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 September 30, 1999
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
---- ----
The number of shares outstanding of the registrant's classes
of common stock as of November 5, 1999:
Title of Class Shares Outstanding
Common Stock, $0.001 par value 6,086,554
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 such
as, but not limited to, expected market conditions and Year 2000 readiness, that
may cause the Company's actual results in future periods 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 Operations 2
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Cash Flows 4
Notes to the Unaudited Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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 Nine-Months Ended
September 30 September 30
-------------------------------------- -----------------------------------
1999 1998 1999 1998
------------- ------------- ------------- ------------
Net sales $16,110 $15,977 $46,083 $59,489
Cost of products sold 14,210 13,141 41,111 48,940
Selling and administrative expenses 1,007 1,149 2,991 3,625
-------------- -------------- -------------- --------------
Operating income 893 1,687 1,981 6,924
Other income (expenses), net (170) (129) (496) (54)
-------------- -------------- -------------- --------------
Income before taxes 723 1,558 1,485 6,870
Income taxes 268 576 550 2,542
-------------- -------------- -------------- --------------
Net income $ 455 $ 982 $ 935 $ 4,328
============== ============== ============== ==============
Earnings per common share
Basic $ 0.07 $ 0.16 $ 0.15 $ 0.69
============== ============== ============== ==============
Diluted $ 0.07 $ 0.16 $ 0.15 $ 0.68
============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
2
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1999 December 31, 1998
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 296 $ 1,437
Accounts receivable (less allowance for doubtful
accounts of $403 and $358) 11,376 8,843
Inventory 17,157 16,182
Other current assets 1,646 1,980
------- -------
Total current assets 30,475 28,442
Property, plant and equipment, net 37,002 35,710
Other assets 285 298
------- -------
Total assets $67,762 $64,450
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable and bank overdrafts $ 6,889 $ 4,311
Current portion of long-term debt 1,829 1,117
Accrued employment costs 801 957
Other current liabilities 420 228
------- -------
Total current liabilities 9,939 6,613
Long-term debt 10,752 11,841
Deferred taxes 4,518 3,431
------- -------
Total liabilities 25,209 21,885
------- -------
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; 10,000,000 shares authorized;
6,325,254 and 6,320,036 shares issued 6 6
Additional paid-in capital 25,813 25,787
Retained earnings 18,185 17,250
Treasury Stock at cost; 235,700 and 75,000
common shares held (1,451) (478)
------- -------
Total stockholders' equity 42,553 42,565
------- -------
Total liabilities and stockholders' equity $67,762 $64,450
======= =======
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 Nine-Months Ended
September 30
--------------------------------------
1999 1998
----------- -------------
Cash flow from operating activities:
Net income $ 935 $ 4,328
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 1,549 1,049
Deferred taxes 1,087 1,125
Changes in assets and liabilities:
Accounts receivable, net (2,533) 2,537
Inventory (975) (1,538)
Trade accounts payable and bank overdrafts 2,578 (2,245)
Accrued employment costs (156) (341)
Other, net 523 (1,506)
------------ --------------
Net cash provided by operating activities 3,008 3,409
------------ --------------
Cash flow from investing activities:
Capital expenditures (2,825) (11,083)
------------ --------------
Net cash used in investing activities (2,825) (11,083)
------------ --------------
Cash flow from financing activities:
Borrowings from long-term debt -- 9,346
Proceeds from issuance of Common Stock 26 215
Net borrowing under revolving line of credit 285 (1,562)
Long-term debt payments (662) (278)
Deferred financing costs -- (49)
Purchase of Treasury Stock (973) --
------------ --------------
Net cash provided by (used in) financing activities (1,324) 7,672
------------ --------------
Net decrease in cash and cash equivalents (1,141) (2)
Cash and cash equivalents at beginning of period 1,437 177
------------ --------------
Cash and cash equivalents at end of period $ 296 $ 175
============ ==============
Supplemental disclosure of cash flow information:
Interest paid (net of capitalization) $ 560 $ 145
Income taxes paid $ 158 $ 2,485
The accompanying notes are an integral part of these financial statements
4
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) The accompanying unaudited, consolidated condensed financial statements of
operations for the three- and nine-month periods ended September 30, 1999
and 1998, balance sheets as of September 30, 1999 and December 31, 1998,
and statements of cash flows for the nine-month periods ended September 30,
1999 and 1998 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, 1998. 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, 1999 and 1998, and are not necessarily indicative of the
results to be expected for the full year.
2) In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires that all public companies report
information about operating segments in annual financial statements and
requires that those companies report selected information about operating
segments in interim financial reports. Operating segments are determined
utilizing the "management approach" which is based on the way the chief
operating decision maker organizes segments within a company for making
operating decisions and assessing performance. The Company operates as a
single segment, and as such, no additional financial disclosure has been
presented in the Company's interim 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 For the Nine-Months Ended
September 30 September 30
------------------------------ -------------------------------
1999 1998 1999 1998
------------ ----------- ------------- -----------
Weighted average number of shares
of Common Stock outstanding 6,097,417 6,315,450 6,121,108 6,307,387
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 0 0 0 68,237
------------ ----------- ------------ ------------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,097,417 6,315,450 6,121,108 6,375,624
============ =========== ============ ============
5
4) The major classes of inventory are as follows (dollars in thousands):
September 30, 1999 December 31, 1998
Raw materials and supplies $ 2,237 $ 2,358
Semi-finished steel products 12,044 11,152
Operating materials 2,876 2,672
-------------------- --------------------
Total inventory $17,157 $16,182
===================== =====================
5) Property, plant and equipment consists of the following (dollars in
thousands):
September 30, 1999 December 31, 1998
Land and land improvements $ 1,033 $ 822
Buildings 2,914 2,591
Machinery and equipment 36,728 31,903
Construction in progress 1,121 3,655
---------------------- ----------------------
41,796 38,971
Accumulated depreciation (4,794) (3,261)
---------------------- ----------------------
Property, plant and equipment, net $37,002 $35,710
====================== ======================
6) The Company has reviewed the status of its environmental contingencies and
believes there are no significant changes from that disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
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 nine-
month periods ended September 30, 1999 and 1998 were as follows (dollars in
thousands):
For the Three-Months Ended For the Nine-Months Ended
September 30 September 30
-------------------------- -------------------------
1999 1998 1999 1998
-------- --------- -------- --------
Net sales
Stainless steel $13,555 $12,393 $37,813 $44,085
Tool steel 1,347 1,292 4,282 5,985
High temperature alloy steel 447 631 1,649 3,276
Conversion services 365 784 1,507 3,324
Other 396 877 832 2,819
----------- ---------- -------- ----------
Total net sales $16,110 $15,977 $46,083 $59,489
----------- ---------- -------- ----------
Cost of products sold
Raw materials 6,004 5,717 16,665 22,669
Other 8,206 7,424 24,446 26,271
----------- ---------- -------- ----------
Total cost of products sold 14,210 13,141 41,111 48,940
----------- ---------- -------- ----------
Selling and administrative
Expenses 1,007 1,149 2,991 3,625
----------- ---------- -------- ----------
Operating income $ 893 $ 1,687 $ 1,981 $ 6,924
=========== ========== ======== ==========
THREE-AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE SIMILAR
PERIODS IN 1998
The increase in net sales for the three-month period ended September 30, 1999 as
compared to the similar period in 1998 is primarily due to higher shipments of
reroller products and power generation products, which was partially offset by
lower shipments of aerospace products and reduced levels of conversion services.
The decrease in net sales for the nine-month period ended September 30, 1999 as
compared to the similar period in 1998 reflects decreased shipments within each
product line primarily due to imports. The Company shipped approximately 10,625
and 10,594 tons for the three-month periods ended September 30, 1999 and 1998,
respectively, and 32,108 and 38,854 tons for the nine-month periods ended
September 30, 1999 and 1998.
Costs of products sold, as a percentage of net sales, was 88.2% and 82.2% for
the three-month periods ended September 30, 1999 and 1998, respectively, and was
89.2% and 82.3% for the nine-month periods ended September 30, 1999 and 1998,
respectively. The increase is primarily attributed to the lower pricing
resulting from foreign competition described above, increased raw material costs
and increased energy costs. Mechanical problems at the Bridgeville bar mill
during the three-month period ended March 31, 1999 and start-up costs incurred
at the Bridgeville round bar facility also contributed to the increased
production costs for the first nine months of 1999.
Selling and administrative costs decreased $142,000 for the three-month period
ended September 30, 1999 as compared to September 30, 1998 and decreased
$634,000 for the nine-month period ended September 30, 1999 as compared to
September 30, 1998. The 1999 decrease is primarily due to lower charges to the
cash incentive plans, sales commissions and insurance costs.
Other income (expense), net decreased $41,000 in the three-month period ended
September 30, 1999 as compared to the three-month period ended September 30,
1998 and decreased $442,000 in the nine-month period ended September 30, 1999 as
compared to the nine-month period ended September 30, 1998. The decreases were
primarily due to interest expense associated with increased borrowings. In
addition, other income (expense), net for
7
the nine-month period ended September 30, 1998 included the benefit of a
$200,000 government grant received in connection with the expansion of
operations at the Bridgeville facility.
The effective income tax rate utilized in the three-and nine-month periods ended
September 30, 1999 and 1998 was 37.0%.
FINANCIAL CONDITION
The Company has financed its 1999 operating 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 4.3:1 at December
31, 1998 to 3.1:1 at September 30, 1999. The percentage of debt to
capitalization was 23% at December 31, 1998 and at September 30, 1999. The
decrease in the ratio of current assets to current liabilities is primarily due
to an increase in accounts payable, an increase in the current portion of long-
term debt and the repurchase of Common Stock. The Company repurchased 163,700
shares of Common Stock at an average price of $6.04 per share during the nine-
month period ended September 30, 1999. The Company is authorized to repurchase
an additional 76,300 shares.
The Company's capital expenditures approximated $2.8 million for the nine-month
period ended September 30, 1999, which primarily related to the completion of
the round bar finishing facility located at the Bridgeville facility. At
September 30, 1999, the Company had outstanding purchase commitments in addition
to the expenditures incurred to date of approximately $0.5 million. These
expenditures are expected to be funded substantially from internally generated
funds and additional borrowings. As of September 30, 1999, the Company had $6.2
million available for borrowings under a revolving line of credit with PNC Bank.
The Company anticipates that it will continue to fund its 1999 working capital
requirements, its capital expenditures and the stock repurchase program
primarily from funds generated from operations and borrowings under its credit
facility. 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.
YEAR 2000
The following statements are provided pursuant to the provisions of the Year
2000 Information and Readiness Disclosure Act of 1998.
Since inception in August 1994, the Company has been engaged in a program to
modernize and replace its computerized production control and management
information systems. Although not the primary purpose of the program, the new
systems were designed to avoid any Year 2000 problems that might otherwise
arise. In addition, the Company has identified and tested all other critical
pieces of equipment and has not identified any non-compliance issues not
corrected as of September 30, 1999. Therefore, the Company believes that its
internal systems will be Year 2000 compliant in all material respects.
The Company currently believes the most significant impact of the Year 2000
issue could be an interrupted supply of goods and services from the Company's
vendors and an interrupted supply of orders from the Company's customers. In
order to assess the state of readiness, surveys sent to all major vendors and
customers confirmed that efforts to become Year 2000 compliant are, at a
minimum, in process. The Company is continuing to monitor the progress of its
significant customers and suppliers and will implement it's contingency plans,
if necessary.
OUTLOOK
The Company anticipates that its 1999 fourth quarter sales will be higher than
1999 third quarter sales due to increased demand and higher selling prices
resulting from the pass through of higher raw material costs. An improved sales
mix caused by increased demand for power generation products and the successful
implementation of several initiatives to improve the Company's production
capabilities for bar mill products are expected to improve the Company's results
in the 1999 fourth quarter in comparison to the prior 1999 quarters.
8
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISKS
The Company has reviewed the status of its market risk and believes there are no
significant changes from that disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
9
Part II. OTHER INFORMATION
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
September 30, 1999.
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 5, 1999 /s/ Clarence M. McAninch
--------------------------- -------------------------------------------
Clarence M. McAninch
President and Chief Executive Officer
Date: November 5, 1999 /s/ Richard M. Ubinger
--------------------------- -------------------------------------------
Richard M. Ubinger
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
11
5
1,000
9-MOS
DEC-31-1999
JAN-01-1999
SEP-30-1999
296
0
11,779
(403)
17,157
30,475
41,796
4,794
67,762
9,939
0
0
0
6
42,547
67,762
46,083
46,083
41,112
41,112
2,991
45
0
1,484
549
935
0
0
0
935
.15
.15
