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 September 30, 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 November 13, 2000, there were 6,076,839 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 Unaudited Consolidated Condensed Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results 7 of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 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 For the Three-month period ended Nine-month period ended September 30, September 30, ------------------------------- ------------------------------ 2000 1999 2000 1999 ------- ------- ------- ------- Net sales $20,809 $16,110 $57,910 $46,083 Cost of products sold 16,839 14,210 47,469 41,111 Selling and administrative expenses 1,271 1,007 3,806 2,991 ------- ------- ------- ------- Operating income 2,699 893 6,635 1,981 Interest expense and other financing costs (233) (179) (667) (514) Other income (expense), net (26) 9 (48) 18 ------- ------- ------- ------- Income before taxes 2,440 723 5,920 1,485 Income taxes 1,002 268 2,220 550 ------- ------- ------- ------- Net income $ 1,438 $ 455 $ 3,700 $ 935 ======= ======= ======= ======= Earnings per common share Basic $ 0.24 $ 0.07 $ 0.61 $ 0.15 ======= ======= ======= ======= Diluted $ 0.24 $ 0.07 $ 0.61 $ 0.15 ======= ======= ======= ======= 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, 2000 December 31, 1999 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 303 $ 868 Accounts receivable (less allowance for doubtful accounts of $463 and $418) 15,107 12,113 Inventory 19,109 15,730 Other current assets 1,266 1,564 ------- ------- Total current assets 35,785 30,275 Property, plant and equipment, net 38,383 36,989 Other assets 647 915 ------- ------- Total assets $74,815 $68,179 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable and bank overdrafts $ 7,927 $ 6,584 Current portion of long-term debt 1,818 1,836 Accrued employment costs 1,752 727 Other current liabilities 613 328 ------- ------- Total current liabilities 12,110 9,475 Long-term debt 9,374 10,005 Deferred taxes 5,953 5,046 ------- ------- Total liabilities 27,437 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; and 0 shares issued and outstanding -- -- Common Stock, par value $.001 per share; 10,000,000 shares authorized; 6,334,739 and 6,330,416 shares issued 6 6 Additional paid-in capital 25,863 25,838 Retained earnings 23,053 19,353 Treasury Stock at cost; 257,900 common shares held (1,544) (1,544) ------- ------ Total stockholders' equity 47,378 43,653 ------- ------- Total liabilities and stockholders' equity $74,815 $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 Nine-month period ended September 30, 2000 1999 ------- ------- Cash flow from operating activities: Net income $ 3,700 $ 935 Adjustments to reconcile to net cash and cash equivalents provided by operating activities: Depreciation and amortization 1,820 1,549 Deferred taxes 927 1,087 Changes in assets and liabilities: Accounts receivable, net (2,994) (2,533) Inventory (3,379) (975) Trade accounts payable and bank overdrafts 1,343 2,578 Accrued employment costs 1,025 (156) Other, net 867 523 ------- ------- Net cash provided by operating activities 3,309 3,008 ------- ------- Cash flow from investing activities: Capital expenditures (3,250) (2,825) ------- ------- Net cash used in investing activities (3,250) (2,825) ------- ------- Cash flow from financing activities: Proceeds from issuance of Common Stock 25 26 Net borrowing under revolving line of credit 724 285 Long-term debt payments (1,373) (662) Purchase of Treasury Stock -- (973) ------- ------- Net cash used in financing activities (624) (1,324) ------- ------- Net decrease in cash (565) (1,141) Cash and cash equivalents at beginning of period 868 1,437 ------- ------- Cash and cash equivalents at end of period $ 303 $ 296 ======= ======= Supplemental disclosure of cash flow information: Interest paid (net of amount capitalized) $ 551 $ 560 Income taxes paid $ 1,081 $ 158 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, 2000 and 1999, balance sheets as of September 30, 2000 and December 31, 1999, and statements of cash flows for the nine-month periods ended September 30, 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 September 30, 2000 and December 31, 1999 and the consolidated results of operations and of cash flows for the periods ended September 30, 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 For the Three-month period ended Nine-month period ended September 30, September 30, 2000 1999 2000 1999 --------- --------- --------- --------- Weighted average number of shares of Common Stock outstanding 6,076,839 6,097,417 6,073,973 6,121,108 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 4,888 -- 4,121 -- --------- --------- --------- --------- Weighted average number of shares of Common Stock outstanding, as adjusted 6,081,727 6,097,417 6,078,094 6,121,108 ========= ========= ========= ========= 3) The major classes of inventory are as follows (dollars in thousands): September 30, 2000 December 31, 1999 Raw materials and supplies $ 1,942 $ 2,427 Semi-finished and finished steel products 14,014 10,208 Operating materials 3,153 3,095 ------- ------- Total inventory $19,109 $15,730 ======= ======= 5

4) Property, plant and equipment consists of the following (dollars in thousands): September 30, 2000 December 31, 1999 Land and land improvements $ 822 $ 822 Buildings 3,889 3,337 Machinery and equipment 39,686 37,329 Construction in progress 1,115 835 ------- ------- 45,512 42,323 Accumulated depreciation (7,129) (5,334 ------- ------- Property, plant and equipment, net $38,383 $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- and nine-month periods ended September 30, 2000 and 1999 are as follows (dollars in thousands): For the For the Three-Month Period Ended Nine-Month Period Ended September 30, September 30, 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Net sales Stainless steel $17,110 $13,555 $47,279 $37,813 Tool steel 1,794 1,347 6,049 4,282 High temperature alloy steel 503 447 1,268 1,649 Conversion services 814 365 1,602 1,507 Other 588 396 1,712 832 ------- ------- -------- ------- Total net sales $20,809 $16,110 $57,910 $46,083 ------- ------- -------- ------- Cost of products sold Raw materials 7,277 6,004 20,819 16,665 Other 9,562 8,206 26,650 24,446 ------- ------- -------- ------- Total cost of products sold 16,839 14,210 47,469 41,111 Selling and administrative expenses 1,271 1,007 3,806 2,991 Operating income $ 2,699 $ 893 $ 6,635 $ 1,981 ======= ======= ======== ======= Three- and nine-month periods ended September 30, 2000 as compared to the similar periods in 1999 The increase in net sales for the three- and nine-month periods ended September 30, 2000 as compared to the similar periods in 1999 reflects an improved sales mix of products and price increases to cover higher material and energy costs. The Company shipped approximately 11,600 tons and 10,600 tons for the three- month periods ended September 30, 2000 and 1999, respectively, and 32,100 tons for each of the nine-month periods ended September 30, 2000 and 1999. The improved sales mix of products was primarily due to increased shipments of power generation, aerospace and petrochemical products to the Company's reroller and forging market customers, and tool steel and bar mill products to the Company's service center customers. In addition, sales revenue from special shape products shipped to original equipment manufacturers increased by 19% and 42% for the three-and nine-month periods ended September 30, 2000 in comparison to the similar periods in 1999. Cost of products sold, as a percentage of net sales, was 80.9% and 88.2% for the three-month periods ended September 30, 2000 and 1999, respectively, and was 82.0% and 89.2% for the nine-month periods ended September 30, 2000 and 1999, respectively. This decrease is primarily due to the impact of the change in the mix of products shipped, improved operating results at the bar mill and higher sales prices. Selling and administrative expenses increased $264,000 in the three-month period ended September 30, 2000 and $815,000 for the nine-month period ended September 30, 2000 as compared to year-ago periods. The increases reflect higher employment costs and a non-recurring pre-tax bad debt charge of $142,000 recognized in the three-month period ended June 30, 2000. Interest expense and other financing costs increased by $54,000 in the three- month period ended September 30, 2000 as compared to the three-month period ended September 30, 1999 and increased $153,000 in the nine-month period ended September 30, 2000 as compared to the nine-month period ended September 30, 1999. The increases were primarily due to a reduction in capitalized interest, higher interest rates on the PNC Term Loan and interest expense associated with increased borrowings from the PNC revolving credit facility ("PNC Line"). 7

During the three-month period ended September 30, 2000, the Company increased the estimated annual effective income tax rate to 37.6%. This compares to a rate of 37.0% used for the three- and nine-month periods ended September 30, 1999. 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. FINANCIAL CONDITION The Company has financed its 2000 operating activities through cash flows from operations, cash on hand and borrowings from the PNC Line. At September 30, 2000, working capital approximated $23.7 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 3.0:1 at September 30, 2000. The debt to capitalization was 19% at September 30, 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 and an increase in liabilities to fund operations due to an increase in product demand and higher raw material and energy costs. The Company's capital expenditures approximated $3.3 million for the nine-month period ended September 30, 2000, which primarily relates to the installation of a new billet grinder, overhead crane and building repairs at the Bridgeville facility. At September 30, 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 September 30, 2000, the Company has $5.8 million available for borrowings under the PNC Line. There were no shares of Common Stock repurchased by the Company during the nine- month period ended September 30, 2000. The Company is authorized to repurchase an additional 57,100 shares of Common Stock as of September 30, 2000. The Company anticipates that it will continue to 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 current backlog continues to reflect strong demand for power generation, aerospace and petrochemical products. However, the combination of increased imports and higher than normal inventory levels is resulting in a softening of the service center market. While this will have an impact on revenues for the three-month period ended December 31, 2000, we believe the current year levels of profitability can be sustained. NEW ACCOUNTING PRONOUNCEMENTS Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998, and amended in June 1999 and in June 2000, pursuant to FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" and FASB Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities: an amendment of FASB No. 133", respectively. These statements require that an entity recognize certain derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The adoption of these statements, beginning January 1, 2001, is not expected to impact the Company's results of operations or financial condition. 8

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 101 is not expected to have a material impact on the Company's results of operations or financial condition. 9

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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. 10

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, 2000. 11

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 13, 2000 /s/ Clarence M. McAninch -------------------------- ----------------------------------------------------------- Clarence M. McAninch President, Chief Executive Officer and Director (Principal Executive Officer) Date: November 13, 2000 /s/ Richard M. Ubinger --------------------------- ----------------------------------------------------------- Richard M. Ubinger Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 12

5 This schedule contains summary financial information extracted from the September 30, 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 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 303 0 15,570 (463) 19,109 35,785 45,512 (7,129) 74,815 12,110 9,374 0 0 6 47,372 74,815 57,901 57,910 47,469 47,469 3,806 184 667 5,920 2,220 3,700 0 0 0 3,700 .61 .61