SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
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
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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 March 31, 1997, there were 6,283,734 shares of the
Registrant's Common Stock, $.001 par value, outstanding.
600602.1
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 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. Consolidated Condensed Statement of Operations 1
Consolidated Condensed Balance Sheets 2
Consolidated Condensed Statements of Cash Flows 3
Notes to Consolidated Condensed 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 7
Item 6. Exhibits and Reports on Form 8-K 7
SIGNATURES 8
ii
600602.1
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,
1997 1996
---- ----
Net sales $ 18,771 $ 12,609
Cost of products sold 15,059 10,644
--------------- ---------------
Gross profit 3,712 1,965
Selling and administrative expenses 1,141 1,003
--------------- ---------------
Operating income 2,571 962
Interest and other income 41 105
Interest and other financing costs (55) (24)
--------------- ---------------
Income before taxes 2,557 1,043
Income taxes 946 396
--------------- ---------------
Net income $ 1,611 $ 647
=============== ===============
Net income per share of Common Stock $ 0.26 $ 0.10
=============== ===============
Weighted average number of shares of Common Stock outstanding 6,283,734 6,270,000
=============== ===============
The accompanying notes are an integral part of these financial statements.
1
600602.1
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1997 1996
---- ----
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 1,537 $ 4,219
Accounts receivable (less allowance for doubtful accounts of $253 and $238) 13,915 9,409
Inventory (Note 2) 12,765 9,784
Prepaid Expenses 584 629
--------------- ---------------
Total current assets 28,801 24,041
--------------- ---------------
Property, plant and equipment 20,021 18,545
Accumulated depreciation (939) (735)
--------------- ---------------
Net property, plant and equipment 19,082 17,810
--------------- ---------------
Other assets 239 247
--------------- ---------------
Total assets $ 48,122 $ 42,098
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,072 $ 5,415
Bank overdrafts 1,224 442
Current portion of long-term debt 264 260
Accrued employment costs 1,605 1,403
Other current liabilities 1,240 540
--------------- ---------------
Total current liabilities 12,405 8,060
Long-term debt 2,466 2,534
Deferred taxes 1,143 1,007
--------------- ---------------
Total liabilities 16,014 11,601
--------------- ---------------
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;
6,283,734 shares issued and outstanding 6 6
Additional paid-in capital 25,451 25,451
Retained earnings 6,651 5,040
--------------- ---------------
Total stockholder's equity 32,108 30,497
--------------- ---------------
Total liabilities and stockholders' equity $ 48,122 $ 42,098
=============== ===============
The accompanying notes are an integral part of these financial statements.
2
600602.1
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Three-month period ended
March 31,
1997 1996
---- ----
Cash flows from preoperating and operating activities:
Net income $1,611 $647
Adjustments to reconcile to net cash used by operating activities:
Depreciation and amortization 218 103
Deferred taxes 136 -
Changes in assets and liabilities:
Accounts receivable, net (4,506) (2,086)
Inventory (2,981) (2,770)
Accounts payable and bank overdrafts 3,439 2,503
Other, net 946 60
------------ -------------
Net cash used by operating activities (1,137) (1,541)
------------ -------------
Cash flows from investing activities:
Capital expenditures (1,477) (2,072)
------------ -------------
Net cash used by investing activities (1,477) (2,072)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - 400
Long-term debt repayment (64) (18)
Deferred financing costs (4) (12)
------------ -------------
Net cash provided by financing activities (68) 368
Net decrease in cash (2,682) (3,245)
Cash at beginning of period 4,219 10,038
------------ -------------
Cash at end of period $1,537 $6,793
============ =============
Supplemental disclosure of cash flow information:
Interest paid $42 $9
Income taxes paid $737 $313
The accompanying notes are an integral part of these financial statements.
3
600602.1
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1) Universal Stainless & Alloy Products, Inc. (the "Company"), was
incorporated in 1994 for the principal purpose of acquiring
substantially all of the idled equipment and related assets located at
the Bridgeville, Pennsylvania, production facility of Armco, Inc. in
August 1994.
The accompanying unaudited, consolidated condensed financial statements
as of and for the quarters ended March 31, 1997 and 1996 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, 1996. In the opinion of management, the
accompanying unaudited, 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 three-month period ended March
31, 1997 and 1996, 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):
March 31, December 31,
1997 1997
---- ----
Raw materials and supplies $2,762 $1,715
Semi-finished steel products 8,243 6,205
Operating materials 1,760 1,864
-------------- --------------
Total Inventory $12,765 $9,784
============== ==============
3) The Company has reviewed the status of its environmental contingencies
and believes there are no material changes from that disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
4
600602.1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
THREE-MONTH PERIOD ENDED MARCH 31, 1997 AS COMPARED TO THE SIMILAR PERIOD
IN 1996
The Company had net income of $1,611,000 or $0.26 per share of Common Stock for
the three-month period ended March 31, 1997, as compared to net income of
$894,000 or $0.10 per share of Common Stock for the three-month period ended
March 31, 1996.
Net sales by product line and cost of products sold were as follows (dollars in
thousands):
For the
Three-Month Period Ended March 31
1997 1996
---------------------------------- -------------------------------------
Amount % Amount %
--------------- --------------- ---------------- -----------------
Net sales
Stainless steel $ 14,723 78.4% $ 9,471 75.1%
Tool steel 2,041 10.9% 1,981 15.7%
Conversion services 1,142 6.1% 733 5.8%
Other 865 4.6% 424 3.4%
--------------- --------------- ---------------- -----------------
Total net sales $ 18,771 100.0% $ 12,609 100.0%
--------------- --------------- ---------------- -----------------
Cost of products sold
Raw materials 7,683 40.9% 5,287 41.9%
Other 7,376 39.3% 5,357 42.5%
--------------- --------------- ---------------- -----------------
Total cost of products sold 15,059 80.2% 10,644 84.4%
--------------- --------------- ---------------- -----------------
Gross profit $ 3,712 19.8% $ 1,965 15.6%
=============== =============== ================ =================
The increase in net sales for the three-month period ended March 31, 1997 as
compared to the similar period in 1996 reflects increased shipments, primarily
within the reroller and forger market segments, partially offset by continued
soft pricing of stainless steel products due to imports.
Cost of products sold, as a percent of net sales, was 80.2% and 84.4% for the
three-month periods ended March 31, 1997 and 1996, respectively. This
improvement is primarily due to improved manufacturing yields and cost savings
achieved through capital improvements completed in 1996. First quarter 1996
results were adversely affected by lower than expected manufacturing yields
experienced on production of both tool steel and forging billets.
Selling and administrative expenses increased from $1,003,000 in the three-month
period ended March 31, 1996 to $1,141,000 in the three-month period ended March
31, 1997. The increase primarily relates to the addition of personnel as a
result of the continued growth of the business.
Interest and other income decreased from $105,000 in the three-month period
ended March 31, 1996 to $41,000 in the three-month period ended March 31, 1997
due to a decrease in cash available for investing purposes. The available cash
is directly related to the sale of 1,700,000 shares of Common Stock in a public
offering completed in November 1995. Interest and other financing costs
increased from $24,000 in the three-month period ended March 31, 1996 to $55,000
in the same period of 1997 due to increased borrowings under several
low-interest government loan programs.
5
600602.1
The effective income tax rate utilized in the three-month periods ended March
31, 1997 and 1996 was 37.0% and 38.0%, respectively. The lower effective income
tax rate in the 1997 period reflects a lower effective state tax rate, net of
the federal benefit, and is consistent with the ultimate effective income tax
rate utilized for the year ended December 31, 1996.
Financial Condition
The Company financed its activities during the first quarter of 1997 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 3.0:1 at December
31, 1996 to 2.3:1 at March 31, 1997 primarily due to the funding of capital
expenditures during the three-month period ended March 31, 1997. The debt to
capitalization ratio was 8% at March 31, 1997 and at December 31, 1996. Accounts
receivable, net increased by $4.5 million for the three-month period ended March
31, 1997 as compared to an increase of $2.1 million for the three-month period
ended March 31, 1996. Inventory increased by $3.0 million for the three-month
period ended March 31, 1997 as compared to an increase of $2.8 million for the
three-month period ended March 31, 1996. Accounts payable and bank overdrafts
increased by $3.4 million for the three-month period ended March 31, 1997 as
compared to an increase of $2.5 million for the three-month period ended March
31, 1996. Each of these increases can be primarily attributed to the continued
growth of the business. The Company's capital expenditures approximated $1.5
million for the three-month period ended March 31, 1997, which primarily related
to the completion of the 1995-96 capital expenditures program. At March 31,
1997, the Company has outstanding purchase commitments in addition to the
expenditures incurred to date of approximately $1.9 million. These expenditures
are expected to be funded substantially from internally generated funds. In
April 1997, the Company executed loan documents in connection with the issuance
of a $500,000 loan from the Commonwealth of Pennsylvania's Machinery and
Equipment Loan Fund. On May 1, 1997, the Company extended its $6.5 million
Working Capital Agreement with PNC Bank to April 2000. In addition, the
amendment reduced the annual interest rate charged on the unpaid principal
balance from PNC Bank's prime rate plus 0.25% to PNC Bank's prime rate. The
annual interest rate may be further reduced based on the Company maintaining
certain financial ratios.
1997 Outlook
Increased shipments in the three-month period ended March 31, 1997 are primarily
attributed to increased demand from the aerospace sector and new product
introductions, which are expected to continue throughout 1997. The cost savings
associated with the Company's capital expenditure program has met or exceeded
management's expectations to date. In light of these factors, the Company
expects 1997 results to be greater than those achieved in 1996.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
establishes standards for computing and presenting earnings per share
information for periods ending after December 15, 1997. The Company does not
believe that the adoption of this statement will materially affect its earnings
per share disclosures except for the required presentation of diluted earnings
per share.
6
600602.1
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.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No.
10.1 First Amendment to Amended and Restated Credit
Agreement, dated as of May 1, 1997, by
and between the Company and PNC Bank, National
Association.
10.2 Working Cash, Line of Credit, Investment Sweep
Agreement, dated as of May 1, 1997, by
and between the Company and PNC Bank, National
Association.
10.3 Working Cash Trust Agreement, dated as of
May 1, 1997, by and between the Company and
PNC Bank, National Association.
27.1 Financial Data Schedule.
(b) The following reports on Form 8-K were filed during the
first quarter of 1997:
None.
7
600602.1
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 13, 1997 /s/ Clarence M. McAninch
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Clarence M. McAninch