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 June 30, 2001
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 August 13, 2001, there were 6,085,405 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 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
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 For the
Three-month period ended Six-month period ended
June 30, June 30,
----------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $24,233 $18,522 $45,492 $36,292
Cost of products sold 19,207 15,882 36,328 30,609
Selling and administrative expenses 1,816 1,433 3,374 2,535
--------- --------- --------- ---------
Operating income 3,210 1,207 5,790 3,148
Interest expense and other financing costs (160) (231) (341) (453)
Other income (expense), net 2 (19) 22 (3)
--------- --------- --------- ---------
Income before taxes 3,052 957 5,471 2,692
Income taxes 1,144 335 2,051 942
Income before cumulative effect of accounting change 1,908 622 3,420 1,750
Cumulative effect of accounting change, net of tax -- -- -- (1,546)
--------- --------- --------- ---------
Net income $ 1,908 $ 622 $ 3,420 $ 204
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Basic
Income before cumulative effect of accounting change $ 0.31 $ 0.10 $ 0.56 $ 0.29
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
--------- --------- --------- ---------
Net income $ 0.31 $ 0.10 $ 0.56 $ 0.03
========= ========= ========= =========
Diluted
Income before cumulative effect of accounting change $ 0.31 $ 0.10 $ 0.56 $ 0.29
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
--------- --------- --------- ---------
Net income $ 0.31 $ 0.10 $ 0.56 $ 0.03
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
2
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
June 30, 2001 December 31, 2000
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 128 $ 1,109
Accounts receivable (less allowance for doubtful accounts of $522
and $192) 17,142 12,819
Inventory 21,060 18,788
Other current assets 1,823 1,347
------- -------
Total current assets 40,153 34,063
Property, plant and equipment, net 40,184 39,090
Other assets 501 594
------- -------
Total assets $80,838 $73,747
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 7,265 $ 5,624
Outstanding checks in excess of bank balance 1,642 1,445
Current portion of long-term debt 1,833 1,808
Accrued employment costs 1,834 1,297
Other current liabilities 1,705 331
------- -------
Total current liabilities 14,279 10,505
Long-term debt 7,598 8,199
Deferred taxes 6,748 6,276
------- -------
Total liabilities 28,625 24,980
------- -------
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;
6,343,305 and 6,339,128 shares issued 6 6
Additional paid-in capital 25,914 25,888
Retained earnings 27,837 24,417
Treasury Stock at cost; 257,900
common shares held (1,544) (1,544)
------- -------
Total stockholders' equity 52,213 48,767
------- -------
Total liabilities and stockholders' equity $80,838 $73,747
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the Six-month period ended
June 30,
2001 2000
---- ----
Cash flow from operating activities:
Net income $ 3,420 $ 204
Cumulative effect of accounting change -- 1,546
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 1,310 1,188
Deferred taxes 472 65
Changes in assets and liabilities:
Accounts receivable, net (4,323) 12,113
Inventory (2,272) (17,146)
Accounts payable 1,641 1,163
Accrued employment costs 537 669
Other, net 982 1,144
------- --------
Net cash provided by operating activities 1,767 946
------- --------
Cash flows from investing activities:
Capital expenditures (2,395) (2,291)
------- --------
Net cash used in investing activities (2,395) (2,291)
------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 26 25
Borrowings under revolving line of credit 8,710 7,026
Repayments under revolving line of credit (8,516) (5,901)
Proceeds from long-term debt 139 --
Long-term debt repayment (909) (913)
Increase in outstanding checks in excess of bank balance 197 598
------- --------
Net cash provided by (used in) financing activities (353) 835
------- --------
Net decrease in cash (981) (510)
Cash and cash equivalents at beginning of period 1,109 868
------- --------
Cash and cash equivalents at end of period $ 128 $ 358
======= ========
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $ 298 $ 442
Income taxes paid $ 1,264 $ 627
The accompanying notes are an integral part of these consolidated 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 six-month periods ended June 30, 2001 and
2000, balance sheets as of June 30, 2001 and December 31, 2000, and
statements of cash flows for the six-month periods ended June 30, 2001 and
2000 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, 2000. 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 June 30, 2001 and December 31, 2000 and
the consolidated results of operations and of cash flows for the periods
ended June 30, 2001 and 2000, and are not necessarily indicative of the
results to be expected for the full year.
2) In the fourth quarter of 2000, the Company adopted the provisions of the
Securities and Exchange Commission's (SEC) Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" (SAB 101). As a result
of the adoption, the Company's statements of operations and cash flows for
the three- and six-month periods ended June 30, 2000 have been restated to
include the effect of conforming to SAB 101. Previously reported net sales
and net income for the three- and six-month periods ended June 30, 2000
were $19,012,000 and $1,366,000, and $37,101,000 and $2,262,000,
respectively. The application of the SEC's guidance to language in the
Company's previous Standard Terms and Conditions of Sale required Universal
Stainless to defer revenue recognition until cash was collected, even
though risk of loss passed to the buyer at time of shipment. In the fourth
quarter of 2000, management modified the Company's Standard Terms and
Conditions of Sale to more closely reflect the substance of its sales
transactions and permit the recognition of revenue on a basis consistent
with past practices.
3) 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 Six-month period ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Weighted average number of shares
of Common Stock outstanding 6,081,274 6,072,564 6,081,251 6,072,540
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 22,439 3,907 16,053 3,738
---------- ---------- ---------- ----------
Weighted average number of shares
of Common Stock outstanding,
as adjusted 6,103,713 6,076,471 6,097,304 6,076,278
========== ========== ========== ==========
5
4) The major classes of inventory are as follows (dollars in thousands):
June 30, 2001 December 31, 2000
Raw materials and supplies $ 1,603 $ 1,695
Semi-finished and finished steel products 16,832 13,916
Operating materials 2,625 3,177
------------- -----------------
Total inventory $21,060 $18,788
============= =================
5) Property, plant and equipment consists of the following (dollars in
thousands):
June 30, 2001 December 31, 2000
Land and land improvements $ 822 $ 822
Buildings 3,937 3,889
Machinery and equipment 41,727 39,838
Construction in progress 2,769 2,311
------------- -----------------
49,255 46,860
Accumulated depreciation (9,071) (7,770)
------------- -----------------
Property, plant and equipment, net $40,184 $39,090
============= =================
6) 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, 2000.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During 2000, the Company adopted the provisions of the Securities and Exchange
Commission's (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." The application of the SEC's guidance to the language
contained in the Company's Standard Terms and Conditions of Sale existing at the
time of adoption required the Company to defer revenue until cash was collected,
even though risk of loss passed to the buyer at time of shipment. This had the
effect of deferring certain sale transactions previously recognized in 1999 into
2000. During the fourth quarter of 2000, the Company modified its Standard
Terms and Conditions of Sale to more closely reflect the substance of its sale
transactions, which resulted in revenue being recorded at the time of shipment
rather than when cash was received. Because this did not occur until the fourth
quarter, the revenue and cost information for the three- and six-month periods
ended June 30, 2000 relates to cash collections. In order to facilitate
analysis of the Company's results of operations, amounts in the table below
summarize revenue and cost information based on shipments made by the Company in
the respective quarter, rather than cash collected for 2000. Such amounts are
then reconciled to reported amounts as necessary (dollars in thousands):
For the For the
Three-Month Period Ended Six-Month Period Ended
June 30, June 30,
2001 2000 2001 2000
--------- -------- -------- --------
Net sales
Stainless steel $21,200 $15,604 $38,623 $30,169
Tool steel 848 2,028 2,365 4,255
High-strength low alloy steel 1,103 427 1,768 986
High temperature alloy steel 326 398 935 765
Conversion services 693 448 1,564 788
Other 63 107 237 138
--------- -------- -------- --------
Net sales on shipments 24,233 19,012 45,492 37,101
Effect of accounting change -- (490) -- (809)
--------- -------- -------- --------
Total net sales $24,233 18,522 $45,492 $36,292
--------- -------- -------- --------
Cost of products sold
Raw materials 6,483 6,953 12,649 13,542
Other 12,724 8,274 23,679 17,088
--------- -------- -------- --------
Total cost of products shipped 19,207 15,227 36,328 30,630
Effect of accounting change -- 655 -- (21)
--------- -------- -------- --------
Total cost of products sold 19,207 15,882 36,628 30,609
--------- -------- -------- --------
Selling and administrative expenses 1,816 1,433 3,374 2,535
--------- -------- -------- --------
Operating income from shipments 3,210 2,352 5,790 3,936
Effect of accounting change -- (1,145) -- (788)
========= ======== ======== ========
Operating income $ 3,210 $ 1,207 $ 5,790 $ 3,148
========= ======== ======== ========
Three- and six-month periods ended June 30, 2001 as compared to the similar
periods in 2000
The increase in net sales for the three- and six-month periods ended June 30,
2001 as compared to the similar periods in 2000 reflects substantially increased
shipments to OEM and forging markets. This increase is primarily due to
continued high levels of demand in the power generation, aerospace and
petrochemical markets. This increase was partially offset by lower shipments of
stainless steel commodity products and tool steel products as a result of
increased imports and the slowing economy. The Company shipped approximately
12,300 tons and 9,700 tons for the three-month periods ended June 30, 2001 and
2000 respectively, and 23,300 tons and 20,500 tons for the six-month periods
ended June 30, 2001 and 2000, respectively.
7
Cost of products shipped, as a percentage of net sales on shipments, was 79.3%
and 80.1% for the three-month periods ended June 30, 2001 and 2000,
respectively, and was 79.9% and 82.6% for the six-month periods ended June 30,
2001 and 2000, respectively. This decrease is primarily due to the impact of the
mix of products shipped.
Selling and administrative expenses increased by $383,000 in the three-month
period ended June 30, 2001 as compared to June 30, 2000 and increased by
$839,000 for the six-month period ended June 30, 2001 as compared to June 30,
2000. This is primarily due to higher bad debt expense resulting from negative
economic impacts on certain steel industry customers and increased employment
and insurance costs related to the increased level of business.
Interest expense and other financing costs decreased by $71,000 in the three-
month period ended June 30, 2001 as compared to the three-month period ended
June 30, 2000 and decreased by $112,000 in the six-month period ended June 30,
2001 as compared to the six-month period ended June 30, 2000. The decreases were
primarily due to a reduction in debt levels between the periods.
The effective income tax rate utilized in the three-and six-month periods ended
June 30, 2001 and 2000 was 37.5% and 35.0%, 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 2001.
FINANCIAL CONDITION
The Company has financed its 2001 operating activities through cash flows from
operations, cash on hand, borrowings from the PNC revolving line of credit and
capitalized leases. At June 30, 2001, working capital approximated $25.9
million, as compared to $23.5 million at December 31, 2000. The ratio of
current assets to current liabilities decreased from 3.2:1 at December 31, 2000
to 2.8:1 at June 30, 2001. 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. The debt
to capitalization was 15.3% at June 30, 2001 and 17% at December 31, 2000.
The Company's capital expenditures approximated $2.4 million for the six-month
period ended June 30, 2001, which primarily related to the purchase of a new
electro slag remelt furnace and the installation of the billet grinder and
Oliver plate saw at the Bridgeville facility. At June 30, 2001, the Company had
outstanding purchase commitments in addition to the expenditures incurred to
date of approximately $2.2 million. These expenditures are expected to be
funded substantially from internally generated funds and additional borrowings.
As of June 30, 2001, the Company had $6.3 million available for borrowings under
a revolving line of credit with PNC Bank. On June 29, 2001, the Company entered
into a third amendment to the second amended and restated credit agreement with
PNC Bank which amended the existing agreement to extend the term of the $6.5
million revolving credit facility to April 30, 2003.
In July 2001, the Company entered into a supply contract agreement with Talley
Metals Technology, Inc., a subsidiary of Carpenter Technologies, Inc., covering
a period of at least 18 months. Under terms of the agreement, the Company will
supply Talley Metals with an average of 1,250 tons of stainless reroll billet
products per month. The value of the contract on a monthly basis will depend on
product mix and key raw material prices.
There were no shares of Common Stock repurchased by the Company during the six-
month period ended June 30, 2001. The Company is authorized to repurchase an
additional 57,100 shares of Common Stock as of June 30, 2001.
The Company anticipates that it will fund its 2001 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.
8
2001 OUTLOOK
The Company estimates that its sales for the third quarter of 2001 will be
between $20 and $24 million, versus sales of $19 million in the prior year
period. Diluted earnings per share for the third quarter of 2001 are currently
projected to range from $0.27 to $0.32, compared with $0.24 reported in the
third quarter of 2000 before the SAB 101 accounting adjustment. The following
factors were considered in developing these estimates:
. The Company's backlog approximated $40 million on June 30, 2001 as compared
to $35 million on March 31, 2001. The mix of orders booked for delivery in
the third quarter by market segment is in line with the 2001 second quarter
shipments.
. The Company believes that the high level of demand for its forging and OEM
products will continue throughout 2001, while orders for its commodity and
tool steel products are expected to remain at existing levels due to current
economic conditions and imports.
. The Company experienced a total of eight electrical curtailments in the
second quarter, but was successful in rescheduling all affected production.
The Company's third quarter estimates also take into account possible
electrical curtailments in the summer months. Natural gas prices declined in
the second quarter and are expected to remain at those levels in the third
quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141 (FAS 141), "Business Combinations" and Statement No. 142 (FAS
142), "Goodwill and Other Intangible Assets". These statements will be adopted
in 2002 and are not expected to impact the Company's results of operations or
financial condition.
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, 2000.
9
Part II. OTHER INFORMATION
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 23, 2001, for the purpose of electing a
board of directors and approving the appointment of auditors. Proxies
for 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 the management's nominees for directors as listed in the proxy
statement were elected by the following vote:
Shares Voted "For" Shares "Withheld" Shares Not Voted
D. Dunn 5,647,762 8,767 424,699
G. Keane 5,647,762 8,767 424,699
C. McAninch 4,717,229 939,300 424,699
U. Toledano 5,647,762 8,767 424,699
D. Wise 5,647,762 8,767 424,699
The appointment of PricewaterhouseCoopers LLP as independent auditors
was approved by the following vote:
Shares Voted "For" Shares Voted "Against" Shares "Abstaining" Shares Not Voted
5,641,142 1,870 13,517 424,699
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
10.1 Third Amendment to Second Amended and Restated Credit
Agreement dated June 29, 2001 by and between the Company
and PNC Bank, National Association (filed herewith).
10.2 Supply Contract Agreement, dated as of July 2001, between
the Company and Talley Metals Technology, Inc., a
subsidiary of Carpenter Technologies, Inc. (filed
herewith).
b. No reports on Form 8-K were filed during the second quarter of 2001.
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: August 13, 2001 /s/ C. M. McAninch
---------------- -----------------------------------------------
Clarence M. McAninch
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 13, 2001 /s/ Richard M. Ubinger
---------------- -----------------------------------------------
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
11