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, 1996
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)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock
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 June 30, 1996, there were 6,270,000 shares of the Registrant's Common
Stock issued and outstanding.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time 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 in future periods
to be materially different from any 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. Condensed Consolidated Statements of Operations 1
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 7
Item 2. Changes in Securities 7
Item 3. Defaults Upon Senior Securities 7
Item 4. Submission of Matters to a Vote of Securityholders 7
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Part I. Financial Information
Item 1. Financial Statements
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED 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
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $14,565 $13,916 $27,174 $24,521
Cost of products sold 11,687 11,842 22,331 21,387
------------ ------------ ------------ ------------
Gross profit 2,878 2,074 4,843 3,134
Selling and administrative expenses 1,371 864 2,374 1,510
------------ ------------ ------------ ------------
Operating income 1,507 1,210 2,469 1,624
Interest and other income 60 32 165 72
Interest and other financing costs (37) (125) (61) (202)
------------ ------------ ------------ ------------
Income before taxes 1,530 1,117 2,573 1,494
Income taxes 581 300 977 402
------------ ------------ ------------ ------------
Net income $949 $817 $1,596 $1,092
============ ============ ============ ============
Net income per share of Common Stock $0.15 $0.18 $0.25 $0.24
============ ============ ============ ============
Weighted average number of shares of
Common Stock outstanding 6,270,000 4,570,000 6,270,000 4,560,495
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, 1996 December 31, 1995
------------ -----------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $3,057 $10,038
Accounts receivable (less allowance for doubtful accounts of
$208 and $178) 12,549 7,832
Inventory (Note 2) 10,424 7,105
Prepaid Expenses 489 470
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Total current assets 26,519 25,445
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Property, plant and equipment 12,257 6,928
Accumulated depreciation (440) (264)
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Net property, plant and equipment 11,817 6,664
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Other assets 389 328
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Total assets $38,725 $32,437
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $7,342 $4,085
Bank overdrafts 1,028 992
Current portion of long-term debt 137 73
Accrued employment costs 1,062 687
Other current liabilities 756 547
------------- -------------
Total current liabilities 10,325 6,384
Long-term debt 1,213 462
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Total liabilities 11,528 6,846
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Commitments and contingencies (Note 3) -- --
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;6,270,000 shares issued and outstanding 6 6
Additional paid-in capital 25,338 25,338
Retained earnings 1,843 247
------------- -------------
Total stockholders' equity 27,187 25,591
------------- -------------
Total liabilities and stockholders' equity $38,725 $32,437
============= =============
The accompanying notes are an integral part of these financial statements.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the For the
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------- -----------------
Cash flow from operating activities:
Net income $1,596 $1,092
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization 217 112
Changes in assets and liabilities:
Accounts receivable, net (4,717) (6,114)
Inventory (3,319) (795)
Accounts payable and bank overdrafts 3,293 2,292
Accrued employment costs 375 465
Other, net 159 47
----------------- -----------------
Net cash used by operating activities (2,396) (2,901)
----------------- -----------------
Cash flows from investing activities:
Acquisition of assets through purchase agreement (Note 1) -- (807)
Capital expenditures (5,105) (1,003)
----------------- -----------------
Net cash used by investing activities (5,105) (1,810)
----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 600 --
Proceeds from issuance of Common Stock -- 353
Net borrowing under revolving line of credit -- 3,406
Long-term debt payments (55) (5)
Deferred financing costs (25) (15)
----------------- -----------------
Net cash provided by financing activities 520 3,739
----------------- -----------------
Net decrease in cash (6,981) (972)
Cash at beginning of period 10,038 3,123
----------------- -----------------
Cash at end of period $3,057 $2,151
================= =================
Supplemental disclosure of cash flow information:
Interest paid $60 $119
Income taxes paid $938 $130
The accompanying notes are an integral part of these financial statements.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) Universal Stainless & Alloy Products, Inc. (the "Company"), was
incorporated in June 1994, and is the successor by merger (the
"Merger") to a corporation incorporated in January 1994, for the
principal purpose of acquiring substantially all of the idled
equipment and related assets (the "Assets") located at the
Bridgeville, Pennsylvania, production facility of Armco, Inc.
("Armco"). On August 15, 1994, the Company entered into an Asset
Purchase Agreement (the "Asset Agreement") with Armco to purchase the
Assets.
On June 2, 1995, the Company and Armco entered into an Asset and Real
Property Purchase Agreement (the "Purchase Agreement") pursuant to
which the Company agreed to buy the precision rolled products business
(the "PRP Business") and the vacuum arc remelting equipment (the "VAR
Assets") of Armco's Cytemp Division located in Titusville,
Pennsylvania (the "PRP Division).
The accompanying unaudited, condensed consolidated statements of
operations for the three- and six-month periods ended June 30, 1996
and 1995, balance sheets at June 30, 1996 and December 31, 1995, and
statement of cash flows for the six-month periods ended June 30, 1996
and 1995 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 period ended December 31, 1995.
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, 1996 and 1995, and are
not necessarily indicative of the results to be expected for the full
year.
2) The major classes of inventory are as follows (dollars in thousands):
June 30, 1996 December 31, 1995
------------- -----------------
Raw materials and supplies $1,558 $1,473
Semi-finished steel products 7,211 4,278
Operating materials 1,655 1,354
============ =============
Total inventory $10,424 $7,105
============ =============
3) 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, 1995.
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, 1996 and 1995 were as follows ( dollars in
thousands):
Three-month period ended June 30, Six-month period ended June 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales
Stainless steel $11,038 $10,819 $20,509 $19,028
Tool steel 2,379 1,607 4,360 2,956
Conversion services 997 1,327 1,730 1,889
Other 151 163 575 648
--------------- -------------- --------------- --------------
Total net sales $ 14,565 $ 13,916 $ 27,174 $ 24,521
--------------- -------------- --------------- --------------
Cost of products sold
Raw materials 5,693 7,151 10,980 13,153
Other 5,994 4,691 11,351 8,234
--------------- -------------- --------------- --------------
Total cost of products sold 11,687 11,842 22,331 21,387
--------------- -------------- --------------- --------------
Gross profit $2,878 $2,074 $4,843 $3,134
=============== ============== =============== ==============
THREE- AND SIX- MONTH PERIODS ENDED JUNE 30, 1996 VS. THREE-AND
SIX-MONTH PERIODS ENDED JUNE 30, 1995
The increase in net sales for the three- and six-month periods ended June 30,
1996 as compared to the similar periods in 1995 reflects the operating results
of the PRP Business and VAR Assets that were acquired in June 1995, and an
increase in shipments of tool steel. This increase was partially offset by a
decrease in sales to the Reroller market as a result of generally soft market
conditions in that area due to imports.
Cost of products sold, as a percent of net sales, was 80.2% and 85.1% for the
three-month periods ended June 30, 1996 and 1995, respectively, and was 82.2%
and 87.2% for the six-month periods ended June 30, 1996 and 1995, respectively.
This improvement is primarily due to lower acquisition costs for the Company's
primary raw materials which was partially offset by the level of manufacturing
required by the mix of products sold in 1996. First quarter 1996 results were
also adversely affected by lower than expected manufacturing yields experienced
on production of both tool steel and forging billets. During the three-month
period ended June 30, 1996, manufacturing yields returned to, and in certain
areas exceeded, the manufacturing yields experienced in 1995.
Selling and administrative expenses increased from $864,000 and $1,510,000 in
the three-and six-month periods ended June 30, 1995 to $1,371,000 and
$2,374,000 in the three- and six-month periods ended June 30, 1996. The
increases primarily relate to insurance costs and the addition of personnel as
a result of the continued growth of the business, including the acquisition of
the PRP Business and VAR Assets.
Operating income for the three- and six-month periods ended June 30, 1996
included a one-time pretax charge of $153,000 for the issuance of common stock
to 117 company employees.
Interest and other income increased to $60,000 and $165,000 in the three- and
six-month periods ended June 30, 1996 as compared to $32,000 and $72,000 in the
three- and six-month periods ended June 30, 1995 due to an increase in cash
available for investing purposes. The increased cash availability is directly
related to the sale of 1,700,000 shares of Common Stock in a public offering
completed in November 1995. In addition, the Company did not borrow funds under
its $6.5 million revolving line of credit which resulted in a decrease in
interest and other financing costs from $125,000 and $202,000 in the three- and
six-month periods ended June 30, 1995 to $37,000 and $61,000 in the three-and
six-month periods ended June 30, 1996.
The effective income tax rates utilized in the three-and six-month periods
ended June 30, 1996 and 1995 were 38.0% and 27.0%, respectively. The lower
effective income tax rate in the 1995 periods reflect the recognition of the
benefit of net operating loss carryforwards generated in 1994. The effective
income tax rate was ultimately adjusted to 8.1% based on the actual results of
operations for the year ended December 31, 1995.
Financial Condition
The Company has primarily financed its 1996 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 4.0:1 at December
31, 1995 to 2.6:1 at June 30, 1996 primarily due to the funding of capital
expenditures during 1996.
Accounts receivable, net increased by $4.7 million for the six-month period
ended June 30, 1996 as compared to an increase of $6.1 million for the
six-month period ended June 30, 1995. Inventory increased by $3.3 million for
the six-month period ended June 30, 1996 as compared to an increase of $0.8
million for the six-month period ended June 30, 1995. Accounts payable and bank
overdrafts increased by $3.3 million for the six-month period ended June 30,
1996 as compared to an increase of $2.3 million for the six-month period ended
June 30, 1995. Each of these increases can be primarily attributed to the
continued growth of the business since its formation in August 1994.
The increase in long term debt is due to the issuance of a $400,000 loan from
the Commonwealth of Pennsylvania's Business Infrastructure Development Program
in March 1996 and a $200,000 loan from the Commonwealth of Pennsylvania's
Economic Development Program in April 1996. The Company also entered into a
$270,000, 5-year capital lease for mobile equipment in June 1996.
The Company maintains a $6.5 million revolving credit facility through April
1998. In addition, the Company continues to seek low-interest government
financing opportunities to supplement the liquidity available to fund its
capital expenditures. In August 1996, the Company executed a commitment letter
with the County of Allegheny's Department of Development to enter into a $1.5
million, 10-year loan agreement at a 6% interest rate.
Capital Expenditure Program
The Company's capital expenditures approximated $5.1 million in the six-month
period ended June 30, 1996, bringing aggregate expenditures under its 1995-96
capital expenditures program to $7.2 million. At June 30, 1996, the Company has
outstanding purchase commitments in addition to the expenditures incurred to
date of approximately $4.1 million. Planned projects at the Company's Melt
Shop, Electro-Slag Remelt Shop and Universal Rolling Mill are in process and
are expected to provide full benefit to the Company in the 1996 fourth quarter.
In the opinion of the Company's management, the most important capital
expenditures planned for 1996 were the acquisition of an oil quench facility
for heat treatment of power generation products and a roller leveler to flatten
plate products. These acquisitions would significantly reduce, if not
eliminate, the Company's dependence on outside conversion sources for these
critical processing steps. The acquisition of the oil quench facility has been
delayed due to the uncertainties surrounding the Company's level of
participation in the power generation market. The Company continues to hold
substantive discussions with its major power generation customers to seek a
better understanding of the long-term prospects to justify proceeding with this
project. The roller leveler was delivered in August 1996 and is expected to
begin processing material projected for September shipment.
1996 Outlook
The soft market conditions experienced in the Reroller market segment during
1996 continue due to pressure from imports of rod, wire, bar and slab products.
Strong growth in the sales of tool steel products, entry into certain finished
bar product niches, and steady performance by our forging billet and Titusville
special shapes businesses are expected to partially offset the lower Reroller
market sales activity. In light of several factors including the additional
capacity for higher margin tool steel that will be available in August and
other benefits derived from our capital expenditure program, plus the
introduction of finished bar products, the Company expects second half results
to be greater than those achieved in the first half of the year.
Part II. Other Information
Item 1. Legal Proceedings
There are no legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
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 22, 1996, for the purpose of
electing a board of directors, and approving the appointment of
auditors, the amendments to the Company's 1994 Stock Incentive
Plan and the adoption of the Company's 1996 Employee Stock
Purchase Plan. Proxies for the 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 management's nominees for directors as listed in the proxy
statement were elected by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Withheld" Shares Not Voted
D. DeCola, Sr. 4,566,323 0 5,350 0
O. Gadiesh 4,546,023 0 25,650 0
G. Keane 4,566,323 0 5,350 0
C. McAninch 4,566,323 0 5,350 0
U. Toledano 4,566,323 0 5,350 0
D. Wise 4,546,323 0 25,350 0
The appointment of Price Waterhouse LLP as independent auditor was
approved by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted
4,564,923 1,600 5,150 0
The amendments to the Company's 1994 Stock Incentive Plan was
approved by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted
4,266,997 273,322 6,000 25,354
The adoption of the Company's 1996 Employee Stock Purchase Plan
was approved by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted
4,498,329 25,000 5,750 42,594
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
27.1 Financial Data Schedule
The following reports on Form 8-K were filed during the second
quarter of 1996:
b. The Company's Current Report on Form 8-K, dated May 3, 1996.
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 12, 1996 /s/ Clarence M. McAninch
------------------------ --------------------------------------
Clarence M. McAninch
President and Chief Executive Officer
Date: August 12, 1996 /s/ Richard M. Ubinger
------------------------ --------------------------------------
Richard M. Ubinger
Chief Financial Officer,
Principal Accounting Officer
and Treasurer