MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION 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 the 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. As a result, revenue and cost information in
2000 include amounts related to shipments made during the year as well as
amounts deferred from 1999. In order to facilitate analysis of the Company's
results of operations, amounts in the tables below summarize revenue and cost
information based on shipments made by the Company in the respective years. Such
amounts are then reconciled to reported amounts as necessary.
An analysis of the Company's operations is as follows:
2001 2000 1999
Amount % Amount % Amount %
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(dollars in thousands)
Net sales
Stainless steel $76,908 84.8% $62,346 70.6% $55,255 82.9%
Tool steel 4,503 5.0 6,960 7.9 6,055 9.1
High-strength low alloy steel 3,379 3.7 2,161 2.4 1,327 2.0
High-temperature alloy steel 2,471 2.7 1,754 2.0 2,124 3.2
Conversion services 3,054 3.4 2,309 2.6 1,807 2.7
Other 343 0.4 355 0.4 95 0.1
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Net sales on shipments 90,658 100.0 75,885 85.9 66,663 100.0
Effect of accounting change -- -- 12,462 14.1 -- --
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Total net sales 90,658 100.0 88,347 100.0 66,663 100.0
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Cost of products sold
Raw materials 25,791 28.5 26,290 29.7 24,732 37.1
Other 46,124 50.9 35,583 40.3 33,901 50.9
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Total cost of products shipped 71,915 79.4 61,873 70.0 58,633 88.0
Effect of accounting change -- -- 9,988 11.3 -- --
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Total cost of products sold 71,915 79.4 71,861 81.3 58,633 88.0
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Selling and administrative expenses 6,199 6.8 4,998 5.7 4,299 6.4
Operating income from shipments 12,544 13.8 9,014 10.2 3,731 5.6
Effect of accounting change -- -- 2,474 2.8 -- --
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Operating income $12,544 13.8% $11,488 13.0% $ 3,731 5.6%
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Net sales on shipments by market segment are as follows:
2001 2000 1999
Amount % Amount % Amount %
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(dollars in thousands)
Rerollers $31,936 35.2% $33,549 44.2% $36,522 54.8%
Service centers 19,178 21.2 16,137 21.3 11,130 16.7
Forgers 18,484 20.4 14,288 18.8 9,185 13.8
Original equipment manufacturers 17,714 19.5 9,321 12.3 7,761 11.6
Conversion services 3,054 3.4 2,309 3.0 1,807 2.7
Miscellaneous 292 0.3 281 0.4 258 0.4
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Total $90,658 100.0% $75,885 100.0% $66,663 100.0%
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2001 Results as Compared to 2000 The increase in net sales on shipments in 2001
reflects increased shipments within each market segment, except Reroller,
partially offset by price decreases related to lower raw material costs. The
Company shipped approximately 46,800 tons in 2001, compared to shipments of
41,800 tons in 2000. The increased sales were primarily due to increased
shipments of power generation, aerospace and petrochemical products to the
Company's reroller, forging, service center and OEM markets. These increases
were partially offset by lower sales of commodity products to the reroller
market and of tool steel products to the service center market, primarily due to
imports and the recessionary economy experienced during 2001.
Cost of products sold, as a percent of net sales, decreased in 2001 as compared
to 2000. This decrease was primarily due to the impact of the change in the mix
of products shipped and the improved operating results at the bar mill. Natural
gas costs increased by approximately $1.3 million in 2001 in comparison to 2000
because of higher rates.
Selling and administrative expenses increased by $1.2 million in 2001 as
compared to 2000. This increase primarily reflects higher insurance and other
costs associated with the revenue growth experienced during 2001. In addition,
the Company recorded a $200,000 charge to demolish certain vacant buildings
within the Bridgeville facility, a $190,000 obligation to its former Vice
President of Operations and a $115,000 charge for the services of an investment
banking firm previously engaged to evaluate various strategic alternatives to
increase shareholder value.
Interest expense and other financing costs decreased from $905,000 in 2000 to
$576,000 in 2001 primarily due to the continued reduction of long-term debt
outstanding and a reduction in interest rates on the PNC Term Loan.
The 2001 effective income tax rate was 36.5% compared to 37.5% in 2000. The
decrease in the effective income tax rate is primarily attributable to the
application of the Extraterritorial Income Exclusion provisions for federal tax
purposes and state tax credits made available to the Company during 2001.
2000 Results as Compared to 1999 The increase in net sales on shipments in 2000
reflects an improved sales mix of products and price increases to cover higher
material and energy costs partially offset by lower shipment volumes. The
Company shipped approximately 41,800 tons in 2000, compared to shipments of
44,800 tons in 1999. The improved sales mix was primarily due to increased
shipments of power generation, aerospace and petrochemical products to the
Company's reroller, forging and OEM market customers, and tool steel and bar
mill products to the Company's service center customers. These increases were
partially offset by the impact of lower sales of commodity products due to
increased imports.
Cost of products sold, as a percent of net sales, decreased in 2000 as compared
to 1999. This decrease was primarily due to the impact of the change in the mix
of products shipped, improved operating results at the bar mill and higher sales
prices.
Selling and administrative expenses increased by $699,000 in 2000 as compared to
1999. This increase reflects higher employment and insurance costs.
Interest expense and other financing costs increased from $736,000 in 1999 to
$905,000 in 2000 primarily due to a reduction in capitalized interest and higher
interest rates on the PNC Term Loan.
The 2000 effective income tax rate was 37.5% compared to 30.5% in 1999. The
increase in the effective income tax rate is primarily attributable to the
reduced impact of the Company's permanent state tax deductions resulting from
higher income levels in 2000.
Liquidity and Capital Resources
The Company generated cash flow from operations in 2001 and 2000 of $11.9
million and $6.3 million, respectively. This increase is primarily due to the
increase in net income and the impact of changes in deferred taxes, partially
offset by an increase in working capital.
At December 31, 2001, working capital approximated $28.7 million, as compared to
$23.6 million at December 31, 2000. The ratio of current assets to current
liabilities at December 31, 2001 and 2000, was 4.0:1 and 3.2:1, respectively.
The debt to capitalization ratio was 13% at December 31, 2001, and 17% at
December 31, 2000. The increase in working capital is primarily attributable to
the increase in cash and cash equivalents generated from operations.
Capital Expenditures and Investments The Company's capital expenditures were
approximately $5.3 million and $4.6 million in 2001 and 2000, respectively,
which primarily reflect the installation of a new electro-slag remelt furnace
and building improvements at the Bridgeville facility. Capital expenditures not
associated with the acquisition described below are expected to approximate $4.0
million in 2002 and will be used primarily to complete projects previously
initiated and to upgrade or replace various pieces of equipment at the
Bridgeville and Titusville facilities. These expenditures are expected to be
funded substantially from internally generated funds and additional borrowings.
The Company does not maintain off-balance sheet arrangements nor does it
participate in non-exchange traded contracts requiring fair value accounting
treatment or material related party transaction arrangements.
PNC Credit Agreement On June 29, 2001 the Company entered into a third amendment
to the second amended and restated credit agreement with PNC Bank which extended
the term of the $6.5 million revolving credit facility ("PNC Line") to April 30,
2003. This credit agreement also includes a term loan ("PNC Term Loan")
scheduled to mature in June 2006 and is collateralized by substantially all of
the Company's assets.
Interest on borrowings under the PNC Line and the PNC Term Loan is based on
short-term market rates, which may be further adjusted based upon the Company
maintaining certain financial ratios. As a condition of the PNC Line and the PNC
Term Loan, the Company is required to maintain certain levels of net worth,
working capital and other financial ratios; to limit the amount of capital
expenditures it may incur without PNC Bank's approval; and to restrict the
payment of dividends. As of December 31, 2001, the Company was in compliance
with all financial ratios and restrictive covenants.
Stock Repurchase Program On October 19, 1998, the Company initiated a stock
repurchase program to repurchase up to 315,000 shares of its outstanding Common
Stock in open market transactions at market prices. There were 12,000 shares of
Common Stock repurchased by the Company during 2001. The Company is authorized
to repurchase an additional 45,100 shares of Common Stock as of December 31,
2001.
Supply Contract The Company maintains a supply contract agreement with Talley
Metals Technology, Inc., a subsidiary of Carpenter Technology Corporation, which
is currently effective through December 2002. 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.
Environmental Matters The Company, as well as other steel companies, is subject
to demanding environmental standards imposed by federal, state and local
environmental laws and regulations. In connection with the 1994 acquisition of
the Bridgeville facility assets from Armco, which merged with and into AK Steel
in 1999 ("Armco"), Armco agreed to retain responsibility for liabilities
asserted against it under environmental laws with respect to environmental
conditions existing at the Bridgeville facility prior to commencement of the
long-term net lease of that facility on August 15, 1994, and to indemnify the
Company up to $6.0 million in the aggregate over ten years. Such indemnification
expires on August 15, 2004.
In connection with the Company's June 2, 1995 agreement with Armco to purchase
certain assets and a parcel of real property located at Titusville, Armco agreed
to indemnify the Company up to $3.0 million in the aggregate for liabilities
under environmental laws arising out of conditions on or under the Titusville
property existing prior to June 2, 1995. Armco's obligation to indemnify the
Company for any liabilities arising out of environmental conditions existing
off-site as of June 2, 1995, is not subject to the $3.0 million limitation.
Management is not aware of any financial difficulties being experienced by AK
Steel, as successor to Armco, that would prevent its performance under the
acquisition agreements. In addition, management is not aware of any
environmental conditions or the incurrence of other liabilities at the
Bridgeville or Titusville facilities, for which Armco has agreed to indemnify
the Company, nor of any material environmental condition requiring remediation
and affecting the Company.
Critical Accounting Policies Revenue recognition is the most critical accounting
policy of the Company. The Company manufactures specialty steel product in
accordance with customer purchase orders that contain specific product
requirements. Each purchase order provides detailed information regarding the
requirements for product acceptance. Executed material certification forms are
completed
indicating the Company's compliance with the customer purchase order before the
specialty steel products are packaged and shipped to the customer. Revenue is
generally recognized at point of shipment because risk of loss and title have
transferred. During 2001, revenue was recognized in certain situations in which
products available for shipment are held at the Company's facility beyond the
stated shipment date at the customer's specific request.
In addition, management constantly monitors the ability to collect its unpaid
sales invoices and the valuation of its inventory. The allowance for doubtful
accounts includes the value of outstanding invoices issued to customers
currently operating under the protection of the federal bankruptcy law and other
amounts that are deemed potentially not collectable. An inventory reserve is
provided for material on hand for which management believes cost exceeds fair
market value and for certain material on hand not assigned to a specific
customer order.
New Accounting Pronouncements Financial Accounting Standards Board ("FASB")
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998, and amended in June 1999 and in June 2000,
pursuant to FASB Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133"
and FASB Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities: an amendment of FASB No. 133", respectively. These
statements require that an entity recognize certain derivative instruments as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The adoption of these statements on January 1,
2001, did not impact the Company's results of operations or financial condition.
In July 2001, the 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.
Short- and Long-Term Liquidity The Company expects to meet substantially all of
its short-term liquidity requirements with internally generated funds and
borrowings under the PNC Credit Agreement. At December 31, 2001, the Company had
$5.5 million in cash and $6.5 million available under the PNC Line.
The Company's long-term liquidity depends upon its ability to obtain additional
orders from its customers, attract new customers and control costs during
periods of low demand or pricing. At this time, management intends to closely
monitor its discretionary spending until general economic conditions improve.
Section 201 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 determination
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. On March 5, 2002, the President imposed tariffs on certain imported
stainless steel rod, bar and wire products ranging from 6% to 15% over the next
three years. At this time, the Company is unable to determine the potential
impact of the imposed remedy on the Company's future results of operations and
liquidity requirements.
Subsequent Event On February 14, 2002, the Company, through its wholly owned
subsidiary, Dunkirk Speciality Steel, LLC ("Dunkirk Speciality Steel"), acquired
from the New York Job Development Authority ("JDA") certain assets formerly
owned by Empire Specialty Steel, Inc. ("Empire") at its idled production
facility located in Dunkirk, New York (the "Dunkirk facility"). The assets
acquired include the inventory; property plant and equipment; and selected
intangible assets. The purchase price of $4.0 million will be funded with $1.0
million in cash, paid at closing, and ten-year, 5% interest bearing notes
payable to the JDA in the amount of $3.0 million. No principal or interest
payments are payable during the first year. The Company will not assume any
liabilities of Empire. Capital expenditures are expected to approximate $6.0
million at the Dunkirk facility in 2002.
General Actual results will be affected by a wide range of factors including the
start-up of Dunkirk, New York production facility; the receipt, pricing and
timing of future customer orders; changes in product mix; the concentrated
nature of the Company's customer base to date and the Company's dependence on
its significant customers; the Company's reliance on certain critical
manufacturing equipment; the limited number of raw material and energy suppliers
and significant fluctuations that may occur in raw material and energy prices;
and the Company's ongoing requirement for continued compliance with
environmental laws. Any unfavorable change in the foregoing or other
factors could have a material adverse effect on the Company's business,
financial condition and results of operations. Many of these factors are not
within the Company's control, and there can be no assurances regarding the
Company's future sales or earnings. For a discussion of these and other matters,
refer to the Company's Annual Report on Form-10K for the year ended December 31,
2001 and other reports on file with the Securities and Exchange Commission.
Report of independent accountants
To the Board of Directors and Stockholders
of Universal Stainless & Alloy Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Universal Stainless & Alloy
Products, Inc., and its subsidiary (the Company) at December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company adopted the
provisions of the Securities and Exchange Commission's Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements," in 2000.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
January 18, 2002, except for Note 12,
which is as of February 14, 2002
Consolidated Statement of Operations
For the years ended December 31, 2001 2000 1999
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(dollars in thousands, except per share information)
Net sales $ 90,658 $ 88,347 $ 66,663
Cost of products sold 71,915 71,861 58,633
Selling and administrative expenses 6,199 4,998 4,299
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Operating income 12,544 11,488 3,731
Interest expense and other financing costs (576) (905) (736)
Other income (expense), net 57 (3) 30
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Income before taxes and cumulative effect of
accounting change 12,025 10,580 3,025
Provision for income taxes 4,386 3,970 922
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Income before cumulative effect of
accounting change 7,639 6,610 2,103
Cumulative effect of accounting change,
net of tax -- (1,546) --
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Net income $ 7,639 $ 5,064 $ 2,103
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EARNINGS PER COMMON SHARE
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Basic
Income before cumulative effect of
accounting change $1.26 $1.09 $0.34
Cumulative effect of accounting change,
net of tax -- (0.26) --
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Net income $1.26 $0.83 $0.34
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Diluted
Income before cumulative effect of
accounting change $1.25 $1.09 $0.34
Cumulative effect of accounting change,
net of tax -- (0.26) --
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Net income $1.25 $0.83 $0.34
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Weighted average number of shares of
Common Stock outstanding 6,080,045 6,074,701 6,110,911
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The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Balance Sheets
December 31, 2001 2000
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(dollars in thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 5,454 $ 1,109
Accounts receivable (less allowance for
doubtful accounts of $434 and $192) 13,257 12,819
Inventory 17,900 18,788
Deferred taxes 1,022 958
Other current assets 460 389
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Total current assets 38,093 34,063
Property, plant and equipment, net 41,202 39,090
Other assets 151 594
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Total assets $79,446 $73,747
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 4,597 $ 5,624
Outstanding checks in excess of bank balance 857 1,445
Current portion of long-term debt 1,832 1,808
Accrued employment costs 1,562 1,297
Other current liabilities 590 331
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Total current liabilities 9,438 10,505
Long-term debt 6,490 8,199
Deferred taxes 7,146 6,276
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Total liabilities 23,074 24,980
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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;
6,347,172 and 6,339,128 shares issued 6 6
Additional paid-in capital 25,941 25,888
Retained earnings 32,056 24,417
Treasury Stock at cost; 269,900 and 257,900
common shares held (1,631) (1,544)
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Total stockholders' equity 56,372 48,767
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Total liabilities and stockholders' equity $79,446 $73,747
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The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statement of Cash Flows
For the years ended December 31, 2001 2000 1999
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(dollars in thousands)
Cash flows from operating activities
Net income $ 7,639 $ 5,064 $ 2,103
Adjustments to reconcile to net cash and cash equivalents
provided by operating activities:
Depreciation and amortization 2,782 2,466 2,101
Deferred taxes 1,087 1,509 354
Changes in assets and liabilities:
Accounts receivable, net (438) (706) (3,270)
Inventory 888 (3,058) 452
Accounts payable (1,027) 147 2,311
Accrued employment costs 265 570 (230)
Other, net 709 293 1,146
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Net cash provided by
operating activities 11,905 6,285 4,967
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Cash flows from investing activities
Capital expenditures (5,253) (4,598) (3,366)
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Net cash used in investing activities (5,253) (4,598) (3,366)
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Cash flows from financing activities
Proceeds from long-term debt 136 -- --
Long-term debt repayment (1,821) (1,834) (1,117)
Borrowings under revolving line of credit 8,893 14,107 22,310
Repayments under revolving line of credit (8,893) (14,107) (22,310)
Increase (decrease) in outstanding checks
in excess of bank balance (588) 338 (38)
Proceeds from issuance of Common Stock 53 50 51
Purchase of Treasury Stock (87) -- (1,066)
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Net cash used in financing activities (2,307) (1,446) (2,170)
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Net increase (decrease) in cash 4,345 241 (569)
Cash and cash equivalents at beginning of period 1,109 868 1,437
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Cash and cash equivalents at end of period $ 5,454 $ 1,109 $ 868
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Supplemental disclosure of cash flow information
Interest paid (net of amount capitalized) $ 605 $ 827 $ 774
Income taxes paid $ 3,144 $ 1,593 $ 388
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The accompanying notes are an integral part of these consolidated financial
statements.
Notes to the consolidated financial statements
Note 1: Significant Accounting Policies
Description of the Company Universal Stainless & Alloy Products, Inc. (the
"Company") manufactures and markets semi-finished and finished specialty steel
products, including stainless steel, tool steel and certain other alloyed
steels. The Company's manufacturing process involves melting, remelting,
treating and hot and cold rolling of semi-finished and finished specialty
steels. The Company's products are sold to rerollers, forgers, service centers
and original equipment manufacturers, which primarily include the power
generation and aerospace industries. The Company also performs conversion
services on materials supplied by customers that lack certain of the Company's
production facilities or that are subject to their own capacity constraints.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basis of Consolidation The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents Cash equivalents are stated at cost plus accrued
interest, which approximates market value. Cash equivalents include only
securities having a maturity of three months or less at the time of purchase.
Concentration of Credit Risk Financial instruments that potentially subject the
Company to concentrations of credit risk are cash and cash equivalents and
accounts receivable. The Company limits its credit risk associated with cash and
cash equivalents by placing its investments in high-grade short-term
instruments. With respect to accounts receivable, the Company limits their
credit risks by performing ongoing credit evaluations and, when deemed
necessary, requiring letters of credit, guarantees or collateral.
Inventories Inventories are stated at the lower of cost or market with cost
principally determined by the first-in, first-out (FIFO) method. The average
cost method is also utilized. Such costs include the acquisition cost for raw
materials and supplies, direct labor and applied manufacturing overhead.
Provisions are made for slow moving inventory based upon management's expected
method of disposition.
Scrap metal together with alloy additives, principally nickel, chrome and
molybdenum, currently account for more than 35% of the Company's total cost of
products sold. A substantial portion of the alloy additives is available only
from foreign sources, some of which are located in countries that may be subject
to unstable political and economic conditions. Those conditions might disrupt
supplies or affect the prices of the raw materials used by the Company. The
Company maintains sales price surcharges to help offset the impact of raw
material price fluctuations.
Included in inventory are operating materials consisting of production molds and
rolls that will normally be consumed within one year.
Property, Plant and Equipment Property, plant and equipment are recorded at
cost. Costs incurred in connection with the construction or major rebuild of
facilities, including interest directly related to the project, are capitalized
as construction in progress. No depreciation is recognized on these assets until
placed in service. Maintenance and repairs are charged to expense as incurred,
and costs of improvements and renewals are capitalized. Major maintenance costs
are expensed in the same annual period as incurred; however, the estimated costs
are expensed throughout the year on a pro rata basis.
Depreciation and amortization are computed using the straight-line method based
on the estimated useful lives of the related assets. The estimated useful lives
of plant and equipment range from three to twenty years. Depreciation expense
for fiscal year 2001, 2000 and 1999 is $2,764,000 $2,448,000 and $2,083,000
respectively.
The Company's manufacturing processes are dependent upon certain pieces of
specialty steelmaking equipment, such as the Company's electric arc furnace and
universal rolling mill. In the event a critical piece of equipment should become
inoperative as a result of an unexpected equipment failure, there can be no
assurance that the Company's operations would not be substantially curtailed.
SFAS 121 Impairment Long-lived assets, including property, plant and equipment
are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in relation
to the operating performance and future undiscounted cash flows of the
underlying assets. Adjustments are made if the sum of expected future cash flows
is less than book value. Based on management's assessment of the carrying values
of such long-lived assets, no impairment reserve has been deemed necessary as of
December 31, 2001 and 2000.
Capitalization of Software Costs Direct costs incurred in the development and
implementation of internal-use software is capitalized and amortized on a
straight-line basis over its anticipated useful life, which generally does not
exceed three years.
Revenue Recognition Revenue from the sale of products is recognized when both
risk of loss and title has transferred to the customer, which in most cases
coincides with shipment of the related products. Revenue from conversion
services is recognized when the performance of the service is complete.
Income Taxes Deferred income taxes are provided for the tax effect of temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements. The Company uses the liability method to
account for income taxes, which requires deferred taxes to be recorded at the
statutory rate expected to be in effect when the taxes are paid. Deferred tax
assets are reduced by a valuation allowance if it is more likely than not that
the asset will not be realized.
Earnings Per Common Share Basic earnings per common share is computed by
dividing net income by the weighted-average number of common shares outstanding
during the period. Diluted earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding plus all
dilutive potential common shares outstanding during the period. Dilutive common
shares are determined using the treasury stock method. Under the treasury stock
method, exercise of options and warrants are assumed at the beginning of the
period when the average stock price during the period exceeds the exercise price
of outstanding options and warrants and, common shares are assumed issued. The
proceeds from exercise are assumed to be used to purchase common stock at the
average market price during the period. The incremental shares to be issued are
considered to be the dilutive potential common shares outstanding.
Accounting Change In 2000, the Company changed its method of accounting for
revenue recognition in accordance with the provisions of the Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101, required to be adopted
retroactive to January 1, 2000, outlined certain criteria that must be met to
recognize revenue. As a result of the adoption of SAB 101, the Company
determined that the application of the SEC's guidance to the language that
existed in the Company's Standard Terms and Conditions of Sale required the
Company to defer revenue recognition until cash was collected, even though risk
of loss transferred to the buyer at time of shipment. This had the effect of
deferring certain 1999 sale transactions aggregating $12,462,000 into 2000. The
cumulative effect of this change in accounting principle was a charge of
$1,546,000, net of tax benefits of $928,000. Pro forma earnings per share
amounts for the year ended December 31, 1999, assuming SAB 101 had been applied
retroactively, is as follows:
As Pro
Reported Forma
- --------------------------------------------------------------------------------
Net income $2,103 $1,854
Basic earnings per share $0.34 $0.30
Diluted earnings per share $0.34 $0.30
- --------------------------------------------------------------------------------
New Accounting Pronouncements Financial Accounting Standards Board ("FASB")
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998, and amended in June 1999 and in June 2000,
pursuant to FASB Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133"
and FASB Statement No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities: an amendment of FASB No. 133", respectively. These
statements require that an entity recognize certain derivative instruments as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The adoption of these statements on January 1,
2001, did not impact the Company's results of operations or financial condition.
In July 2001, the 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.
Note 2: Inventory
The major classes of inventories are as follows:
December 31, 2001 2000
- --------------------------------------------------------------------------------
(dollars in thousands)
Raw materials and supplies $ 1,880 $ 1,695
Semi-finished and finished
steel products 13,593 13,916
Operating materials 2,427 3,177
- --------------------------------------------------------------------------------
Total inventory $17,900 $18,788
- --------------------------------------------------------------------------------
Note 3: Property, Plant and Equipment Property, plant and equipment consists of
the following:
December 31, 2001 2000
- --------------------------------------------------------------------------------
(dollars in thousands)
Land and land improvements $ 822 $ 822
Buildings 4,701 3,889
Machinery and equipment 43,572 39,838
Construction in progress 2,641 2,311
- --------------------------------------------------------------------------------
51,736 46,860
Accumulated depreciation (10,534) (7,770)
- --------------------------------------------------------------------------------
Property, plant and equipment, net $ 41,202 $ 39,090
- --------------------------------------------------------------------------------
Property, plant and equipment includes a capital lease with Armco, which merged
with and into AK Steel in 1999 ("Armco"), for the land and certain buildings and
structures located in Bridgeville (the "Bridgeville Lease"). The Bridgeville
Lease is for a ten-year term which commenced on August 15, 1994, with three
five-year options to renew on the same terms at the Company's discretion at a
rental of $1 per year plus payment of real and personal property taxes and other
charges associated with the property. The Company also has an option under the
lease to buy substantially all of the leased premises for $1 at any time during
the term of the Bridgeville Lease prior to August 15, 2015.
Note 4: Long-Term Debt and Other Financing Long-term debt consists of the
following:
December 31, 2001 2000
- --------------------------------------------------------------------------------
(dollars in thousands)
PNC Term Loan $ 6,500 $ 7,900
Government debt 1,598 1,922
Capital lease obligations 224 185
- --------------------------------------------------------------------------------
8,322 10,007
Less amounts due within one year (1,832) (1,808)
- --------------------------------------------------------------------------------
Total long-term debt $ 6,490 $ 8,199
- --------------------------------------------------------------------------------
On June 29, 2001, the Company entered into a third amendment to the second
amended and restated credit agreement with PNC Bank which extended the term of
the $6.5 million revolving credit facility ("PNC Line") to April 30, 2003. This
credit agreement, which also includes a term loan ("PNC Term Loan") scheduled to
mature in June 2006, is collateralized by substantially all of the Company's
assets.
Interest on borrowings under the PNC Line and the PNC Term Loan is based on
short-term market rates, which may be further adjusted based upon the Company
maintaining certain financial ratios. The PNC Term Loan currently bears interest
at a rate equal to the Euro-dollar rate plus an interest rate spread not to
exceed 175 basis points. As a condition of the PNC Line and the PNC Term Loan,
the Company is required to maintain certain levels of net worth, working capital
and other financial ratios; to limit the amount of capital expenditures it may
incur without PNC Bank's approval; and to restrict the payment of dividends.
The Company has entered into several separate loan agreements with the
Commonwealth of Pennsylvania's Department of Commerce aggregating $1,600,000
with terms ranging from seven to twenty years. In 1996, the Company entered into
a ten-year loan agreement with the Redevelopment Authority of Allegheny County
Economic Development Fund in the amount of $1,514,000. The loans bear interest
at rates ranging from 5% to 6% per annum.
Scheduled maturities of long-term obligations for the next five years are as
follows:
- -----------------------------------------------------
(dollars in thousands)
2002 1,832
2003 1,723
2004 1,662
2005 1,747
2006 1,042
Thereafter 316
- -----------------------------------------------------
Note 5: Income Taxes
Components of the provision for income taxes are as follows:
For the years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
(dollars in thousands)
Current provision:
Federal $3,160 $2,461 $ 512
State 139 -- 56
- --------------------------------------------------------------------------------
3,299 2,461 568
- --------------------------------------------------------------------------------
Deferred provision (benefit):
Federal 903 1,238 457
State 184 271 (103)
- --------------------------------------------------------------------------------
1,087 1,509 354
- --------------------------------------------------------------------------------
Provision for income taxes $4,386 $3,970 $ 922
- --------------------------------------------------------------------------------
The income tax benefit resulting from recording the cumulative effect on prior
years due to the change in revenue recognition policy was $928,000.
A reconciliation of the federal statutory tax rate and the Company's effective
tax rate is as follows:
For the years ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------
Federal statutory tax 34.0% 34.0% 34.0%
State income taxes,
net of federal benefit 2.3 3.3
(2.2)
Other, net 0.2 0.2 (1.3)
- ------------------------------------------------------------------------------
Effective tax rate 36.5% 37.5% 30.5%
- ------------------------------------------------------------------------------
Deferred taxes result from the following:
December 31, 2001 2000
- -----------------------------------------------------
(dollars in thousands)
Deferred tax assets:
Receivables $ 187 $ 77
Inventory 600 736
Net operating loss carry forwards -- 281
Accrued liabilities 235 145
- -----------------------------------------------------
$ 1,022 $ 1,239
- -----------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 7,146 $ 6,276
- -----------------------------------------------------
Note 6: Stockholders' Equity
Common Additional
Shares Common Paid-In Retained Treasury Treasury
Outstanding Stock Capital Earnings Shares Stock
====================================================================================================================================
(dollars in thousands)
Balance at December 31, 1998 6,320,036 $ 6 $25,787 $17,250 75,000 $ (478)
Common Stock issuance under
Employee Stock Purchase Plan 10,380 51
Purchase of Treasury stock 182,900 (1,066)
Net income 2,103
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 6,330,416 6 25,838 19,353 257,900 (1,544)
Common Stock Issuance
under
Employee Stock Purchase Plan 8,712 50
Net income 5,064
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 6,339,128 6 25,888 24,417 257,900 (1,544)
Common Stock issuance under
Employee Stock Purchase Plan 8,044 53
Purchase of Treasury stock 12,000 (87)
Net income 7,639
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 6,347,172 $ 6 $25,941 $32,056 269,900 $(1,631)
====================================================================================================================================
On October 19, 1998, the Company's Board of Directors authorized a stock
repurchase program. Under the program, the Company may repurchase up to 315,000
shares, or approximately 5%, of the Company's Common Stock in open market
transactions at market prices. At December 31, 2001, the Company is authorized
to repurchase 45,100 additional shares of the Company's Common Stock.
The Company has 2,000,000 authorized shares of Senior Preferred Stock. At
December 31, 2001 and 2000, there were no shares issued or outstanding.
Note 7: Basic and Diluted Earnings Per Share
The computation of basic and diluted earnings per share for the years ended
December 31, 2001, 2000 and 1999 is performed as follows:
2001 2000 1999
---- ---- ----
Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except share amounts and per share amounts)
Income available
to common Stockholders $ 7,639 6,080,045 $ 5,064 6,074,701 $ 2,103 6,110,911
Effect of dilutive securities 17,379 5,057 --
Income available to common Stockholders
plus assumed conversion $ 7,639 6,097,424 $ 5,064 6,079,758 $ 2,103 6,110,911
Basic earnings per common share:
Income before cumulative effect
of accounting change $ 1.26 $ 1.09 $ 0.34
Net income $ 1.26 $ 0.83 $ 0.34
Diluted earnings per common share:
Income before cumulative effect
of accounting change $ 1.25 $ 1.09 $ 0.34
Net income $ 1.25 $ 0.83 $ 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
Note 8: Stock Compensation Plans
At December 31, 2001, the Company has two stock-based compensation plans that
are described below:
Incentive Compensation Plan
On September 23, 1994, the Company's Board of Directors adopted the Company's
1994 Stock Incentive Plan as amended (the "1994 Plan") for the purpose of
issuing stock options to non-employee directors, other than those directors
owning more than 5% of the Company's outstanding Common Stock, officers and
other key employees of the Company who are expected to contribute to the
Company's future growth and success. Under the 1994 Plan, the Company may grant
options up to a maximum of 650,000 shares of Common Stock. Options granted to
non-employee directors vest over a three-year period, and options granted to
employees vest over a four-year period. All options under the 1994 Plan will
expire no later than ten years after the grant date.
A summary of the 1994 Plan activity as of and for the years ended December 31,
2001, 2000 and 1999 is presented below:
2001 2000 1999
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed options
Outstanding at beginning of year 522,500 $9.58 482,500 $9.79 488,500 $10.10
Granted 100,000 8.22 40,000 7.13 40,000 6.06
Exercised -- -- -- -- -- --
Forfeited (5,000) 9.88 -- -- (46,000) 9.90
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 617,500 $9.36 522,500 $9.58 482,500 $9.79
- -----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 472,746 414,287 364,165
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year $4.07 $3.63 $2.89
- -----------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 2001.
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outsanding Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
$6.06 to $12.25 617,500 6.0 $9.36 472,746 $9.82
- -----------------------------------------------------------------------------------------------------------------------------------
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, the Company is authorized to issue
up to 90,000 shares of Common Stock to its full-time employees, nearly all of
whom are eligible to participate. Under the terms of the plan, employees can
choose as of January 1 and July 1 of each year to have up to 10% of their total
earnings withheld to purchase shares of the Company's Common Stock. The purchase
price of the stock is 85% of the lower of its beginning-of-the-period or
end-of-the-period market prices. At December 31, 2001, the Company has issued
45,539 shares of Common Stock since the plan's inception.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plan and its stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value of the
awards at the grant dates in accordance with Financial Accounting Standards
Board Statement 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated below:
For the years ended December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Net income
As reported $7,639 $5,064 $2,103
Pro forma $7,508 $4,714 $1,704
Basic earnings per share
As reported $ 1.26 $ 0.83 $ 0.34
Pro forma $ 1.23 $ 0.78 $ 0.28
- --------------------------------------------------------------------------------------------------------------------------------
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants issued in 2001, 2000 and 1999 respectively; dividend
yield of 0.0% for each year; interest rate of 5.0%, 6.0% and 6.0%; expected
volatility of 50.0%, 50.0%, and 45.0%; and expected lives for options of five
years.
Cash-Incentive Plans
The Company has a management cash-incentive plan covering certain key executives
and employees and profit-sharing plans that cover the remaining employees. The
profit-sharing plans provide for the sharing of pre-tax profits in excess of
specified amounts. For the years ended December 31, 2001, 2000 and 1999, the
Company expensed $1,949,000, $1,328,000, and $445,000, respectively, under these
plans.
Note 9: Retirement Plans
The Company has defined contribution retirement plans that cover substantially
all employees. The Company accrues it's contributions to the hourly employee
plan based on time worked while contributions to the salaried plan are accrued
as a fixed amount per month. Company contributions to both plans are funded
periodically. The total expense for the years ended December 31, 2001, 2000 and
1999 was $413,000, $320,000 and $284,000, respectively.
No other post-retirement benefit plans exist.
Note 10: Commitments and Contingencies
The Company, as well as other steel companies, is subject to demanding
environmental standards imposed by federal, state and local environmental laws
and regulations. In connection with the 1994 acquisition of the Bridgeville
facility assets from Armco, Armco agreed to retain responsibility for
liabilities asserted against it under environmental laws with respect to
environmental conditions existing at the Bridgeville facility prior to
commencement of the Bridgeville Lease on August 15, 1994, and to indemnify the
Company up to $6.0 million in the aggregate over ten years. Such indemnification
expires on August 15, 2004.
In connection with the Company's June 2, 1995, agreement with Armco to purchase
certain assets and a parcel of real property located at Titusville, Armco agreed
to indemnify the Company up to $3.0 million in the aggregate for liabilities
under environmental laws arising out
of conditions on or under the Titusville property existing prior to June 2,
1995. Armco's obligation to indemnify the Company for any liabilities arising
out of environmental conditions existing off-site as of June 2, 1995, is not
subject to the $3.0 million limitation.
Management is not aware of any financial difficulties being experienced by AK
Steel, as successor to Armco, that would prevent its performance under the
acquisition agreements. In addition, management is not aware of any
environmental conditions or the incurrence of other liabilities at the
Bridgeville or Titusville facilities, for which Armco has agreed to indemnify
the Company, nor of any material environmental condition requiring remediation
and affecting the Company.
The Company maintains insurance for both property damage and business
interruption applicable to its production facilities, including the universal
rolling mill.
The Company maintains a supply contract agreement with Talley Metals Technology,
Inc., a subsidiary of Carpenter Technology Corporation, which is currently
effective through December 2002. 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.
Note 11: Segment And Related Information
The Company is comprised of two operating locations, the Bridgeville facility
and the Titusville facility, and one corporate headquarters. The nature of the
products and services, production processes, customer type and distribution
methods are generally similar for both operating locations. In addition, the
assessment of performance and allocation of resources is performed by the chief
operating decision-maker at the corporate level rather than by operating
location. As such, the Company operates as a single segment.
The following table presents net sales by product line:
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Stainless steel $76,908 $62,346 $55,255
Tool Steel 4,503 6,960 6,055
High-strength low alloy steel 3,379 2,161 1,327
High-temperature alloy steel 2,471 1,754 2,124
Conversion services 3,054 2,309 1,807
Other 343 355 95
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales on shipments 90,658 75,885 66,663
Effect of accounting change -- 12,462 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total net sales $90,658 $88,347 $66,663
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales on shipments from the Company's largest customer and its affiliates,
which were generated primarily from the Bridgeville operations, approximated
32%, 39% and 48% of total 2001, 2000 and 1999 sales, respectively. Net sales on
shipments from the Company's second largest customer and its affiliates, which
were generated from the Bridgeville and Titusville operations, approximated 12%,
6% and 6% of 2001, 2000 and 1999 net sales, respectively. The accounts
receivable balances from these two customers comprised approximately 29% and 36%
of total accounts receivable at December 31, 2001 and 2000, respectively.
The Company derives less than 10% of its revenues from markets outside of the
United States and the Company has no assets located outside the United States.
Note 12: Subsequent Event
Subsequent Event On February 14, 2002, the Company, through its wholly owned
subsidiary, Dunkirk Speciality Steel, LLC ("Dunkirk Speciality Steel"), acquired
from the New York Job Development Authority ("JDA") certain assets formerly
owned by Empire Specialty Steel, Inc. ("Empire") at its idled production
facility located in Dunkirk, New York (the "Dunkirk facility"). The assets
acquired include the inventory; property plant and equipment; and selected
intangible assets. The purchase price of $4.0 million will be funded with $1.0
million in cash, paid at closing, and ten-year, 5% interest bearing notes
payable to the JDA in the amount of $3.0 million. No principal or interest
payments are payable during the first year. The Company will not assume any
liabilities of Empire. Capital expenditures are expected to approximate $6.0
million at the Dunkirk facility in 2002.
Note 13: Quarterly Financial Data (unaudited)
In 2000, the Company adopted the provisions of SAB 101 retroactive to January 1,
2000.
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
2001 Data
Net sales $21,259 $24,233 $23,344 $21,822
Gross profit 4,138 5,026 5,152 4,427
Operating income 2,580 3,210 3,851 2,903
Net income 1,512 1,908 2,330 1,889
Earnings per
common share:
Basic $0.25 $0.31 $0.38 $0.31
Diluted $0.25 $0.31 $0.38 $0.31
- -----------------------------------------------------------------------------------------------------------------------------------
2000 Data
Net sales $17,770 $18,522 $18,587 $33,468 (a)
Gross profit 3,044 2,640 3,676 7,126
Operating income 1,941 1,207 2,406 5,934
Income before cumulative effect of
accounting change 1,128 622 1,273 3,587
Cumulative effect of accounting change,
net of tax (1,546) -- -- --
Net income (loss) ($418) $622 $1,273 $3,587
Earnings per common share:
Basic
Income before cumulative effect of
accounting change $0.19 $0.10 $0.21 $0.59
Cumulative effect of accounting
change, net of tax (0.26) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ($0.07) $0.10 $0.21 $0.59
- -----------------------------------------------------------------------------------------------------------------------------------
Diluted
Income before cumulative effect of
accounting change $0.19 $0.10 $0.21 $0.59
Cumulative effect of accounting
change, net of tax (0.26) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ($0.07) $0.10 $0.21 $0.59
===================================================================================================================================
(a) 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.
Price range of common stock
The Common Stock is listed on the Nasdaq National Market under the symbol
"USAP." The following table sets forth the range of high and low sale prices per
share of Common Stock, for the periods indicated below:
High Low
- --------------------------------------------------------------------------------
Year 2001
First quarter $ 8.06 $7.00
Second quarter $10.40 $7.19
Third quarter $10.73 $6.84
Fourth quarter $ 8.49 $6.85
- --------------------------------------------------------------------------------
Year 2000
First quarter $7.56 $5.69
Second quarter $7.75 $5.63
Third quarter $7.19 $6.38
Fourth quarter $8.25 $6.69
- --------------------------------------------------------------------------------
The Company has never paid a cash dividend on its Common Stock and currently has
no plans to pay dividends in the foreseeable future. The PNC Credit Agreement
contains restrictions on the Company's ability to pay dividends on Common Stock.
Forward-Looking Information Safe Harbor
This Annual Report contains historical information and forward-looking
statements. Statements looking forward in time, including statements regarding
future growth, cost savings, expanded production capacity, broader product
lines, greater capacity to meet customer quality reliability, price and delivery
needs, enhanced competitive posture and effect of new accounting pronouncements
are included in this Annual Report pursuant to the "safe harbor" provision 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. Further, the Company operates in an industry sector where securities
values may be volatile and may be influenced by economic and other factors
beyond the Company's control. In the context of the forward-looking information
provided in this Annual Report, please refer to the discussions of risk factors
detailed in, as well as the other information contained in, this Annual Report
and the Company's filings with the Securities and Exchange Commission during the
past 12 months.
Five-Year Summary
For the Years Ended December 31, 2001 2000(a) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)
Summary of Operations
Net sales $90,658 $ 88,347 $66,663 $72,595 $81,301
Operating income 12,544 11,488 3,731 7,566 11,574
Income before cumulative effect of
accouting change -- 6,610 -- -- --
Cumulative effect of accounting change,
net of tax -- (1,546) -- -- --
Net income $ 7,639 5,064 2,103 5,004 7,206
- -----------------------------------------------------------------------------------------------------------------------------------
Pro Forma Summary of Operations (b)
Net sales $90,658 $ 88,347 $63,330 $78,170 $76,229
Operating income 12,544 11,488 3,373 8,437 11,049
Net income $ 7,639 6,610 1,854 5,558 6,875
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Position at Year-End
Working capital $28,655 $ 23,558 $20,800 $21,829 $20,086
Total assets 79,446 73,747 68,179 64,450 56,151
Total debt 8,322 10,007 11,841 12,958 5,779
Stockholders' equity 56,372 48,767 43,653 42,565 37,768
- -----------------------------------------------------------------------------------------------------------------------------------
Common Share Data
Basic earning per share:
As reported $ 1.26 $ 0.83 $ 0.34 $ 0.79 $ 1.15
Pro Forma under SAB 101 (b) 1.26 1.09 0.30 0.88 1.09
Diluted earning per share:
As reported 1.25 0.83 0.34 0.79 1.12
Pro Forma under SAB 101 (b) 1.25 1.09 0.30 0.87 1.07
Stockholders' equity 9.28 8.03 7.19 6.82 6.00
- -----------------------------------------------------------------------------------------------------------------------------------
Other Data
EBITDA (c) $15,365 $ 11,459 $ 5,844 $ 8,960 $12,741
Capital expenditures 5,253 4,598 3,366 12,146 8,145
Depreciation and amortization 2,782 2,466 2,101 1,516 1,109
Return on stockholders' equity 13.6% 10.4% 4.8% 11.8% 19.1%
Debt to total capitalization 12.9 17.0 21.3 23.3 13.3
Employees 304 280 277 280 270
Customers 288 250 235 200 167
- -----------------------------------------------------------------------------------------------------------------------------------
Average Shares Outstanding (in thousands)
Basic 6,080 6,075 6,111 6,305 6,286
Diluted 6,097 6,080 6,111 6,355 6,417
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes $12,462,000 of net sales and $9,988,000 of costs of sales
associated with revenues recognized in 1999 but deferred until 2000 as
a result of implementing Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." The 2000 results of operations
also include the impact of changing the Company's Standard Terms and
Conditions to more closely reflect the substance of its sales
transactions.
(b) Includes the effect of implementing Staff Accounting Bulleting No. 101,
"Revenue Recognition in Financial Statements" as required under
generally accepted accounting principles in 2000.
(c) Represents earnings before special charges, interest expense, income
taxes and depreciation and amortization.
Forward-Looking Information Safe Harbor
This Annual Report contains historical information and forward-looking
statements. Statements looking forward in time, including statements regarding
future growth, cost savings, expanded production capacity, broader product
lines, greater capacity to meet customer quality reliability, price and delivery
needs, enhanced competitive posture and effect of new accounting pronouncements
are included in this Annual Report pursuant to the "safe harbor" provision 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. Further, the Company operates in an industry sector where securities
values may be volatile and may be influenced by economic and other factors
beyond the Company's control. In the context of the forward-looking information
provided in this Annual Report, please refer to the discussions of risk factors
detailed in, as well as the other information contained in, this Annual Report
and the Company's filings with the Securities and Exchange Commission during the
past 12 months.
Directors, Officers and Management
Directors
Douglas M. Dunn
Dean of Graduate School of Industrial Administration
Carnegie Mellon University
George F. Keane
President Emeritus
Common Fund Group
Clarence M. McAninch
President and Chief Executive Officer
Universal Stainless & Alloy Products, Inc.
Udi Toledano
President
Millennium 3 Capital, Inc.
D. Leonard Wise
Former President and Chief Executive Officer
Carolina Steel Corporation
Officers
Clarence M. McAninch
President and Chief Executive Officer
Richard M. Ubinger
Vice President of Finance, Chief Financial Officer and Treasurer
Paul A. McGrath
Vice President of Operation, General Counsel and Secretary
Management
Michael J. Obiecunas
Director, Employee Relations
Bruce A. Kramer
Director, Purchasing and Production Planning
Keith A. Engleka
Director, Technology
David M. Blanchard
Manager, PRP Division
Corporate Information
Executive Offices
Universal Stainless & Alloy Products, Inc.
600 Mayer Street
Bridgeville, PA 15017
412-257-7600
Annual Meeting
The Annual Meeting of Stockholders
will be held at 10 a.m. on Tuesday,
May 21, 2002, at the Southpointe Golf Club,
Canonsburg, PA.
Stockholder Information
Universal Stainless & Alloy Products, Inc.'s Annual Report, Form 10-K and other
reports filed with the Securities and Exchange Commission can be obtained,
without charge, by writing to the Vice President of Finance at the Executive
Offices.
Transfer Agent and Registrar
Continental Stock Transfer &
Trust Company
2 Broadway
New York, NY 10004
Stock Listing
NASDAQ Symbol: USAP
Web Site Address
www.univstainless.com