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 September 30, 2004

¨	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 November 5, 2004, there were 6,322,890 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 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.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Condensed Statements of Operations	3

	Consolidated Condensed Balance Sheets	4

	Consolidated Condensed Statements of Cash Flows	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.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	16

Item 6.	Exhibits	16

SIGNATURES		17

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 September 30,						For the Nine-month period ended September 30,
	2004			2003			2004			2003
Net sales	$	33,297		$	18,625		$	83,630		$	50,162
Cost of products sold		27,701			17,296			71,576			47,917
Selling and administrative expenses		1,873			1,507			5,348			4,425

Operating income (loss)		3,723			(178	)		6,706			(2,180	)
Interest expense		(108	)		(100	)		(302	)		(289	)
Other income		566			24			577			74

Income (loss) before taxes		4,181			(254	)		6,981			(2,395	)
Income tax provision (benefit)		1,436			(133	)		2,443			(1,251	)

Net income (loss)	$	2,745		$	(121	)	$	4,538		$	(1,144	)

Earnings (loss) per share – Basic	$	0.44		$	(0.02	)	$	0.72		$	(0.18	)

Earnings (loss) per share – Diluted	$	0.43		$	(0.02	)	$	0.71		$	(0.18	)

Weighted average shares of Common Stock outstanding
Basic		6,305,456			6,289,485			6,300,229			6,286,271
Diluted		6,400,188			6,289,485			6,363,656			6,286,271

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)


	September 30, 2004			December 31, 2003
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	549		$	4,735
Accounts receivable, (less allowance for doubtful accounts of $373 and $163, respectively)		22,629			12,690
Inventory		33,808			22,281
Deferred taxes		1,125			1,222
Other current assets		1,973			3,063

Total current assets		60,084			43,991
Property, plant and equipment, net		40,225			40,176
Other assets		472			758

Total assets	$	100,781		$	84,925

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Trade accounts payable	$	11,787		$	6,792
Outstanding checks in excess of bank balance		939			813
Accrued employment costs		2,818			833
Current portion of long-term debt		1,931			1,944
Other current liabilities		1,030			195

Total current liabilities		18,505			10,577
Bank revolver		4,597			—
Long-term debt		4,150			5,599
Deferred taxes		9,451			9,313

Total liabilities		36,703			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; 6,575,791` and 6,564,306 shares issued		7			7
Additional paid-in capital		28,433			28,329
Retained earnings		37,269			32,731
Treasury Stock at cost; 269,900 common shares held		(1,631	)		(1,631	)

Total stockholders’ equity		64,078			59,436

Total liabilities and stockholders’ equity	$	100,781		$	84,925

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 Nine-month period ended September 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	4,538		$	(1,144	)
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and amortization		2,336			2,319
Deferred taxes		480			670
Tax benefit from exercise of stock options		8			—
Changes in assets and liabilities:
Accounts receivable, net		(9,939	)		(2,167	)
Inventory		(11,527	)		(188	)
Trade accounts payable		4,995			2,559
Accrued employment costs		1,985			243
Refundable taxes		1,405			(930	)
Other, net		553			227

Net cash (used in) provided by operating activities		(5,166	)		1,589

Cash flow from investing activities:
Capital expenditures		(2,377	)		(713	)

Net cash used in investing activities		(2,377	)		(713	)

Cash flows from financing activities:
Net borrowings under revolving line of credit		4,597			—
Proceeds from deferred loan agreement		—			200
Repayments of long-term debt		(1,462	)		(1,451	)
Increase in outstanding checks in excess of bank balance		126			235
Proceeds from the issuance of common stock		96			25

Net cash provided by (used in) financing activities		3,357			(991	)

Net decrease in cash and cash equivalents		(4,186	)		(115	)
Cash and cash equivalents at beginning of period		4,735			3,308

Cash and cash equivalents at end of period	$	549		$	3,193

Supplemental disclosure of cash flow information:
Interest paid	$	291		$	255
Income taxes (refunded) paid	$	(87	)	$	7

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- and nine- month periods ended September 30, 2004 and 2003, balance sheets as of September 30, 2004 and December 31, 2003, and statements of cash flows for the nine-month periods ended September 30, 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 September 30, 2004 and December 31, 2003 and the consolidated results of operations and of cash flows for the periods ended September 30, 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 Three-month period ended September 30,		For the Nine-month period ended September 30,
	2004	2003	2004	2003
Weighted average number of shares of Common Stock outstanding	6,305,456	6,289,485	6,300,229	6,286,271
Effect of dilutive securities	94,732	—	63,427	—

Weighted average number of shares of Common Stock outstanding, as adjusted	6,400,188	6,289,485	6,363,656	6,286,271

The Company had 9,206 and 3,794 common stock equivalents outstanding for the three- and nine-month periods ended September 30, 2003, respectively, 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 September 30,						For the Nine-month period ended September 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	2,745		$	(121	)	$	4,538		$	(1,144	)
Total stock-based compensation expense determined under fair-value based method, net of taxes		(45	)		(21	)		(131	)		(65	)

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