SEC Filing | Universal Stainless, Inc.

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, 2000 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, 2000, there were 6,072,516 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 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 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 Operations 2 Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Cash Flows 4 Notes to the Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and 7 Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market 9 Risk 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-month period ended March 31, 2000 1999 ---- ---- Net sales $18,089 $14,488 Cost of products sold 15,403 12,961 Selling and administrative expenses 1,102 1,014 ------------- ------------- Operating income 1,584 513 Interest expense and other financing costs (222) (146) Other income (expense), net 16 -- ------------- ------------- Income before taxes 1,378 367 Income taxes 482 136 ------------- ------------- Net income $ 896 $ 231 ============= ============= Earnings per common share Basic $ 0.15 $ 0.04 ============= ============= Diluted $ 0.15 $ 0.04 ============= ============= 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, 2000 December 31, 1999 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 269 $ 868 Accounts receivable (less allowance for doubtful accounts of $433 and $418) 12,401 12,113 Inventory 18,429 15,730 Other current assets 1,668 1,564 --------- --------- Total current assets 32,767 30,275 Property, plant and equipment, net 37,427 36,989 Other assets 1,026 915 --------- --------- Total assets $ 71,220 $ 68,179 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable and bank overdrafts $ 8,082 $ 6,584 Current portion of long-term debt 1,838 1,836 Accrued employment costs 1,046 727 Other current liabilities 904 328 --------- --------- Total current liabilities 11,870 9,475 Long-term debt 9,548 10,005 Deferred taxes 5,253 5,046 --------- --------- Total liabilities 26,671 24,526 --------- --------- Commitments and contingencies -- -- Stockholders' equity Senior Preferred Stock, par value $.001 per share; liquidation value $100 per share; 2,000,000 shares authorized; 0 shares issued and outstanding -- -- Common Stock, par value $.001 per share; 10,000,000 shares authorized; 6,330,416 and 6,330,416 shares issued & outstanding 6 6 Additional paid-in capital 25,838 25,838 Retained earnings 20,249 19,353 Treasury Stock at cost; 257,900 and 257,900 common shares (1,544) (1,544) --------- --------- Total stockholders' equity 44,549 43,653 --------- --------- Total liabilities and stockholders' equity $ 71,220 $ 68,179 ========= ========= 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, 2000 1999 ---- ---- Cash flow from operating activities: Net income $ 896 $ 231 Adjustments to reconcile to net cash and cash equivalents Provided by operating activities: Depreciation and amortization 561 480 Deferred taxes 65 322 Changes in assets and liabilities: Accounts receivable, net (288) (1,659) Inventory (2,699) 61 Trade accounts payable and bank overdrafts 1,498 1,491 Other, net 818 696 ----------- ----------- Net cash provided by operating activities 851 1,622 ----------- ----------- Cash flow from investing activities: Capital expenditures (995) (1,697) ----------- ----------- Net cash used in investing activities (995) (1,697) ----------- ----------- Cash flow from financing activities: Net borrowing under revolving line of credit -- 117 Long-term debt payments (455) (103) Purchase of Treasury Stock -- (875) ----------- ----------- Net cash used in financing activities (455) (861) ----------- ----------- Net decrease in cash (599) (936) Cash and cash equivalents at beginning of period 868 1,437 ----------- ----------- Cash and cash equivalents at end of period $ 269 $ 501 =========== =========== Supplemental disclosure of cash flow information: Interest paid (net of amount capitalized) $ 96 $ 105 Income taxes paid $ 178 $ 3 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-month periods ended March 31, 2000 and 1999, balance sheets as of March 31, 2000 and December 31, 1999, and statements of cash flows for the three-month periods ended March 31, 2000 and 1999 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, 1999. 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 financial position at March 31, 2000 and December 31, 1999 and the consolidated results of operations and of cash flows for the three-month periods ended March 31, 2000 and 1999, and are not necessarily indicative of the results to be expected for the full year. 2) 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-Month Periods Ended March 31, 2000 1999 ---- ---- Weighted average number of shares of Common Stock outstanding 6,072,516 6,163,314 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 3,568 -- ----------- ----------- Weighted average number of shares of Common Stock outstanding, as adjusted 6,076,084 6,163,314 =========== =========== 3) The major classes of inventory are as follows (dollars in thousands): March 31, 2000 December 31, 1999 Raw materials and supplies $ 2,535 $ 2,427 Semi-finished and finished steel products 12,742 10,208 products Operating materials 3,152 3,095 -------------- ----------------- Total inventory $18,429 $15,730 ============== ================= 5

4) Property, plant and equipment consists of the following (dollars in thousands): March 31, 2000 December 31, 1999 Land and land improvements $ 822 $ 822 Buildings 3,344 3,337 Machinery and equipment 37,377 37,329 Construction in progress 1,775 835 ------------------- ------------------- 43,318 42,323 Accumulated depreciation (5,891) (5,334) ------------------- ------------------- Property, plant and equipment, net $ 37,427 $ 36,989 =================== =================== 5) 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, 1999. 6

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS An analysis of the Company's operations for the three-month periods ended March 31, 2000 and 1999 is as follows (dollars in thousands): For the Three-Month Periods Ended March 31, 2000 1999 ---- ---- Net sales Stainless steel $14,565 $11,875 Tool steel 2,227 1,457 High temperature alloy steel 367 646 Conversion services 340 473 Other 590 37 --------------- ---------------- Total net sales $18,089 $14,488 --------------- ---------------- Cost of products sold Raw materials 6,589 4,963 Other 8,814 7,998 --------------- ---------------- Total cost of products sold 15,403 12,961 --------------- ---------------- Selling and administrative expenses 1,102 1,014 --------------- ---------------- Operating income $ 1,584 $ 513 =============== ================ Three-month period ended March 31, 2000 as compared to the similar period in 1999 The increase in net sales for the three-month period ended March 31, 2000 as compared to the similar period in 1999 reflects increased shipments within the forger, OEM and service center markets, partially offset by reduced shipments to the reroller market and conversion customers, as well as higher selling prices. The Company shipped approximately 10,800 tons during the three-month period ended March 31, 2000, compared to approximately 10,200 tons during the three- month period ended March 31, 1999. The increase in net sales and shipments resulted from an increased demand for product from the power generation industry, increased shipments of tool steel and finished bar products to the service center market and higher selling prices. The higher selling prices were a direct result of the implementation of an alloy surcharge mechanism in conjunction with rising raw material costs, and by the price increases placed into effect after September 1999. Cost of products sold, as a percent of net sales, was 85.2% and 89.5% for the three-month periods ended March 31, 2000 and 1999, respectively. This decrease is primarily due to the impact of the alloy surcharge mechanism and sales price increases in effect during the three-month period ended March 31, 2000. Selling and administrative expenses remained relatively constant between 1999 and 2000. Interest expense and other financing costs increased from $146,000 for the three-month period ended March 31, 1999 to $222,000 for the three-month period ended March 31, 2000 primarily due to a reduction in capitalized interest and higher interest rates on the PNC Term Loan. The effective income tax rate utilized in the three-month periods ended March 31, 2000 and 1999 was 35% and 37%, respectively. The effective income tax rate utilized in the current period reflects the anticipated effect of the Company's permanent tax deductions against expected income levels in 2000. 7

FINANCIAL CONDITION The Company has financed its operating activities during the three-month period ended March 31, 2000 through cash flows from operations and cash on hand at the beginning of the period. At March 31, 2000, working capital approximated $20.9 million, as compared to $20.8 million at December 31, 1999. The ratio of current assets to current liabilities decreased from 3.2:1 at December 31, 1999 to 2.8:1 at March 31, 2000. The debt to capitalization ratio was 20% at March 31, 2000, and 21% at December 31, 1999. The decrease in the ratio of current assets to current liabilities is primarily due to a decrease in cash which was used to fund debt payments and an increase in liabilities to fund operations due to an increase in product demand. The Company's capital expenditures approximated $1.0 million for the three-month period ended March 31, 2000 which primarily related to the purchase of a billet grinder and other equipment for use at the Bridgeville facility. At March 31, 2000, the Company had outstanding purchase commitments in addition to the expenditures incurred to date of approximately $0.3 million. These expenditures are expected to be funded substantially from internally generated funds and additional borrowings. As of March 31, 2000, the Company had $6.5 million available for borrowings under a revolving line of credit with PNC Bank. There were no shares of Common Stock repurchased by the Company during the three-month period ended March 31, 2000. The Company is authorized to repurchase an additional 57,100 shares of Common Stock as of March 31, 2000. The Company anticipates that it will fund its 2000 working capital requirements, its capital expenditures and the stock repurchase program 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. 2000 Outlook The Company anticipates that its net sales for the three-month period ending June 30, 2000 will be higher than the three-month period ended March 31, 2000 as a result of improving demand from the power generation industry and the service center market. Net sales during the second half of 2000 can further improve over the first half of 2000 if demand from the service center market and the aerospace industry increases. 8

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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, 1999. 9

Part II. OTHER INFORMATION 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 2000. 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: May 12, 2000 /s/ Clarence M. McAninch ------------------------- ___________________________________________________________ Clarence M. McAninch President, Chief Executive Officer and Director (Principal Executive Officer) Date: May 12, 2000 /s/ Richard M. Ubinger ------------------------- ___________________________________________________________ Richard M. Ubinger Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 11

5 This schedule contains summary financial information extracted from the March 31, 2000 Financial Statements included in the Company's Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 269 0 12,834 (433) 18,429 32,766 43,318 5,891 71,220 11,870 9,548 0 0 6 44,543 71,220 18,089 18,089 15,411 15,411 1,094 15 226 1,378 482 896 0 0 0 896 0.15 0.15