UNIVERSAL STAINLESS & ALLOY PRODUCTS INC - 10-Q Quarterly Report

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 March 31, 2003

OR

o	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 incorporation or organization)		(IRS Employer Identification No.)

600 Mayer Street
Bridgeville, PA 15017
(Address of principal executive offices, including zip code)

(412) 257-7600
(Registrant’s 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

Yes o

No x

As of April 30, 2003, there were 6,284,638 shares outstanding of the Registrant’s Common Stock, $0.001 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 that may cause the Company’s actual results in future periods to differ materially from forecasted results. Those risks include, among others, risks associated with the limited operating history of Dunkirk Specialty Steel, LLC, risks associated with the Company’s ability to meet its current loan covenants, risks associated with the receipt, pricing and timing of future customer orders, risks related to the financial viability of customers, risks associated with the manufacturing process and production yields, and risks related to property, plant and equipment. 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 Annual Report on Form 10-K and other filings with the Securities and Exchange Commission during the past 12 months.

DESCRIPTION		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	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12

Item 4.	Controls and Procedures	12

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	13

Item 6.	Exhibits and Reports on Form 8-K	13

SIGNATURES		14

CERTIFICATIONS		15

Part I.	FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Information)
(Unaudited)

	For the Three-month period ended March 31,

	2003			2002

Net sales	$	14,700		$	17,596
Cost of products sold		14,680			14,245
Selling and administrative expenses		1,393			1,373

Operating income (loss)		(1,373	)		1,978
Interest expense and other financing costs		(95	)		(110	)
Other income		27			31

Income (loss) before taxes		(1,441	)		1,899
Income tax (benefit) expense		(858	)		693

Net income (loss)	$	(583	)	$	1,206

Earnings (loss) per common share
Basic	$	(0.09	)	$	0.20

Diluted	$	(0.09	)	$	0.20

The accompanying notes are an integral part of these consolidated condensed financial statements.

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)

	March 31, 2003			December 31, 2002

	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	6,347		$	3,308
Accounts receivable (less allowance for doubtful accounts of $294 and $298)		11,300			11,550
Inventory		21,667			22,717
Other current assets		3,346			3,581

Total current assets		42,660			41,156
Property, plant and equipment, net		41,315			42,246
Other assets		637			642

Total assets	$	84,612		$	84,044

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	4,842		$	4,190
Outstanding checks in excess of bank balance		691			275
Current portion of long-term debt		1,985			1,971
Accrued employment costs		1,053			1,019
Other current liabilities		444			163

Total current liabilities		9,015			7,618
Long-term debt		7,046			7,502
Deferred taxes		8,333			8,123

Total liabilities		24,394			23,243

Commitments and contingencies		—			—
Stockholders’ equity
Senior Preferred Stock, par value $0.001 per share; 1,980,000 shares authorized; 0 shares issued and outstanding		—			—
Common Stock, par value $0.001 per share; 10,000,000 shares authorized; 6,554,538 shares issued		7			7
Additional paid-in capital		28,277			28,277
Retained earnings		33,565			34,148
Treasury Stock at cost; 269,900 common shares held		(1,631	)		(1,631	)

Total stockholders’ equity		60,218			60,801

Total liabilities and stockholders’ equity	$	84,612		$	84,044

The accompanying notes are an integral part of these consolidated condensed financial statements.

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	For the Three-month period ended March 31,

	2003			2002

Cash flow from operating activities:
Net income (loss)	$	(583	)	$	1,206
Adjustments to reconcile to net cash and cash equivalents Provided by operating activities:
Depreciation and amortization		827			772
Deferred taxes		185			272
Changes in assets and liabilities:
Accounts receivable, net		250			1,190
Inventory		1,050			328
Trade accounts payable		652			627
Accrued employment costs		34			(264	)
Refundable taxes		(43	)		—
Other, net		590			(43	)

Net cash provided by operating activities		2,962			4,088

Cash flow from investing activities:
Acquisition of assets and real property through purchase agreements		—			(1,271	)
Capital expenditures		(79	)		(352	)

Net cash used in investing activities		(79	)		(1,623	)

Cash flow from financing activities:
Proceeds from deferred loan agreement		200			—
Repayments of long-term debt		(460	)		(459	)
Increase in outstanding checks in excess of bank balance		416			361

Net cash provided by (used in) financing activities		156			(98	)

Net increase in cash and cash equivalents		3,039			2,367
Cash and cash equivalents at beginning of period		3,308			5,454

Cash and cash equivalents at end of period	$	6,347		$	7,821

Supplemental disclosure of cash flow information:
Interest paid	$	69		$	85
Income taxes paid	$	33		$	91

The accompanying notes are an integral part of these consolidated condensed financial statements.

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation
The accompanying unaudited consolidated condensed financial statements of operations for the three-month periods ended March 31, 2003 and 2002, balance sheets as of March 31, 2003 and December 31, 2002, and statements of cash flows for the three-month periods ended March 31, 2003 and 2002, 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, 2002. 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 March 31, 2003 and December 31, 2002 and the consolidated results of operations and of cash flows for the periods ended March 31, 2003 and 2002, and are not necessarily indicative of the results to be expected for the full year.

Note 2 – Common Stock
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 Three-month period ended March 31,

	2003		2002

Weighted average number of shares of Common Stock outstanding		6,284,638		6,077,272
Assuming exercise of stock options reduced by the number of shares which could have been purchased with the proceeds from the exercise of such stock options		981		35,315

Weighted average number of shares of Common Stock outstanding, as adjusted		6,285,619		6,112,587

Note 3 – Stock-Based Compensation Plans
The following table illustrates the effect on net income (loss) and earnings per share between the Company’s use of the intrinsic value method and the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee and director compensation (dollars, except per share amounts, in thousands):

	For the Three-month period ended March 31,

	2003			2002

Net income (loss), as reported	$	(583	)	$	1,206
Total stock-based compensation expense determined Under fair-value based method, net of taxes		(28	)		(29	)

Pro forma net income (loss)	$	(611	)	$	1,177

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