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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number 0-25032
------------------------------
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1724540
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Mayer Street
Bridgeville, PA 15017
(Address of principal executive offices, including zip code)
(412) 257-7600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, par value $.001 per share
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 27, 2000, based on the closing price of $7.0625 per share
on that date, was $21,262,094. For the purposes of this disclosure only, the
registrant has assumed that its directors, executive officers, and beneficial
owners of 5% or more of the registrant's Common Stock are the affiliates of the
registrant.
As of March 27, 2000, there were 6,072,516 shares of the Registrant's Common
Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the year ended
December 31, 1999, and definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held May 23, 2000, are incorporated by reference
into Parts II, III and IV of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 7
Item 3. Legal Proceedings....................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders..................... 9
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.......................................................... 10
Item 6. Selected Financial Data................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risks............. 11
Item 8. Financial Statements and Supplementary Data............................. 11
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 11
PART III
Item 10. Directors and Executive Officers of the Company......................... 12
Item 11. Executive Compensation.................................................. 12
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 12
Item 13. Certain Relationships and Related Transactions.......................... 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 13
PART I
ITEM 1. BUSINESS
General
Universal Stainless & Alloy Products, Inc. (the "Company"), which was
incorporated in 1994, manufactures and markets semi-finished and finished
specialty steel products, including stainless steel, tool steel and certain
other alloyed steels. The Company's products are sold to rerollers, forgers,
service centers and original equipment manufacturers. The Company's customers
further process its products for use primarily in the heavy equipment
manufacturing, 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.
The Company's products are manufactured in a wide variety of grades, widths and
gauges in response to customer specifications. At the Bridgeville facility, the
Company produces its specialty steel products in the form of long products
(ingots, blooms, billets and bars) and flat rolled products (slabs and plates).
The semi-finished long products are primarily used by customers to produce
finished bar, rod and wire products, and the semi-finished flat rolled products
are used by customers to produce fine-gauge plate, sheet and strip products.
The finished bar products manufactured by the Company are primarily used by
service center customers for distribution to a variety of customers. The
Company also produces customized shapes primarily for original equipment
manufacturers that are cold rolled from purchased coiled strip, flat bar or
extruded bar at its Precision Rolled Products department ("PRP"), located at the
Titusville facility.
Industry Overview
The specialty steel industry is a relatively small but distinct segment of the
overall steel industry. Specialty steels include stainless steels, high speed
and tool steels, electrical steels, high temperature alloys, magnetic alloys and
electronic alloys. Specialty steels are made with a high alloy content, which
enables their use in environments that demand exceptional hardness, toughness,
strength and resistance to heat, corrosion or abrasion, or combinations thereof.
Specialty steels generally must conform to more demanding customer
specifications for consistency, straightness and surface finish than carbon
steels.
The Company primarily manufactures its products within the following specialty
steel product lines:
Stainless Steel. Stainless steel, which represents the largest part of the
specialty steel market, contains elements such as nickel, chrome and molybdenum
that give it unique qualities of resistance to rust, corrosion and heat, high
strength, good wear characteristics, natural attractiveness and ease of
maintenance. Stainless steel is used, among other applications, in the
automotive, aircraft and aerospace industries and in the manufacture of food
handling, chemical processing, and pollution control and medical and health
equipment. The large number of applications for stainless steel has resulted in
the development of a greater variety of stainless steel metallurgical grades
than carbon steel.
Tool Steel. Tool steels contain elements of manganese, silicon, chrome and
molybdenum to produce specific hardness characteristics that enable them to
form, cut, shape and shear other materials in the manufacturing process.
Heating and cooling at precise rates in the heat treating process bring out
these hardness characteristics. Tool steels are utilized in the manufacturing
of metals, plastics, pharmaceuticals, electronics, optics and paper and aluminum
extrusions.
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High Temperature Alloy Steel. These steels are designed to meet critical
requirements of heat resistance and structural integrity. They generally have a
very high nickel content relative to other types of specialty steels. High
temperature alloy steels are manufactured for use generally in the aerospace
industry.
High Strength Low Alloy Steel. High strength low alloy steel is a relative term
that refers to those steels that maintain alloying elements that range in
versatility. The alloy element of nickel, chrome and molybdenum in such steels
typically exceed the alloy element of carbon steels but not that of high
temperature alloy steel.
Net sales by principal product line were as follows (dollars in thousands):
Year ended December 31, 1999 1998 1997
---- ---- ----
Stainless steel $55,255 $53,661 $60,700
Tool steel 6,055 7,548 10,467
High-temperature alloy steel 2,124 4,387 2,636
Conversion service 1,807 3,690 4,834
Other 1,422 3,309 2,664
------- ------- -------
$66,663 $72,595 $81,301
------- ------- -------
Raw Materials
Scrap Metal
The Company's major raw material is ferrous scrap metal, which is generated
principally from industrial, automotive, demolition and railroad sources and is
purchased in the open market through a number of scrap brokers and dealers or by
direct purchase. The Company purchases approximately 80% of its scrap metal
from three principal domestic suppliers. The long-term demand for scrap metal
and its importance to the domestic specialty steel industry is expected to
increase as demand for specialty steel products increases. In addition, the
importance of scrap metal will be further enhanced as steel makers continue to
expand scrap metal-based electric furnace capacity. The high quality of the
Company's products requires use of premium grades of scrap metal, the supply of
which is limited. The Company has not experienced difficulty to date in
purchasing adequate scrap metal for its production processes. The Company
believes that adequate supplies of scrap metal will continue to be available in
sufficient quantities for the foreseeable future.
Alloys
The Company purchases various materials for use as alloy additions, some of
which come from Canada (principally nickel) and other foreign countries. South
African manufacturers supply certain alloys (principally chrome). Any political
disruptions in that country could interfere with the delivery of those
materials.
PRP Starting Materials
PRP's principal starting materials consist of metallic flat bar, extruded "near
shaped" bar and coiled strip, which the Company cold rolls to customer
specifications to produce special shapes. The Company generally purchases those
starting materials from steel strip coil suppliers, extruders, flat rolled
producers and service centers. The Company believes that adequate supplies of
starting material for PRP will continue to be available in sufficient quantities
for the foreseeable future.
The cost of raw material is approximately 40% of the Company's total cost of
products sold. Raw material prices vary based on numerous factors, including
quality, and are subject to frequent market fluctuations and future prices
cannot be predicted with any degree of certainty. Therefore, the Company does
not maintain any long-term written agreements with any of its raw material
suppliers. The Company has established arrangements with certain raw material
suppliers that permit the Company to purchase certain
2
raw materials at set prices for 30 days. These arrangements may protect the
Company against short-term price increases in raw materials after it has agreed
to manufacture products for its customers at specified prices, which reflect
those set raw material prices. In addition, the Company may also be protected by
an alloy surcharge mechanism covering nickel, chrome and molybdenum.
Customers
The Company's principal customers are rerollers, forgers, service centers and
original equipment manufacturers, which primarily include the power generation
and aerospace industries. The Company has a supply agreement with its primary
customer, Talley Metals Technology, Inc., a subsidiary of Carpenter Technology
Corporation to provide an average of 1,750 tons of stainless steel reroll billet
products per month. In December 1999, the agreement was extended through June
2001. For the year ended December 31, 1999, Talley Metals and its affiliates
accounted for 48% of the Company's net sales. No other customer accounted for
more than 10% of the Company's net sales for the year ended December 31, 1999.
The Company's five largest customers in the aggregate accounted for
approximately 66% of net sales. A principal element of the Company's business
strategy is to seek new customers so that over time it will reduce its
dependence on one or a small number of customers. The Company's customer base
increased from 200 at December 31, 1998 to 235 at December 31, 1999.
The Company's products are marketed directly to its customers by Company
personnel, including the Company's President and Chief Executive Officer, its
PRP General Manager, five full-time sales persons and two independent sales
representatives. In view of the relatively small number of prospective
customers, the strong business relationships maintained with its existing
customers and the thorough product knowledge possessed by those management and
marketing persons, the Company believes its sales force is adequate for its
current and immediately foreseeable needs.
Backlog
The Company primarily manufactures products to meet specific customer orders,
generally fulfilling orders in eight weeks or less for its semi-finished
products and in sixteen weeks or less for its finished products. The Company's
backlog of orders on hand as of December 31, 1999, was approximately $14.5
million as compared to $10.8 million at the same time in 1998. The increase in
backlog of orders on hand as of December 31, 1999 as compared to December 31,
1998 primarily resulted from declining import levels during 1999 and higher
demand for products required by the power generation industry. Customer orders
are generally subject to cancellation with the payment of a penalty charge prior
to delivery. The Company's backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenue.
Competition
The Company believes itself to be one of approximately 20 domestic manufacturers
that produce specialty steel and one of approximately five domestic specialty
steel manufacturers that produce special shapes. Of that number of firms that
produce specialty steel, the Company believes five companies currently compete
within the Company's selected markets, although other specialty steel mills have
the capability of producing, and hence competing with, some of or all the
Company's specialty steel products.
Major competitors of the Company in the specialty steel market include fully
integrated specialty steel producers such as Allegheny Technologies, Inc.;
Carpenter Technology Corporation; Empire Specialty Steel Inc. (formerly AL Tech
Specialty Steel Corporation); Slater Steels Corporation; and The Timken Company.
Although Electralloy, a subsidiary of G.O. Carlson Inc., and First Mississippi
Steels, Inc. generally produce only stainless steel ingots, they can also
compete with the Company by utilizing outside conversion services. Additionally,
there are several smaller electric arc furnace melt shops that also produce
specialty steel. The major competitors of the Company in the special shapes
market served by
3
PRP include Rathbone Precision Metals, Inc., a subsidiary of Carpenter
Technology Corporation; Precision Shapes, Inc.; and J.T. Slocomb Company.
Competition in the Company's markets is based upon product quality, delivery
capability, customer service and price. Maintaining high standards of product
quality while keeping production costs at competitive levels is essential to the
Company's ability to compete in its markets. The ability of a manufacturer to
respond quickly to customer orders is currently, and is expected to remain,
important in the specialty steel market. The Company believes its universal
rolling mill provides it with a competitive advantage as the only domestic mill
that can produce both long product and flat rolled product. The Company
believes it has the ability to fill customers' orders in a shorter lead time for
delivery than a fully-integrated specialty steel mill currently can achieve,
which provides it with another competitive advantage. The short lead-time may
also enable the Company to avoid maintaining a high level of inventory of raw
materials, thereby reducing the Company's cost of production.
The domestic specialty steel industry is frequently affected by general economic
conditions. Further, the Company also faces competition from producers of
certain materials, particularly aluminum, composites and plastics. In addition,
many of the finished products sold by the Company's customers are in direct
competition with finished products manufactured by foreign sources, which may
affect the demand for those customers' products. Any competitive factors that
adversely affects the market for finished products manufactured by the Company's
customers could indirectly adversely affect the demand for the Company's
specialty steel products.
Employee Relations
The Company considers the maintenance of good relations with its employees to be
important to the successful conduct of its business. The Company has profit-
sharing plans for certain salaried employees and all of its United Steel Workers
of America (USWA) employees and has equity ownership programs for all of its
eligible employees, in an effort to forge an alliance between its employee's
interests and those of the Company's stockholders. At December 31, 1999, the
Company had 229 employees at its Bridgeville facility and 48 employees at its
Titusville facility, of whom 183 and 41 were USWA members, respectively.
In August 1997, the Company and the USWA completed negotiation of a new five-
year comprehensive collective bargaining agreement (the "Bridgeville CBA") that
recognizes the USWA as the exclusive representative for the Company's hourly
Bridgeville employees with respect to the terms and conditions of their
employment. The basic structure of the Bridgeville CBA is similar to the
original four-year agreement, which contained certain wage, benefit, and work
rule terms, which permitted the Company to be competitive in the domestic
specialty steel industry.
In February 2000, the Company and the USWA completed negotiation of a new sixty-
seven (67) month comprehensive collective bargaining agreement (the "Titusville
CBA"). The Titusville CBA is similar to the original five-year agreement.
The Company has profit-sharing plans that cover certain salaried employees and
all hourly employees. The profit-sharing plans provide for the sharing of pre-
tax profits in excess of specified amounts. The Company maintains separate
401(k) retirement plans for its hourly and salary employees. Pursuant to each
plan, participants may elect to make pre-tax contributions to the plan, subject
to certain limitations imposed under the Internal Revenue Code of 1986, as
amended (the "Code"). Company matching contributions are not permitted under the
plans. In addition, the Company is required to make periodic contributions to
the plans based on service. The Company also provides life insurance and health
coverage for its hourly and salary employees.
4
Armco Agreement
Armco, which merged with and into AK Steel in 1999, the former owner of certain
assets of the Company ("Armco"), retained responsibility for any employee
benefit obligations existing prior to August 15, 1994 with respect to persons
previously employed at the Bridgeville facility. In addition, Armco agreed to
indemnify the Company up to $3.0 million in the aggregate with respect to any
such liabilities that may arise prior to August 15, 2004.
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan (the "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 up to 100 shares of the
Company's Common Stock each six-month period. The purchase price of the stock
is 85% of the lower of its beginning-of-the-period or end-of-the-period market
prices.
Safety
The Company has established and seeks to maintain appropriate safety standards
and policies for its employees. To encourage plant safety, the USWA Agreements
provide that employees will be entitled to receive 50% of the savings, if any,
of reduced workers' compensation premiums obtained due to reductions in the
state experience modifier issued to the Company.
Executive Officers
The following table sets forth, as of December 31, 1999, certain information
with respect to the executive officers of the Company:
NAME (AGE) EXECUTIVE OFFICER SINCE POSITION
Clarence M. McAninch (64) 1994 President and Chief Executive Officer
A. Bruce Kennedy (41) 1998 Vice President, Operations
Paul McGrath (48) 1996 Director of Employee Relations,
General Counsel and Secretary
Richard M. Ubinger (40) 1994 Chief Financial Officer and Treasurer
Clarence M. McAninch, 64, has been President and Chief Executive Officer and a
Director of the Company since July 1994. Mr. McAninch served as Vice President,
Sales and Marketing, of the Stainless and Alloy Products Division of Armco from
1992 to 1994.
A. Bruce Kennedy, 41, has been Vice President, Operations since August 1998.
Mr. Kennedy was employed by Kurtz Steel Company for the previous 17 years, most
recently as President and Chief Executive Officer from January 1991 to May 1998.
Paul A. McGrath, 48, has been General Counsel and Director of Employee Relations
since January 1995 and was appointed Secretary in May 1996. Prior thereto, he
was employed by Westinghouse Electric Corporation for approximately 24 years in
various management positions.
Richard M. Ubinger, 40, has been Chief Financial Officer and Principal
Accounting Officer of the Company since August 1994, and was appointed Assistant
Secretary in November 1995 and Treasurer in May 1996. From 1981 to 1994, Mr.
Ubinger was employed by Price Waterhouse LLP (currently known as
PricewaterhouseCoopers LLP) in its audit department, and he served in the
capacity of Senior Manager for Price Waterhouse LLP from 1990 to 1994. Mr.
Ubinger is a Certified Public Accountant.
5
Patents and Trademarks
The Company does not consider its business to be materially dependent on patent
or trademark protection, and believes it owns or maintains effective licenses
covering all the intellectual property used in its business. The Company seeks
to protect its proprietary information by use of confidentiality and non-
competition agreements with certain employees.
Risk Factors
The Company's business and results of operations are subject to a wide range of
substantial business and economic factors including, but not limited to the
factors discussed below, many of which are not within the Company's control.
Significant Customer and Concentrated Customer Base
For the year ended December 31, 1999, the Company's largest customer, Talley
Metals Technology, Inc., a subsidiary of Carpenter Technology Corporation, and
its affiliates accounted for approximately 48% of the Company's net sales. The
Company's five largest customers in the aggregate accounted for approximately
66% of net sales. An adverse change in, or termination of, the Company's
relationship with one or more of its major customers or one or more of its
market segments could have a material adverse effect upon the Company. In
addition, a number of the Company's customers are also competitors of the
Company. See "Business--Customers" and "Business--Competition".
Reliance on Critical Manufacturing Equipment
The Company's manufacturing processes are dependent upon certain critical pieces
of specialty steel making 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 unexpected equipment failure, there can be no
assurance that the Company's operations would not be substantially curtailed
which may have a negative effect on the Company's financial results. See
"Properties."
Competition
The Company competes with domestic and foreign sources of specialty steel
products. In addition, many of the finished products sold by the Company's
customers are in direct competition with finished products manufactured by
foreign sources, which may affect the demand for those customers' products. Any
competitive factors that adversely affects the market for finished products
manufactured by the Company's customers could indirectly adversely affect the
demand for the Company's semi-finished products. Additionally, the Company's
products compete with products fashioned from alternative materials such as
aluminum, composites and plastics, the production of which includes domestic and
foreign enterprises. Competition in the Company's field is intense and is
expected to continue to be so in the foreseeable future. There can be no
assurance that the Company will be able to compete successfully in the future.
See "Business--Competition."
Environmental Issues
The Company is subject to demanding federal, state and local environmental laws
and regulations ("Environmental Laws") governing, among other things, air
emissions, waste water discharge and solid and hazardous waste disposal. The
Company leases or owns certain real property and operates equipment previously
owned and used in the manufacture of steel products by Armco. In connection
with the acquisition of the Bridgeville facility assets, Armco agreed to retain
responsibility for certain environmental liabilities and agreed to indemnify the
Company for environmental liabilities existing prior to August 15, 1994.
Because the indemnification is the Company's primary remedy against Armco for a
given environmental liability, the Company will be materially dependent upon
that indemnity should any environmental liability arise. There can be no
assurance that the indemnities from Armco will fully cover any or all
environmental liabilities, and there can be no assurance that the Company will
have the financial resources to discharge the liabilities if legally compelled
to do so.
6
Environmental laws and regulations have changed rapidly in recent years, and the
Company may be subject to increasingly stringent environmental standards in the
future. The Armco indemnities do not cover any liability incurred with respect
to violations of Environmental Laws enacted after August 15, 1994, with respect
to the Bridgeville facility, or after June 2, 1995, with respect to the
Titusville facility. There is no assurance that the Company will not incur any
such liability. See "Properties--Environmental Compliance."
Supply of Raw Materials and Cost of Raw Materials
The Company relies on a limited number of suppliers, some of which are foreign
owned, for its raw material needs which currently account for approximately 40%
of the Company's total cost of products sold. Raw material prices are affected
by cyclical, seasonal and other market factors. In addition, the supply of
premium grades of scrap metal used by the Company is more limited than the
supply of lower grades of scrap metal. Further, nickel and chrome, key
ingredients in certain alloys produced by the Company and significant cost
components, are available substantially 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 does not maintain long-term
supply agreements with any of its independent suppliers. If its supply of raw
materials were interrupted, the Company might not be able to obtain sufficient
quantities of raw materials, or obtain sufficient quantities of such materials
at satisfactory prices, which, in either case, could adversely affect the
Company's results of operations. In addition, significant increases in the
price of the Company's principal raw materials could adversely affect the
Company's financial results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Raw Materials."
ITEM 2. PROPERTIES
The Company leases its Bridgeville facility from Armco (the "Bridgeville Lease")
and owns the Titusville facility. The Bridgeville Lease is for ten years
commencing on August 15, 1994, which includes the payment by the Company of real
and personal property taxes, water and sewage charges, special assessment and
insurance premiums associated therewith. The Bridgeville Lease also provides
for three five-year options to renew on the same terms at the sole discretion of
the Company. In addition, the Bridgeville Lease provides the Company with an
option to purchase substantially all of the leased premises for $1 any time
during the term of the Bridgeville Lease prior to August 15, 2015. The building
that houses the electro-slag remelting equipment, which is nearby, but not
contiguously located, to the other facilities, is included in the ten-year
initial lease term only. The Company anticipates relocating the equipment it
owns in that facility in close proximity to the melt shop complex in an existing
building prior to the expiration of that initial ten-year term. The Bridgeville
Lease is assignable with the written consent of Armco, which consent cannot be
unreasonably withheld. The Company is responsible for compliance with all
environmental laws related to the property subsequent to August 15, 1994,
subject to liabilities Armco retained and indemnification obligations under the
asset agreement related to the Bridgeville facility (the "Asset Agreement").
The Bridgeville facility consists of approximately 600,000 square feet of floor
space on approximately 50 acres. The Bridgeville facility contains melting,
electro-slag remelting, conditioning, rolling, annealing and various other
processing equipment. Substantially all products shipped from the Bridgeville
facility are processed through its melt shop and universal rolling mill
operations. In early 1999, the Company successfully completed the round-bar
finishing facility at the Bridgeville location. The facility includes heat-
treating and processing equipment that enables the Company to produce completely
finished 2-inch to 6-inch round bar products.
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The Titusville facility consists of approximately 10 acres and includes seven
separate buildings, including two principal buildings of approximately 265,000
square feet in total area. The Titusville facility contains vacuum-arc
remelting and various rolling and finishing equipment.
Specialty steel production is a capital-intensive industry. The Company
believes that its facilities and equipment are suitable for its present needs.
The Company believes, however, that it will continue to require capital from
time to time to add new equipment and to repair or replace existing equipment to
remain competitive and to enable it to manufacture quality products and provide
delivery and other support service assurances to its customers.
Environmental Compliance
The Company is subject to Environmental Laws, including those governing
discharges of pollutants into the air and water, the generation, handling and
disposal of hazardous and non-hazardous substances. The Company may be liable
for the remediation of contamination associated with generation, handling and
disposal activities. The Company is subject periodically to environmental
compliance reviews by various regulatory offices. The Company monitors its
compliance with Environmental Laws applicable to it and, accordingly, believes
that it is currently in compliance with all laws and regulations in all material
respects. The Company has not made to date and does not anticipate making any
significant expenditure for environmental control facilities. Environmental
costs could be incurred which may be significant, related to environmental
compliance at any time or from time to time in the future.
Bridgeville Facility
The Company has not incurred to date and does not anticipate incurring any
significant remediation costs from environmental conditions at the Bridgeville
facility. The Company does not expect that any remediation that may be required
at the Bridgeville facility will have a material adverse effect on the Company's
results of operations, liquidity or financial condition. The Company operates
production and processing equipment, which it owns, on real property that is
leased from Armco. Armco remains contractually obligated for environmental
matters, including compliance with laws governing the removal of hazardous
materials and the elimination of hazardous conditions, which stem from any
operations or activities at the leased Bridgeville facility prior to August 15,
1994. In addition, Armco has agreed to indemnify the Company against any
liability arising from any of those matters with respect to the Bridgeville
facility to the extent of $6.0 million in the aggregate until 2004. Armco has
further agreed (subject to the indemnity limits) to pay up to up to $1.0 million
for certain non-recoverable operating costs should the Company's business be
interrupted as a result of Environmental Law violations that stem from
occurrences prior to August 15, 1994. Except as required by law or for the
protection of public health or the safety of its employees, the Company is
contractually prohibited from taking voluntary or discretionary action to
accelerate or delay the timing, or increase the cost of, Armco's environmental
obligations with respect to the Bridgeville facility.
Titusville Facility
The Company operates its production and processing equipment that was acquired
from Armco on real property the Company owns. Armco has agreed to indemnify the
Company to the extent of $3.0 million in the aggregate against liability for
environmental matters that pertain to environmental conditions existing on or
under the Titusville facility prior to June 2, 1995. In addition, Armco has
agreed to indemnify the Company for any liabilities arising out of environmental
conditions existing offsite as of June 2, 1995, and that indemnification is not
subject to the $3.0 million limitation. In connection with the acquisition of
the Titusville facility, the Company conducted a Phase I and Phase II
environmental study (the "Study") of the parcel of real estate acquired. The
Company believes the amount and terms of Armco's indemnity are sufficient to
protect the Company against environmental liabilities arising at the Titusville
facility from environmental conditions existing as of June 2, 1995. The Study
noted that as is typical of the Titusville,
8
Pennsylvania area generally, there is regional soil and groundwater hydrocarbon
contamination present at above applicable cleanup standards, reflecting the fact
that this area contains natural petroleum deposits and that petroleum-refining
operations had been conducted nearby. To date, no environmental governmental
authority has contacted the Company concerning this matter. The Company believes
it unlikely that it or Armco will be required to provide cleanup at the
Titusville facility for the local hydrocarbon contamination. If the Company
accelerates the timing or increases the cost of any environmental obligation
retained by Armco, except as required by law or for the protection of public
health or for the safety of its employees, the Company shall bear such
accelerated or increased cost. Any accelerated or increased cost of an
environmental obligation retained by Armco resulting from the Company seeking
financing or from the sale of less than a controlling interest in the voting
stock of the Company shall be borne equally by Armco and the Company.
The Company's primary remedies for reimbursement from Armco for losses stemming
from pre-closing environmental conditions at each of the Bridgeville facility
and the Titusville facility are the indemnities agreed to with respect to each
of the facilities. The Company believes the amount and terms of the Armco
indemnities are sufficient to protect the Company against environmental
liabilities arising from environmental conditions prior to August 15, 1994, with
respect to the Bridgeville facility, and prior to June 2, 1995, with respect to
the Titusville facility. There can be no assurance, however, that those
indemnities will fully cover all environmental liabilities incurred by the
Company and there can be no assurance that the Company will have the financial
resources to discharge those liabilities if legally compelled to do so. See
"Risk Factors--Environmental Issues."
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At December 31, 1999, a total of 6,330,416 shares of the Company's Common Stock,
par value $.001 per share, were issued and outstanding, and held by
approximately 216 holders of record. 257,900 shares of the issued and
outstanding Common Stock of the Company were held in treasury at December 31,
1999.
Certain holders of Common Stock and the Company are party to a stockholder
agreement. That agreement maintains in effect certain registration rights
granted to non-management stockholders, which provides to them two demand
registration rights exercisable at any time upon written request for the
registration of Restricted Shares of Common Stock having an aggregate net
offering price of at least $5,000,000 (the "Registrable Securities").
Price Range of Common Stock
The information called for by this item is set forth on page 26 of the Annual
Report to Stockholders for the year ended December 31, 1999, which is
incorporated herein by reference.
Preferred Stock
The Company's Certificate of Incorporation provides that the Company may, by
vote of its Board of Directors, issue the Preferred Stock in one or more series.
The Preferred Stock may have rights, preferences, privileges and restrictions
thereon, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.
The Company has no outstanding Preferred Stock and has no plans to issue any of
the authorized Preferred Stock.
Dividends
The Company has never paid a cash dividend on its Common Stock and currently has
no plans to pay dividends in the foreseeable future. Restrictions contained in
the Company's Credit Agreement with PNC currently prohibit the payment of cash
dividends on Common Stock.
10
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item is set forth on page 27 of the Annual
Report to Stockholders for the year ended December 31, 1999, which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is set forth on pages 10 through 13 of
the Annual Report to Stockholders for the year ended December 31, 1999, which
are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Prices for the Company's raw materials are subject to frequent market
fluctuations. The Company does not maintain long term supply agreements for its
raw material needs. Raw material price increases are normally off-set by
selling price increases and surcharges.
The Company is exposed to market risk from changes in interest rates related to
its long-term debt. At December 31, 1999, the Company's total long-term debt,
including the current portion was $11,841,000. Of that amount, $2,541,000 has
fixed rates and $9,300,000 bears a variable rate. Assuming a 10% increase in
interest rates on the Company's variable rate (an increase from the December 31,
1999 interest rate of 8.0% to an interest rate of 8.8%), annual interest
expense would be approximately $74,000 higher based on the December 31, 1999
balance of variable rate debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is set forth on pages 14 through 25 of
the Annual Report to Stockholders for the year ended December 31, 1999, which
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in connection
with the Company's Annual Meeting of Stockholders to be held on May 23, 2000,
under the heading "Proposal No. 1--Election of Directors," which information is
incorporated herein by reference. With the exception of the information
specifically incorporated herein by reference, the Company's Proxy Statement is
not to be deemed filed as part of this report for the purposes of this Item.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form 10-
K:
1) Consolidated Financial Statements:
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, appearing on pages 14 through 25 of the
accompanying Annual Report, are incorporated by reference in this Form 10-K
Annual Report.
2) Consolidated Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and have therefore been
omitted.
3) Exhibits:
EXHIBIT
- -------
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- -------
2.1 Certificate of Merger, dated July 29, 1994, between Universal Stainless & Alloy Products, Inc., a Pennsylvania
corporation, and the Company (incorporated herein by reference to Exhibit 2.1 to Registration No. 33-85310).
2.2 Agreement and Plan of Merger, dated July 28, 1994, among Universal Stainless & Alloy Products, Inc., a
Pennsylvania corporation, and the Company (incorporated herein by reference to Exhibit 2.2 to Registration No.
33-85310).
2.3 Asset and Real Property Purchase Agreement, dated as of June 2, 1995, by and between Armco Inc. and the Company
(incorporated herein by reference to Exhibit 2.3 to Registration No. 33-97896).
3.1 Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to
Registration No. 33-85310).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 to Registration No. 33-85310).
4.1 Specimen Copy of Stock Certificate for shares of Common Stock (incorporated herein by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
4.2 Form of Representative's Warrant Agreement (including Form of Representative's Warrant Certificate) (incorporated
herein by reference to Exhibit 4.2 to Registration No. 33-85310).
10.1 Stockholders Agreement, dated as of August 1, 1994, by and among the Company and its existing stockholders
(incorporated herein by reference to Exhibit 10.8 to Registration No. 33-85310).
10.2 Asset Purchase Agreement, dated August 15, 1994, by and between the Company and Armco Inc., as amended by letter
agreement, dated October 5, 1994, by and between the Company and Armco, Inc. (incorporated herein by reference to
Exhibit 10.12 to Registration No. 33-85310).
13
EXHIBIT
- -------
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- -------
10.3 Lease Agreement, dated August 15, 1994, by and between Armco Inc. and the Company (incorporated herein by
reference to Exhibit 10.9 to Registration No. 33-85310).
10.4 Security Agreement, dated August 15, 1994, by and between the Company and Armco Inc (incorporated herein by
reference to Exhibit 10.21 to Registration No. 33-85310).
10.5 Employment Agreement, dated November 20, 1998 by and between the Company and Clarence M. McAninch (incorporated
herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.6 Employment Agreement, dated August 15, 1998, by and between the Company and Daniel J. DeCola, Sr. (incorporated
herein by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.7 Employment Agreement, dated August 1, 1998, by and between the Company and A. Bruce Kennedy (incorporated herein
by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998).
10.8 Employment Agreement dated January 1, 1998 between the Company and Paul McGrath (incorporated herein by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.9 Employment Agreement dated January 1, 1998 between the Company and Richard M. Ubinger (incorporated herein by
reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.10 1994 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.25 to Registration No. 33-85310).
10.11 Collective Bargaining Agreement, dated May 3, 1995, by and between the Company and United Steelworkers of America
(incorporated herein by reference to Exhibit 10.42 to Registration No. 33-97896).
10.12 Collective Bargaining Agreement, dated September 1, 1997, by and between the Company and United Steelworkers of
America (incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.13 Credit Agreement, dated as of January 30, 1998, between the Company and PNC Bank, National Association, with
Exhibits and Schedules (incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.14 Security Agreement and Collateral Assignment, dated as of January 30, 1998, by and between the Company and PNC
Bank, National Association (incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.15 Note, dated as of January 30, 1998, by and between the Company and PNC Bank, National Association (incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16 Landlord's Waiver, dated as of January 30, 1998, by Armco Inc (incorporated herein by reference to Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).
14
EXHIBIT
- -------
NUMBER DESCRIPTION PAGE NO.
- ------- ---------- -------
10.17 Open-End Leasehold Mortgage, Collateral Assignment and Security Agreement dated as of January 30, 1998, by the
Company in favor of PNC Bank, National Association (incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997).
10.18 First Amendment to Credit Agreement, dated as of December 31, 1998, between the Company and PNC Bank, National
Association (incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for
the year ended Decenber 31, 1998).
10.19 Supply Contract Agreement, dated as of January 1, 1999, between the Company and Talley Metals Technology, Inc. a
subsidiary of Carpenter Technologies Corporation as amended as of December 15, 1999 by and between the Company
and Talley Metals Technology, Inc. (filed herein).
10.20 Loan Agreement, dated October 3, 1995, by and between the Company and Commonwealth of Pennsylvania (incorporated
herein by reference to Exhibit 10.47 to Registration No. 33-97896).
10.21 Note, dated October 3, 1995, for the principal sum of $500,000, by the Company, in favor of the Commonwealth of
Pennsylvania (incorporated herein by reference to Exhibit 10.48 to Registration No. 33-97896).
10.22 Security Agreement, dated October 3, 1995, by and between the Company and the Commonwealth of Pennsylvania
(incorporated herein by reference to Exhibit 10.48 to Registration No. 33-97896).
10.23 Underwriting Agreement, dated December 14, 1994, among the Company and Keane Securities Co., Inc., as representatives of
the several underwriters (incorporated herein by reference to Exhibit 10.52 to Registration No. 33-85310).
10.24 Equipment Purchase Agreement dated as of November 6, 1997 between the Company and Hetran, Inc. for the purchase
of certain bar finishing equipment (incorporated herein by reference to Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
13.01 Selected pages of the Company's 1999 Annual Report to Stockholders incorporated by reference in Parts II and
IV of the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
23.01 Consent of PricewaterhouseCoopers LLP.
24.01 Powers of Attorney (included on the signature page hereto).
27.01 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the fourth quarter of
1999:
None.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on March
30, 2000.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
By: /s/ C. M. McAninch
------------------------------------
Clarence M. McAninch
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the officers and directors of Universal Stainless & Alloy Products,
Inc., whose signature appears below in so signing also makes, constitutes and
appoints Clarence M. McAninch and Paul A. McGrath, and each of them acting
alone, his true and lawful attorney-in-fact, with full power of substitution,
for him in any and all capacities, to execute and cause to be filed with the
Securities Exchange Commission any and all amendment or amendments to this
Report on Form 10-K, with exhibits thereto and other documents connected
therewith and to perform any acts necessary to be done in order to file such
documents, and hereby ratifies and confirms all that said attorney-in-fact or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ C. M. McAninch President, Chief Executive Officer March 30, 2000
- ----------------------------- And Director (Principal Executive
Clarence M. McAninch Officer)
/s/ Richard M. Ubinger Chief Financial Officer and Treasurer, March 30, 2000
- ----------------------------- (Principal Financial and Accounting
Richard M. Ubinger Officer)
/s/ Douglas M. Dunn Director March 30, 2000
- -----------------------------
Douglas M. Dunn
/s/ George F. Keane Director March 30, 2000
- -----------------------------
George F. Keane
/s/ Udi Toledano Director March 30, 2000
- -----------------------------
Udi Toledano
/s/ D. Leonard Wise Director March 30, 2000
- -----------------------------
D. Leonard Wise
16