March 31, 1997. Inventory increased by $0.8 million for
the three-month period ended March 31, 1998 as compared to an increase of $3.0
million for the three-month period ended March 31, 1997. Trade accounts payable
increased by $0.8 million for the three-month period ended March 31, 1998 as
compared to an increase of $3.4 million for the three-month period ended March
31, 1997. Each of these increases can be primarily attributed to the continued
growth of the business.
The Company's capital expenditures approximated $4.3 million for the three-month
period ended March 31, 1998, which primarily related to the construction of a
round bar finishing facility located at the Bridgeville Facility. At March 31,
1998, the Company had outstanding purchase commitments in addition to the
expenditures incurred to date of approximately $4.8 million. These expenditures
are expected to be funded substantially from internally generated funds and a
$15.0 million term loan from PNC Bank.
The Company anticipates that it will be able to fund its 1998 working capital
requirements and its capital expenditures 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.
1998 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 sales growth despite lower selling prices for stainless
steel products. Continuing pricing pressure from imports and rising raw material
costs are expected to cause 1998 second quarter earnings to be slightly below
those of the first quarter. The operation of the bar mill at higher levels and
the start-up of the round bar finishing facility are expected to benefit 1998
second half results.
8
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 AND USE OF PROCEEDS.
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. No reports on Form 8-K were filed during the first quarter of 1998.
9
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, 1998 /s/ Clarence M. McAninch
------------------ --------------------------------
Clarence M. McAninch
President and Chief Executive
Officer
Date: May 14, 1998 /s/ Richard M. Ubinger
------------------ --------------------------------
Richard M. Ubinger
Chief Financial Officer and
Treasurer
(Principal Accounting Officer)
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
EXHIBIT 27.1
5
0000931584
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
1,000
3-MOS
Dec-31-1998
Jan-01-1998
Mar-31-1998
685
0
17,226
(313)
16,246
34,831
30,990
(2,117)
63,956
12,213
9,572
0
0
6
39,782
63,956
22,349
22,349
18,467
18,467
1,140
15
162
2,875
1,064
1,811
0
0
0
1,811
.29
.28
