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 June 30, 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 office, 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 / /
The number of shares outstanding of the registrant's classes of common stock as
of July 31, 1998:
Title of Class Shares Outstanding
Common Stock, $1.00 par value 6,315,450
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Forward-looking statements 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 the
discussions of future performance included 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 4
Cash 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 4. Submission of Matters to a Vote of Security 9
Holders
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
1
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
------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $21,163 $20,809 $43,512 $39,580
Cost of products sold 17,332 16,414 35,799 31,473
Selling and administrative 1,336 1,301 2,476 2,442
expenses --------- ---------- ----------- ----------
Operating income 2,495 3,094 5,237 5,665
Other income (expenses), (58) (2) 75 (16)
net --------- ---------- ----------- ----------
Income before taxes 2,437 3,092 5,312 5,649
Income taxes 902 1,145 1,966 2,091
--------- ---------- ----------- ----------
Net Income $1,535 $1,947 $3,346 $3,558
========= ========== =========== ==========
Earnings per common share
Basic $0.24 $0.31 $0.53 $0.57
========= ========== =========== ==========
Diluted $0.24 $0.31 $0.52 $0.56
========= ========== =========== ==========
The accompanying notes are an integral part of these financial statements.
2
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
June 30, 1998 December 31, 1997
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 178 $ 177
Accounts receivable (less allowance for doubtful
accounts of $328 and $298) 16,780 14,503
Inventory 16,607 15,471
Prepaid Expenses 950 894
------- -------
Total current assets 34,515 31,045
Property, plant and equipment, net 31,376 24,887
Other assets 246 219
------- -------
Total assets $66,137 $56,151
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 8,008 $ 8,001
Current portion of long-term debt 410 338
Accrued employment costs 1,623 1,704
Other current liabilities 245 916
------- -------
Total current liabilities 10,286 10,959
Long-term debt 11,962 5,441
Deferred taxes 2,533 1,983
------- -------
Total liabilities 24,781 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 share; 6 6
10,000,000 shares authorized; 6,315,450 and
6,290,823 shares issued and outstanding
Additional paid-in capital 25,758 25,516
Retained earnings 15,592 12,246
------ ------
Total stockholders' equity 41,356 37,768
------- ------
Total liabilities and stockholders' equity $66,137 $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 Six-Months Ended
June 30
-------------------------
1998 1997
---- ----
Cash flow from operating activities:
Net Income $ 3,346 $ 3,558
Adjustments to reconcile to net cash used by
operating activities:
Depreciation and amortization 686 498
Deferred taxes 550 161
Changes in assets and liabilities:
Accounts receivable, net (2,277) (5,628)
Inventory (1,136) (5,814)
Accounts payable and bank overdrafts 7 4,308
Accrued employment costs (81) 250
Other, net (624) 984
------- -------
Net cash provided by (used in) operating
activities 471 (1,683)
------- -------
Cash flow from investing activities:
Capital expenditures (7,229) (2,887)
------- -------
Net cash used in investing activities (7,229) (2,887)
------- -------
Cash Flow from financing activities:
Borrowings from long-term debt 6,346 500
Proceeds from issuance of Common Stock 215 26
Net borrowing under revolving line of credit 427 546
Long-term debt payments (180) (138)
Deferred financing costs (49) (12)
------- -------
Net cash provided by financing activities 6,759 922
------- -------
Net increase (decrease) in cash and cash
equivalents 1 (3,648)
Cash and cash equivalents at beginning of
period 177 4,219
------- -------
Cash and cash equivalents at end of period $ 178 $ 571
======= =======
Supplemental disclosure of cash flow information:
Interest paid $ 286 $ 94
Income taxes paid $ 1,730 $ 1,749
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- and six-month period ended June 30, 1998 and
1997, balance sheets as of June 30, 1998 and December 31, 1997, and
statements of cash flows for the six-month periods ended June 30, 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 year 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
periods ended June 30, 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 Six-Months Ended For the Three-Months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
Weighted average number of
shares of Common Stock
outstanding 6,303,356 6,283,734 6,311,203 6,283,773
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 102,355 55,974 61,539 83,904
---------- ---------- ---------- ----------
Weighted average number of
shares of Common Stock
outstanding, as adjusted 6,405,711 6,339,708 6,372,742 6,367,677
========== ========== ========== ==========
5
4) The major classes of inventory are as follows (dollars in thousands):
JUNE 30, 1998 DECEMBER 31, 1997
Raw materials and supplies $ 2,988 $ 2,869
Semi-finished steel products 11,152 10,569
Operating materials 2,647 2,033
======= =======
Total inventory $16,607 $15,471
======= =======
5) Property, plant and equipment consists of the following (dollars in
thousands):
JUNE 30, 1998 DECEMBER 31, 1997
Land and land improvements $ 869 $ 832
Buildings 1,711 1,699
Machinery and equipment 23,532 21,418
Construction in progress 7,701 2,726
------- -------
33,813 26,675
Accumulated depreciation (2,437) (1,788)
------- -------
Property, plant and
equipment, net $31,376 $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
Net sales by product line and cost of products sold for the three- and
six-month periods ended June 30, 1998 and 1997 were as follows (dollars in
thousands):
Three-Month Period Ended Six-Month Period Ended
June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
Net sales
Stainless steel $16,006 $15,644 $31,692 $30,367
Tool steel 1,709 2,334 4,693 4,375
High temperature alloy steel 1,311 816 2,645 1,142
Conversion services 1,216 1,148 2,540 2,290
Other 921 867 1,942 1,406
--------- --------- --------- ---------
Total net sales $21,163 $20,809 $43,512 $39,580
--------- --------- --------- ---------
Cost of products sold
Raw materials 8,231 8,505 16,954 16,188
Other 9,101 7,909 18,852 15,285
--------- --------- --------- ---------
Total cost of products
sold 17,332 16,414 35,799 31,473
--------- --------- --------- ---------
Selling and administrative
expenses 1,336 1,301 2,476 2,442
--------- --------- --------- ---------
Operating income $ 2,495 $ 3,094 $ 5,237 $ 5,665
========= ========= ========= =========
THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 1998 AS COMPARED TO THE SIMILAR
PERIODS IN 1997
The increase in net sales for the three- and six-month periods ended June 30,
1998 as compared to the similar periods in 1997 reflects increased shipments of
stainless steel reroll products and bar mill products for the forging and
service center market segments. This increase was partially offset by lower
selling prices primarily due to lower nickel prices and imports.
Cost of products sold, as a percentage of net sales, was 81.9% and 78.9% for the
three-month periods ended June 30, 1998 and 1997, respectively, and was 82.3%
and 79.5% for the six -month periods ended June 30, 1998 and 1997, respectively.
This increase is primarily due to pricing pressures from imports, lagging raw
material cost reductions and increased energy costs. Selling and administrative
expenses remained relatively constant between 1997 and 1998.
Other income (expense), net was $(2,000) and $(58,000) for the three-month
periods ended June 30, 1997 and 1998, respectively. The decrease is primarily
due to interest expense associated with increased borrowings under the Company's
revolving line of credit to fund working capital needs. Other income (expense),
net was $(16,000) and $75,000 for the six-month periods ended June 30, 1997 and
1998, respectively. The increase is primarily due to a $200,000 government grant
related to the Company's expansion of its Bridgeville operations which was
partially offset by an increase in interest expense.
7
The effective income tax rate utilized in the three- and six-month periods ended
June 30, 1998 and 1997 was 37.0%.
FINANCIAL CONDITION
The Company has financed its 1998 operating activities to date through cash
flows from operations, borrowings 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 3.4:1 at June 30, 1998. The percentage of debt to
capitalization 13% at December 31, 1997 to 23% at June 30, 1998 primarily due to
the funding of capital expenditures from the $15.0 million term loan from PNC
Bank during 1998.
Accounts receivable, net increased by $2.3 million for the six-month period
ended June 30, 1998 as compared to an increase of $5.6 million for the six-month
period ended June 30, 1997. Inventory increased by $1.1 million for the
six-month period ended June 30, 1998 as compared to an increase of $5.8 million
for the six-month period ended June 30, 1997. Trade accounts payable remained
constant for the six-month period ended June 30, 1998 as compared to an increase
of $4.3 million for the six-month period ended June 30, 1997. Each of these
increases can be primarily attributed to the continued growth of the Company's
business.
The Company's capital expenditures approximated $7.2 million for the six-month
period ended June 30, 1998, which primarily related to the construction of a
round bar finishing facility located at the Bridgeville Facility. At June 30,
1998, the Company had outstanding purchase commitments in addition to the
expenditures incurred to date of approximately $5.3 million. These expenditures
are expected to be funded substantially from internally generated funds and the
$15.0 million term loan from PNC Bank.
The Company anticipates that it will continue 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
Pricing pressure from imports is expected to continue to negatively impact the
Company's financial results until the impact of filed trade cases takes effect.
The 1998 second half results are expected to benefit from increased production
at the bar mill, the start-up of the round bar finishing facility and
manufacturing cost reduction initiatives.
YEAR 2000
The Company is engaged in a program to modernize and replace its computerized
production control and management information systems. Although not the primary
product of the program, the new systems will be designed to avoid any Year 2000
problems. The Company is also inquiring of its suppliers and others as to their
own Year 2000 compliance. There can be no assurance that the Company will
successfully avoid any Year 2000 problems.
8
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 20, 1998, for the purpose of electing
a board of directors and approving the appointment of auditors.
Proxies for meeting were solicited pursuant 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 "Withheld" Shares Not
"For" Voted
D. Dunn 4,351,987 7,200 1,951,989
G. Keane 4,352,987 6,200 1,951,989
C. McAninch 4,316,287 42,900 1,951,989
U. Toledano 4,352,134 7,053 1,951,989
D. Wise 4,352,987 6,200 1,951,989
The appointment of PriceWaterhouseCoopers LLP as independent auditor
was approved by the following vote:
Shares Voted Shares Voted Shares Shares Not
"For" "Against" "Abstaining" Voted
4,319,487 39,400 300 1,951,989
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. The Company filed no reports on Form 8-K for the quarter ended
June 30, 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: August 11, 1998 /S/ CLARENCE M. MCANNICH
-------------------------------------
Clarence M. McAnnich
President and Chief Executive Officer
Date: August 11, 1998 /S/ RICHARD M. UBINGER
-------------------------------------
Richard M. Ubinger
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
10
5
0000931584
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JAN-30-1998
178
0
17,108
(328)
16,607
34,515
33,813
(2,437)
66,137
10,286
11,962
0
0
6
41,356
66,137
43,512
43,512
35,799
35,799
2,476
30
341
5,312
1,966
3,346
0
0
0
3,346
.53
.52
