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, 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 November 9, 2001, there were 6,073,405 outstanding shares of the
Registrant's Common Stock, $.001 par value per share.
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
of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II. OTHER INFORMATION
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 Nine-month period ended
September 30, September 30,
--------------------------- ----------------------------
2001 2000 2001 2000
---- ----- ---- ----
Net sales $23,344 $18,587 $68,836 $54,879
Cost of products sold 18,192 14,910 54,520 45,519
Selling and administrative expenses 1,301 1,271 4,675 3,806
--------- -------------- ---------- --------------
Operating income 3,851 2,406 9,641 5,554
Interest expense and other financing costs (138) (233) (479) (686)
Other income (expense), net 15 (26) 37 (29)
--------- -------------- ---------- --------------
Income before taxes 3,728 2,147 9,199 4,839
Income taxes 1,398 873 3,449 1,815
--------- -------------- ---------- --------------
Income before cumulative effect of accounting change 2,330 1,274 5,750 3,024
Cumulative effect of accounting change, net of tax -- -- -- (1,546)
--------- -------------- ---------- --------------
Net income $ 2,330 $ 1,274 $ 5,750 $ 1,478
========= ============== ========== ==============
EARNINGS PER COMMON SHARE
Basic
Income before cumulative effect of accounting change $ 0.38 $ 0.21 $ 0.95 $ 0.50
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
--------- -------------- ---------- --------------
Net income $ 0.38 $ 0.21 $ 0.95 $ 0.24
========= ============== ========== ==============
Diluted
Income before cumulative effect of accounting change $ 0.38 $ 0.21 $ 0.94 $ 0.50
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
--------- -------------- ---------- --------------
Net income $ 0.38 $ 0.21 $ 0.94 $ 0.24
========= ============== ========== ==============
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)
September 30, 2001 December 31, 2000
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,420 $ 1,109
Accounts receivable (less allowance for doubtful
accounts of $522 and $192) 15,932 12,819
Inventory 20,994 18,788
Other current assets 1,394 1,347
------- -------
Total current assets 40,740 34,063
Property, plant and equipment, net 41,245 39,090
Other assets 497 594
------- -------
Total assets $82,482 $73,747
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 6,513 $ 5,624
Outstanding checks in excess of bank balance 1,745 1,445
Current portion of long-term debt 1,840 1,808
Accrued employment costs 2,443 1,297
Other current liabilities 1,637 331
------- -------
Total current liabilities 14,178 10,505
Long-term debt 6,940 8,199
Deferred taxes 6,908 6,276
------- -------
Total liabilities 28,026 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 30,167 24,417
Treasury Stock at cost; 269,900 and 257,900
common shares held (1,631) (1,544)
------- -------
Total stockholders' equity 54,456 48,767
------- -------
Total liabilities and stockholders' equity $82,482 $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 Nine-month period ended
September 30,
2001 2000
---- ----
Cash flow from operating activities:
Net income $ 5,750 $ 1,478
Cumulative effect of accounting change -- 1,546
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 2,036 1,820
Deferred taxes 632 927
Changes in assets and liabilities:
Accounts receivable, net (3,113) 12,113
Inventory (2,206) (17,810)
Accounts payable 889 579
Accrued employment costs 1,146 1,025
Other, net 1,343 867
--------- ---------
Net cash provided by operating activities 6,477 2,545
--------- ---------
Cash flows from investing activities:
Capital expenditures (4,178) (3,250)
--------- ---------
Net cash used in investing activities (4,178) (3,250)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of Common Stock 26 25
Borrowings under revolving line of credit 8,893 13,183
Repayments under revolving line of credit (8,893) (12,459)
Proceeds from long-term debt 32 --
Long-term debt repayment (1,259) (1,373)
Purchase of Treasury Stock (87) --
Increase in outstanding checks in excess of bank balance 300 764
--------- ---------
Net cash provided by (used in) financing activities (988) 140
--------- ---------
Net increase (decrease) in cash 1,311 (565)
Cash and cash equivalents at beginning of period 1,109 868
--------- ---------
Cash and cash equivalents at end of period $ 2,420 $ 303
========= =========
Supplemental disclosure of cash flow information:
Interest paid (net of amount capitalized) $ 330 $ 551
Income taxes paid $ 2,174 $ 1,081
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 nine-month periods ended September 30, 2001
and 2000, balance sheets as of September 30, 2001 and December 31, 2000,
and statements of cash flows for the nine-month periods ended September 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 September 30, 2001 and December 31, 2000
and the consolidated results of operations and of cash flows for the
periods ended September 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 nine-month periods ended September 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 nine-month periods
ended September 30, 2000 were $20,809,000 and $1,438,000, and $57,910,000
and $3,700,000, 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 Nine-month period ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Weighted average number of shares of Common
Stock outstanding 6,084,231 6,076,839 6,082,244 6,073,973
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 26,436 4,888 19,514 4,121
----------- ----------- ----------- -----------
Weighted average number of shares of Common Stock
outstanding, as adjusted 6,110,667 6,081,727 6,101,758 6,078,094
=========== =========== =========== ===========
5
4) The major classes of inventory are as follows (dollars in thousands):
September 30, 2001 December 31, 2000
Raw materials and supplies $ 2,106 $ 1,695
Semi-finished and finished steel products 16,317 13,916
Operating materials 2,571 3,177
------------------ -----------------
Total inventory $20,994 $18,788
================== =================
4) Property, plant and equipment consists of the following (dollars in
thousands):
September 30, 2001 December 31, 2000
Land and land improvements $ 822 $ 822
Buildings and building improvements 4,504 3,889
Machinery and equipment 43,032 39,838
Construction in progress 2,680 2,311
------------------ -----------------
51,038 46,860
Accumulated depreciation (9,793) (7,770)
------------------ -----------------
Property, plant and equipment, net $41,245 $39,090
================== =================
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, 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 nine-month periods
ended September 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 Nine-Month Period Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales
Stainless steel $19,908 $17,110 $58,531 $47,279
Tool steel 1,028 1,794 3,393 6,049
High-strength low alloy steel 791 506 2,559 1,492
High temperature alloy steel 699 503 1,634 1,268
Conversion services 821 814 2,385 1,602
Other 97 82 334 220
-------- -------- -------- --------
Net sales on shipments 23,344 20,809 68,836 57,910
Effect of accounting change -- (2,222) -- (3,031)
-------- -------- -------- --------
Total net sales 23,344 18,587 68,836 54,879
-------- -------- -------- --------
Cost of products sold
Raw materials 6,878 7,277 19,527 20,819
Other 11,314 9,562 34,993 26,650
-------- -------- -------- --------
Total cost of products shipped 18,192 16,839 54,520 47,469
Effect of accounting change -- (1,929) -- (1,950)
-------- -------- -------- --------
Total cost of products sold 18,192 14,910 54,520 45,519
-------- -------- -------- --------
Selling and administrative expenses 1,301 1,271 4,675 3,806
-------- -------- -------- --------
Operating income from shipments 3,851 2,699 9,641 6,635
Effect of accounting change -- (293) -- (1,081)
======== ======== ======== ========
Operating income $ 3,851 $ 2,406 $ 9,641 $ 5,554
======== ======== ======== ========
Three- and nine-month periods ended September 30, 2001 as compared to the
similar periods in 2000
The increase in net sales for the three- and nine-month periods ended September
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
11,900 tons and 11,600 tons for the three-month periods ended September 30, 2001
and 2000, respectively, and 35,300 tons and 32,100 tons for the nine-month
periods ended September 30, 2001 and 2000, respectively.
7
Cost of products shipped, as a percentage of net sales on shipments, was 77.9%
and 80.9% for the three-month periods ended September 30, 2001 and 2000,
respectively, and was 79.2% and 82.0% for the nine-month periods ended September
30, 2001 and 2000, respectively. This decrease is primarily due to the impact
of the mix of products shipped partially offset by higher natural gas costs.
Selling and administrative expenses increased by $30,000 in the three-month
period ended September 30, 2001 as compared to September 30, 2000 and increased
by $869,000 for the nine-month period ended September 30, 2001 as compared to
September 30, 2000. The year-to-date increase 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 $95,000 in the three-
month period ended September 30, 2001 as compared to the three-month period
ended September 30, 2000 and decreased by $207,000 in the nine-month period
ended September 30, 2001 as compared to the nine-month period ended September
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-month periods ended
September 30, 2001 and 2000 was 37.5% and 41.1%, respectively. The effective
income tax rate utilized in the nine-month periods ended September 30, 2001 and
2000 was 37.5%. During the three-month period ended September 30, 2000, the
Company increased the estimated annual effective income tax rate from 35%, which
was utilized through June 30, 2000, to 37.5%. 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 September 30, 2001, working capital approximated $26.6
million, as compared to $23.6 million at December 31, 2000. The ratio of
current assets to current liabilities decreased from 3.2:1 at December 31, 2000
to 2.9:1 at September 30, 2001. The decrease in the ratio of current assets to
current liabilities is primarily due to the percentage increase in liabilities
to fund operations exceeding the percentage increase in current assets. In
addition, the Company repurchased 12,000 shares of Common Stock at an average
price of $7.22 per share during the nine-month period ended September 30, 2001.
The Company is authorized to repurchase an additional 45,100 shares of Common
Stock as of September 30, 2001. The debt to capitalization was 13.9% at
September 30, 2001 and 17% at December 31, 2000.
The Company's capital expenditures approximated $4.2 million for the nine-month
period ended September 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 September 30, 2001, the
Company had outstanding purchase commitments in addition to the expenditures
incurred to date of approximately $1.2 million. These expenditures are expected
to be funded substantially from internally generated funds and additional
borrowings. As of September 30, 2001, the Company had $6.5 million available
for borrowings under a revolving line of credit with PNC Bank.
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 fourth quarter of 2001 will be
between $18 and $22 million, versus sales of $18 million in the prior year
period, before the accounting adjustment described above. Diluted earnings per
share for the 2001 fourth quarter are currently projected to range from $0.22 to
$0.27, compared with $0.22 reported in the fourth quarter of 2000 before the
accounting adjustment. After the accounting adjustment, fourth quarter 2000 net
sales were $33.5 million and diluted earnings per share were $0.59. The
following factors were considered in developing these estimates:
. The Company's backlog approximated $30 million on September 30, 2001, below
the backlog of $40 million reported as of June 30, 2001, but still at a
strong level. The mix of orders booked for delivery in the fourth quarter by
market segment reflects a shift to the OEM segment in comparison to 2001
third quarter shipments.
. The Company has not experienced any order cancellations since the terrorist
attacks on September 11, 2001. However, due to current business conditions,
certain customers may request that the delivery of their ordered products to
be delayed to 2002. The fourth quarter estimate reflects this uncertainty.
On October 22, 2001, the U.S. International Trade Commission ("ITC") determined
that imports of certain stainless steel and alloy tool steel products are
seriously injuring the domestic specialty steel industry. This funding allows
the President of the United States, under Section 201 of the 1974 Trade Act, to
restrict imports or impose tariffs on some or all of the products at issue. At
this time, the Company is unable to determine the potential impact of any such
remedy that may be imposed on the Company's future results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets". In August 2001, the FASB issued Statement No. 143,
"Accounting for Asset Retirement Obligations". In October 2001, the FASB issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - none.
b. No reports on Form 8-K were filed during the third 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: November 9, 2001 /s/ C. M. McAninch
-------------------- -----------------------------------------
Clarence M. McAninch
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: November 9, 2001 /s/ Richard M. Ubinger
-------------------- -----------------------------------------
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
11