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, 2004
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 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of April 30, 2004, there were 6,299,531 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 that reflect the Company’s current views with respect to future events and financial performance. 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, effect of new accounting pronouncements and no material financial impact from litigation or contingencies are included in this Form 10-Q pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995.
The Company’s actual results will be affected by a wide range of factors including the limited operating history of Dunkirk Specialty Steel, LLC; the concentrated nature of the Company’s customer base to date and the Company’s dependence on its significant customers; the receipt, pricing and timing of future customer orders; changes in product mix; the limited number of raw material and energy suppliers and significant fluctuations that may occur in raw material and energy prices; the Company’s reliance on certain critical manufacturing equipment; the ability to acquire the ESR Building prior to the expiration of the Armco Lease; the Company’s ongoing requirement for continued compliance with environmental laws; and the ultimate outcome of the Company’s current and future litigation matters. Many of these factors are not within the Company’s control and 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. 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.
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.
| DESCRIPTION |
PAGE NO. | |||
| PART I. |
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| Item 1. |
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| 3 | ||||
| 4 | ||||
| 5 | ||||
| Notes to the Unaudited Consolidated Condensed Financial Statements |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 | ||
| Item 3. |
14 | |||
| Item 4. |
14 | |||
| PART II. |
||||
| Item 1. |
15 | |||
| Item 6. |
15 | |||
| 16 | ||||
| CERTIFICATIONS |
17 | |||
2
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, |
||||||||
| 2004 |
2003 |
|||||||
| Net sales |
$ | 21,307 | $ | 14,700 | ||||
| Cost of products sold |
19,344 | 14,680 | ||||||
| Selling and administrative expenses |
1,528 | 1,393 | ||||||
| Operating income (loss) |
435 | (1,373 | ) | |||||
| Interest expense |
(88 | ) | (95 | ) | ||||
| Other income |
8 | 27 | ||||||
| Income (loss) before taxes |
355 | (1,441 | ) | |||||
| Income tax provision (benefit) |
128 | (858 | ) | |||||
| Net income (loss) |
$ | 227 | $ | (583 | ) | |||
| Earnings (loss) per share – Basic |
$ | 0.04 | $ | (0.09 | ) | |||
| Earnings (loss) per share – Diluted |
$ | 0.04 | $ | (0.09 | ) | |||
| Weighted average shares of Common Stock outstanding |
||||||||
| Basic |
6,296,053 | 6,284,638 | ||||||
| Diluted |
6,336,034 | 6,284,638 | ||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 512 | $ | 4,735 | ||||
| Accounts receivable, net |
15,225 | 12,690 | ||||||
| Inventory |
28,560 | 22,281 | ||||||
| Deferred taxes |
1,222 | 1,222 | ||||||
| Other current assets |
3,006 | 3,063 | ||||||
| Total current assets |
48,525 | 43,991 | ||||||
| Property, plant and equipment, net |
39,566 | 40,176 | ||||||
| Other assets |
747 | 758 | ||||||
| Total assets |
$ | 88,838 | $ | 84,925 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities |
||||||||
| Trade accounts payable |
$ | 9,450 | $ | 6,792 | ||||
| Outstanding checks in excess of bank balance |
541 | 813 | ||||||
| Accrued employment costs |
1,536 | 833 | ||||||
| Current portion of long-term debt |
1,931 | 1,944 | ||||||
| Other current liabilities |
556 | 195 | ||||||
| Total current liabilities |
14,014 | 10,577 | ||||||
| Bank revolver |
668 | — | ||||||
| Long-term debt |
5,114 | 5,599 | ||||||
| Deferred taxes |
9,334 | 9,313 | ||||||
| Total liabilities |
29,130 | 25,489 | ||||||
| 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; 6,569,431 and 6,564,306 shares issued |
7 | 7 | ||||||
| Additional paid-in capital |
28,374 | 28,329 | ||||||
| Retained earnings |
32,958 | 32,731 | ||||||
| Treasury Stock at cost; 269,900 common shares held |
(1,631 | ) | (1,631 | ) | ||||
| Total stockholders’ equity |
59,708 | 59,436 | ||||||
| Total liabilities and stockholders’ equity |
$ | 88,838 | $ | 84,925 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
4
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| For the Three-month period ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 227 | $ | (583 | ) | |||
| Adjustments to reconcile to net cash (used in) provided by operating activities: |
||||||||
| Depreciation and amortization |
786 | 827 | ||||||
| Deferred taxes |
21 | 185 | ||||||
| Tax benefit from exercise of stock options |
3 | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
(2,535 | ) | 250 | |||||
| Inventory |
(6,279 | ) | 1,050 | |||||
| Trade accounts payable |
2,658 | 652 | ||||||
| Accrued employment costs |
703 | 34 | ||||||
| Other, net |
427 | 547 | ||||||
| Net cash (used in) provided by operating activities |
(3,989 | ) | 2,962 | |||||
| Cash flow from investing activities: |
||||||||
| Capital expenditures |
(174 | ) | (79 | ) | ||||
| Net cash used in investing activities |
(174 | ) | (79 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net borrowings under revolving line of credit |
668 | — | ||||||
| Proceeds from deferred loan agreement |
— | 200 | ||||||
| Repayments of long-term debt |
(498 | ) | (460 | ) | ||||
| (Decrease) increase in outstanding checks in excess of bank balance |
(272 | ) | 416 | |||||
| Proceeds from the issuance of common stock |
42 | — | ||||||
| Net cash (used in) provided by financing activities |
(60 | ) | 156 | |||||
| Net (decrease) increase in cash and cash equivalents |
(4,223 | ) | 3,039 | |||||
| Cash and cash equivalents at beginning of period |
4,735 | 3,308 | ||||||
| Cash and cash equivalents at end of period |
$ | 512 | $ | 6,347 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Interest paid |
$ | 87 | $ | 69 | ||||
| Income taxes paid |
$ | — | $ | 33 | ||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
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, 2004 and 2003, balance sheets as of March 31, 2004 and December 31, 2003, and statements of cash flows for the three-month periods ended March 31, 2004 and 2003, 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, 2003. 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, 2004 and December 31, 2003 and the consolidated results of operations and of cash flows for the periods ended March 31, 2004 and 2003, 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 ended March 31, | ||||
| 2004 |
2003 | |||
| Weighted average number of shares of Common Stock outstanding |
6,296,053 | 6,284,638 | ||
| Effect of dilutive securities |
39,981 | — | ||
| Weighted average number of shares of Common Stock outstanding, as adjusted |
6,336,034 | 6,284,638 | ||
The Company had 981 common stock equivalents outstanding for the three-month period ended March 31, 2003, which were not included in the common share computations for earnings (loss) per share as the common stock equivalents are anti-dilutive.
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, |
||||||||
| 2004 |
2003 |
|||||||
| Net income (loss), as reported |
$ | 227 | $ | (583 | ) | |||
| Total stock-based compensation expense determined under fair-value based method, net of taxes |
(39 | ) | (28 | ) | ||||
| Pro forma net income (loss) |
$ | 188 | $ | (611 | ) | |||
| Earnings (loss) per common share: |
||||||||
| Basic – as reported |
$ | 0.04 | $ | (0.09 | ) | |||
| Basic – pro forma |
$ | 0.03 | $ | (0.10 | ) | |||
| Diluted – as reported |
$ | 0.04 | $ | (0.09 | ) | |||
| Diluted – pro forma |
$ | 0.03 | $ | (0.10 | ) | |||
6
Note 4 – New Accounting Pronouncements
No new accounting pronouncements have been issued during the three-month period ended March 31, 2004 that would have a material impact on the Company’s financial statements. Further, there have been no changes in the Company that would impact the accounting pronouncements disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Note 5 – Inventory
The major classes of inventory are as follows (dollars in thousands):
| March 31, 2004 |
December 31, 2003 | |||||
| Raw materials and supplies |
$ | 3,816 | $ | 2,265 | ||
| Semi-finished and finished steel products |
22,242 | 17,743 | ||||
| Operating materials |
2,502 | 2,273 | ||||
| Total inventory |
$ | 28,560 | $ | 22,281 | ||
Note 6 – Property, Plant and Equipment
Property, plant and equipment consists of the following (dollars in thousands):
| March 31, 2004 |
December 31, 2003 |
|||||||
| Land and land improvements |
$ | 953 | $ | 953 | ||||
| Buildings |
5,987 | 5,987 | ||||||
| Machinery and equipment |
49,945 | 49,801 | ||||||
| Construction in progress |
171 | 141 | ||||||