usap-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019

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 000-25032

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

25-1724540

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

600 Mayer Street

Bridgeville, PA 15017

(Address of principal executive offices, including zip code)

(412) 257-7600

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class

Trading Symbol

Name of Each Exchange

on Which Registered

Common Stock, par value $0.001 per share

USAP

The NASDAQ Stock Market, LLC

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

☐  

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 21, 2019, there were 8,787,837 shares of the Registrant’s common stock outstanding.

 

 

 

i


Universal Stainless & Alloy Products, Inc.

Table of Contents

 

 

 

DESCRIPTION

 

PAGE NO.

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flow

 

4

 

 

 

 

 

 

 

Consolidated Statements of Shareholders' Equity

 

5

 

 

 

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

22

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

22

 

 

 

 

 

Item 1A.

 

Risk Factors

 

22

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

22

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

22

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

22

 

 

 

 

 

Item 5.

 

Other Information

 

22

 

 

 

 

 

Item 6.

 

Exhibits

 

23

 

 

 

 

 

SIGNATURES

 

24

 

 

 


 

Part I.

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Information)

(Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

56,568

 

$

69,056

 

$

187,836

 

$

198,864

Cost of products sold

 

 

51,260

 

 

58,631

 

 

166,052

 

 

167,472

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

5,308

 

 

10,425

 

 

21,784

 

 

31,392

Selling, general and administrative expenses

 

 

4,525

 

 

5,131

 

 

15,095

 

 

16,187

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

783

 

 

5,294

 

 

6,689

 

 

15,205

Interest expense and other financing costs

 

 

1,045

 

 

966

 

 

2,980

 

 

3,440

Other income, net

 

 

(452)

 

 

(48)

 

 

(421)

 

 

(690)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

190

 

 

4,376

 

 

4,130

 

 

12,455

Provision (benefit) for income taxes

 

 

(577)

 

 

460

 

 

55

 

 

2,376

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

767

 

$

3,916

 

$

4,075

 

$

10,079

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - Basic

 

$

0.09

 

$

0.45

 

$

0.46

 

$

1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - Diluted

 

$

0.09

 

$

0.44

 

$

0.46

 

$

1.23

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,787,837

 

 

8,699,953

 

 

8,780,590

 

 

7,931,783

Diluted

 

 

8,879,441

 

 

8,952,749

 

 

8,870,240

 

 

8,166,759

 

The accompanying notes are an integral part of these consolidated financial statements.


1


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

(Unaudited)

 

 

 

Three months ended

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

 

767

 

 

$

 

3,916

 

 

$

 

4,075

 

 

$

 

10,079

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adoption of ASU 2018-02

 

 

 

-

 

 

 

 

-

 

 

 

 

(21

)

 

 

 

-

 

Unrealized gain on foreign currency contracts

 

 

 

58

 

 

 

 

5

 

 

 

 

145

 

 

 

 

113

 

Comprehensive income

 

$

 

825

 

 

$

 

3,921

 

 

$

 

4,199

 

 

$

 

10,192

 

 

2


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Information)

 

 

 

September 30,

 

December 31,

 

 

2019

 

2018

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

1,204

 

$

3,696

Accounts receivable (less allowance for doubtful accounts of $295)

 

 

36,422

 

 

32,618

Inventory, net

 

 

140,672

 

 

134,738

Other current assets

 

 

5,756

 

 

3,756

 

 

 

 

 

 

 

Total current assets

 

 

184,054

 

 

174,808

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

175,962

 

 

177,844

Other long-term assets

 

 

1,002

 

 

668

 

 

 

 

 

 

 

Total assets

 

$

361,018

 

$

353,320

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

32,154

 

$

44,379

Accrued employment costs

 

 

3,830

 

 

7,939

Current portion of long-term debt

 

 

3,929

 

 

3,907

Other current liabilities

 

 

912

 

 

2,929

 

 

 

 

 

 

 

Total current liabilities

 

 

40,825

 

 

59,154

 

 

 

 

 

 

 

Long-term debt, net

 

 

62,155

 

 

42,839

Deferred income taxes

 

 

12,097

 

 

11,481

Other long-term liabilities, net

 

 

3,283

 

 

2,835

 

 

 

 

 

 

 

Total liabilities

 

 

118,360

 

 

116,309

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Senior preferred stock, par value $0.001 per share; 1,980,000 shares authorized; 0 shares issued and outstanding

 

 

-

 

 

-

Common stock, par value $0.001 per share; 20,000,000 shares authorized; 9,082,116 and 9,045,345 shares issued, respectively

 

 

9

 

 

9

Additional paid-in capital

 

 

94,548

 

 

93,100

Other comprehensive income

 

 

125

 

 

1

Retained earnings

 

 

150,287

 

 

146,191

Treasury stock, at cost; 294,279 and 292,855 common shares held, respectively

 

 

(2,311)

 

 

(2,290)

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

242,658

 

 

237,011

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

361,018

 

$

353,320

 

The accompanying notes are an integral part of these consolidated financial statements. 

3


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Dollars in Thousands)

(Unaudited)

 

 

 

 

Nine months ended

 

 

 

 

September 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

 

4,075

 

 

 

$

 

10,079

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

Depreciation and amortization

 

 

 

 

14,235

 

 

 

 

 

14,460

 

Deferred income tax

 

 

 

 

577

 

 

 

 

 

2,327

 

Share-based compensation expense

 

 

 

 

1,100

 

 

 

 

 

1,046

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

 

(3,804

)

 

 

 

 

(19,195

)

Inventory, net

 

 

 

 

(7,628

)

 

 

 

 

(7,890

)

Accounts payable

 

 

 

 

(9,728

)

 

 

 

 

(3,964

)

Accrued employment costs

 

 

 

 

(4,109

)

 

 

 

 

2,595

 

Income taxes

 

 

 

 

(56

)

 

 

 

 

(36

)

Other, net

 

 

 

 

(3,735

)

 

 

 

 

1,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

 

 

 

(9,073

)

 

 

 

 

729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activity:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

(13,308

)

 

 

 

 

(13,211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activity

 

 

 

 

(13,308

)

 

 

 

 

(13,211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

 

 

145,688

 

 

 

 

 

347,395

 

Payments on revolving credit facility

 

 

 

 

(123,097

)

 

 

 

 

(351,918

)

Proceeds under New Markets Tax Credit financing

 

 

 

 

-

 

 

 

 

 

2,835

 

Payments on term loan facility, finance leases, and notes

 

 

 

 

(3,424

)

 

 

 

 

(11,821

)

Payments of financing costs

 

 

 

 

-

 

 

 

 

 

(1,105

)

Proceeds from public offering, net of cash expenses

 

 

 

 

-

 

 

 

 

 

32,246

 

Proceeds from the exercise of stock options

 

 

 

 

327

 

 

 

 

 

834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

19,494

 

 

 

 

 

18,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and restricted cash

 

 

 

 

(2,887

)

 

 

 

 

5,984

 

Cash and restricted cash at beginning of period

 

 

 

 

4,091

 

 

 

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash at end of period

 

 

$

 

1,204

 

 

 

$

 

6,191

 

 

 

The following table reconciles cash and restricted cash above to the Consolidated Balance Sheets

 

 

 

 

September 30, 2019

 

 

 

September 30, 2018

 

Cash

 

 

$

 

1,204

 

 

 

$

 

33

 

Restricted cash included in other long-term assets

 

 

 

 

-

 

 

 

 

 

6,158

 

Total cash and restricted cash

 

 

$

 

1,204

 

 

 

$

 

6,191

 

 

Amounts included in restricted cash represent those funds required to be used pursuant to the construction of a new bar cell unit at the Company's Dunkirk, NY facility. These funds were obtained pursuant to the terms of the New Markets Tax Credit Program.

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in Thousands, Except Per Share Information)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

other

 

 

 

 

 

 

 

 

 

 

 

 

shares

 

 

Common

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

Treasury

 

 

 

Treasury

 

 

 

outstanding

 

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

shares

 

 

 

stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

8,752,490

 

 

$

 

9

 

 

$

 

93,100

 

 

$

 

146,191

 

 

$

 

1

 

 

 

292,855

 

 

$

 

(2,290

)

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

9,270

 

 

 

 

-

 

 

 

 

128

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Exercise of stock options

 

 

4,050

 

 

 

 

-

 

 

 

 

41

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Share-based compensation

 

 

6,401

 

 

 

 

-

 

 

 

 

432

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Net loss on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(67

)

 

 

-

 

 

 

 

-

 

Adoption of ASU 2018-02

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

21

 

 

 

 

(21

)

 

 

-

 

 

 

 

-

 

Net income

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

1,222

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Balance at March 31, 2019

 

 

8,772,211

 

 

$

 

9

 

 

$

 

93,701

 

 

$

 

147,434

 

 

$

 

(87

)

 

 

292,855

 

 

$

 

(2,290

)

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

11,182

 

 

 

 

-

 

 

 

 

152

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Exercise of stock options

 

 

600

 

 

 

 

-

 

 

 

 

17

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Share-based compensation

 

 

3,844

 

 

 

 

-

 

 

 

 

357

 

 

 

 

-

 

 

 

 

-

 

 

 

1,424

 

 

 

 

(21

)

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

154

 

 

 

-

 

 

 

 

-

 

Net income

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

2,086

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Balance at June 30, 2019

 

 

8,787,837

 

 

$

 

9

 

 

$

 

94,227

 

 

$

 

149,520

 

 

$

 

67

 

 

 

294,279

 

 

$

 

(2,311

)

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

-

 

 

 

 

-

 

 

 

 

(11

)

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Share-based compensation

 

 

-

 

 

 

 

-

 

 

 

 

332

 

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

58

 

 

 

-

 

 

 

 

-

 

Net income

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

767

 

 

 

 

-

 

 

 

-

 

 

 

 

-

 

Balance at September 30, 2019

 

 

8,787,837

 

 

$

 

9

 

 

$

 

94,548

 

 

$

 

150,287

 

 

$

 

125

 

 

 

294,279

 

 

$

 

(2,311

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


5


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in Thousands, Except Per Share Information)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

other

 

 

 

 

 

 

 

 

 

 

 

 

shares

 

 

Common

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

Treasury

 

 

 

Treasury

 

 

 

outstanding

 

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

shares

 

 

 

stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

7,257,787

 

 

$

 

8

 

 

$

 

58,514

 

 

$

 

135,529

 

 

$

 

(93

)

 

 

292,855

 

 

$

 

(2,290

)

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

4,550

 

 

 

 

-

 

 

 

 

54