Universal Stainless & Alloy Products Annual Report 2002

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FY2002 Annual Report · Universal Stainless & Alloy Products

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Universal Stainless & Alloy Products, Inc.
2002 Annual Report

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

600 Mayer Street
Bridgeville, PA 15017

P : 412.257.7600
F : 412.257.7640

www.univstainless.com

CORPORATE INFORMATION

E X E C U T I V E O F F I C E S

Universal Stainless & Alloy Products, Inc.
600 Mayer Street
Bridgeville, PA 15017
412.257.7600

A N N U A L M E E T I N G

The Annual Meeting of Stockholders will be
held at 10 a.m. on Tuesday, May 20, 2003,
at the Southpointe Golf Club, Canonsburg, PA.

S T O C K H O L D E R I N F O R M AT I O N

Universal Stainless & Alloy Products, Inc.’s
Annual Report on Form 10-K and other
reports ﬁled with the Securities and Exchange
Commission can be obtained, without charge,
through the Company’s web site address
below, or at www.sec.gov, the web site for
the Securities and Exchange Commission,
or by writing to the Vice President of Finance
at the Executive Offices.

T R A N S F E R A G E N T A N D R E G I S T R A R

Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004

S T O C K L I S T I N G

NASDAQ Symbol: USAP

W E B S I T E A D D R E S S E S

www.univstainless.com
www.dunkirkspecialtysteel.com

DIRECTORS

D O U G L A S M . D U N N

Managing Partner
Dunn Associates

G E O R G E F. K E A N E

President Emeritus
Common Fund Group

C L A R E N C E M . M c A N I N C H

President and Chief Executive Officer
Universal Stainless & Alloy Products, Inc.

U D I T O L E D A N O

President
Millennium 3 Capital, Inc.

OFFICERS

C L A R E N C E M . M c A N I N C H

President and Chief Executive Officer

R I C H A R D M . U B I N G E R

Vice President of Finance,
Chief Financial Officer and Treasurer

P A U L A . M c G R AT H

Vice President of Operations,
General Counsel and Secretary

MANAGEMENT

M I C H A E L J . O B I E C U N A S

Director, Employee Relations

B R U C E J . K R A M E R

Director, Purchasing and Production Planning

K E I T H A . E N G L E K A

Director, Technology

R I C H A R D J . P I N C O S K I

General Manager, Dunkirk Specialty Steel, LLC

The production of premium quality
products begins at the Bridgeville
melt shop and continues throughout
the manufacturing process. The addition
of Dunkirk Specialty Steel transforms
Universal Stainless into a fully
integrated producer of bar, rod,
wire and rebar products.

12.1

CAPITAL
EXPENDITURES
in millions

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Corporate

4.6

5.3

4.2

3.4

1998

1999

2000

2001

2002

280

277

280

304

393

1998

1999

2000

2001

2002

E M P L O Y E E S

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Corporate

235

250

288

372

C U S T O M E R S

200

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Both

1998

1999

2000

2001

2002

D E S I G N : Mizrahi Design Associates, Inc.
P H O T O G R A P H Y: Mark Perrott
P R I N T E R : Wallace Hoechstetter Printing

L E T T E R T O O U R S T O C K H O L D E R S

Clarence M. “Mac” McAninch
President and Chief Executive Officer

In 2002, Universal Stainless accomplished several strategic goals while facing the worst market conditions
in our history. The addition of Dunkirk Specialty Steel transforms our company into a fully integrated
specialty steel producer capable of serving more than 90 percent of the domestic specialty steel needs.
We also made progress towards lowering our cost structure and improving our working relationship with
our employees. Finally, I am proud to report we maintained our record of annual proﬁtability since 1994.

The Company had sales of $70.9 million and net income of $2.1 million or $0.34 per diluted share in
2002. That compares with sales of $90.7 million and net income of $7.6 million or $1.25 per diluted
share in the prior year. The decrease was due to a sharp decline in demand in two of our important and
proﬁtable markets, aerospace and power generation, and the start-up of Dunkirk Specialty Steel.

Our successes in 2002 could not have been achieved without the commitment of our employees –
a hallmark of our success since the Company’s inception. Our 120 new employees in Dunkirk are
enthusiastically working to strengthen operations and establish Dunkirk’s reputation as a reliable
supplier of high quality, specialty steel products and services. Teams of employees from Bridgeville
and Titusville are providing important support in this effort. In addition, we signed a new six-year
collective bargaining agreement covering our Bridgeville employees. This new pact addresses the rising
cost of providing healthcare coverage, funding future retirement beneﬁts, and providing a reasonable
yearly wage increase. We believe it serves the best interests of our employees and our stockholders.
This agreement demonstrates that our strategic emphasis on collaboration and communication with
our employees and the United Steelworkers of America can produce positive results.

We have continued our focus on careful cost containment, a distinguishing discipline that has served
us well. Sales lost to down markets were mitigated as much as possible by reducing operating costs.
We tightened our already stringent cost controls to achieve this end in 2002, reducing our selling and
administrative expenses for the year by $900,000, or 15 percent, before adding the direct expenses of
the Dunkirk operation. In addition, we invested over $4 million in new equipment and enhancements
to existing equipment.

O U R A C T I O N S D E M O N S T R AT E T H AT W E A R E N O T W A I T I N G F O R

E X T E R N A L FA C T O R S … T O I M P R O V E O U R P R O S P E C T S

Our actions demonstrate that we are not waiting for external factors – an economic turnaround or
governmental manipulation of import tariffs – to improve our prospects in the coming year. The
challenges of 2002 affirmed the strength and soundness of our core strategy – a strategy that continues
to position the Company for long-term health, stability and growth. That strategy calls for us to:

>> Expand our range of higher value products offered within niche markets.

>> Maintain a productive alliance with our employees.

Identify opportunities to lower our manufacturing costs of high quality products.

Focus on building value for our stockholders.

This strategy is at the heart of our investment decision to acquire the assets that today are Dunkirk
Specialty Steel. The opportunity offered by Dunkirk will reshape our future and we have dedicated
much of this year’s annual report to a closer examination of how it will do so.

About three decades ago, I worked as a supervisor in the plant at Dunkirk, New York. I came to know
the spirit and pride of the people there. I knew the potential that facility represented. When we had the
opportunity to make Dunkirk a part of the Universal Stainless family, I knew from ﬁrst-hand experience
what a winning partnership it could be. From all indications so far, that has turned out to be absolutely true.

We have aggressive goals for Dunkirk. We want to take the lead in the emerging stainless steel
reinforcing bar market. We also want to be the lowest-cost domestic producer of premium quality
bar, rod and wire products for our chosen markets. Aggressive, yes. Attainable, yes. And that’s the
approach we will continue to take in the year ahead.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

We are entering 2003 recognizing both our challenges and our opportunities, as our key niche markets
will remain under substantial pressure.

Aerospace demand has been hurt by the enormous problems plaguing the commercial airline industry.
Increased military spending cannot offset the impact of lower build rates of commercial aircraft projected
for the next three years. Therefore, we are working closely with our customers to win the aerospace
business that is available and to develop initiatives focused on supplying products for replacement parts.

We are following the same approach in power generation. Demand was down sharply in 2002, and
the estimate for new turbines is even lower for 2003. With economic recovery, the need for additional
power generation capacity will become clearer and the market may regain strength sooner than generally
expected. In the meantime, there will be a continuing need for replacement turbine blades. Therefore,
we have positioned ourselves to react to our customers’ need for shorter lead times.

The petrochemical market was stable in 2002 for Universal Stainless. Looking ahead, problems in
several of the major foreign oil and gas-producing nations may have a somewhat positive effect on
domestic production.

We see additional opportunities for 2003 and beyond. Universal Stainless remains an attractive supplier
to the demand that exists within our traditional markets. Our sales of tool steel continue to indicate better
economic times are on the way which will beneﬁt Dunkirk as it continues to enter new bar, rod and wire
market niches. Our history of working closely with our customers to understand and meet their needs with
reliability and competitive pricing will drive our growth.

We know who we are, how we got here, and what it will take to get us to the next level. We take
encouragement from the fact that our established strategy proved reliable, on-target and flexible
enough for Universal Stainless to adapt as necessary in 2002, while keeping us on track to attain our
long-term objectives. Once again, Universal Stainless proved that we’re made of great people providing
great products that our customers need.

On behalf of our board of directors and the employees of Universal Stainless, we appreciate your
support during this difficult – but ultimately reaffirming – year.

Sincerely,

Clarence M. “Mac” McAninch

President and Chief Executive Officer
Universal Stainless & Alloy Products, Inc.

THE FUTURE

& OUR NEW DUNKIRK FACILITY

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

THE DUNKIRK BAR AND ROD MILL PRODUCES
BAR AND ROD PRODUCTS DOWN TO 0.200"
IN DIAMETER, AND REBAR PRODUCTS FROM
SIZE #3 TO #11.

ON FEBRUARY 14, 2002, UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
ACQUIRED THE IDLED ASSETS OF EMPIRE SPECIALTY STEEL, INC.,
IN DUNKIRK, NEW YORK.

Exactly one month later, Dunkirk Specialty Steel began operations.

From that day until now, Dunkirk has made daily progress, increasing manufacturing efficiency,
expanding its product capability, adding new customers and positioning itself for profitability.
The acquisition and integration of Dunkirk Specialty Steel creates multiple opportunities for growth
at Universal Stainless.

The following pages discuss progress made across the Company, including Dunkirk, to advance
our corporate objectives.

S T R AT E G Y 1 :

Expand our range of higher value products offered within niche markets.

In 1994, our ﬁrst year of operation, Universal Stainless produced a limited range of semi-ﬁnished
specialty steel products. Our plan from the very beginning was to increase our product offerings
in attractive niche markets to an expanded list of customers. Our acquisition of Titusville in 1995
equipped us with the specialized processes and product capability to expand our participation in
the aerospace and power generation markets. That acquisition coupled with carefully planned
reinvestment in our Bridgeville facility enabled us to offer a broad range of semi-ﬁnished products
and ﬁnished round bar serving 288 customers in ﬁve
major markets by the end of 2001.

Today, with the addition of Dunkirk’s ﬁnished bar, rod
and wire capabilities, Universal Stainless is in a position
to melt, remelt, roll and ﬁnish an even wider range of
specialty steel products, all under a single brand. After
just nine months of operation, Dunkirk has shipped
products to 98 customers; most are new customers
to Universal Stainless.

FORESIGHT

THE OLSON FURNACE HEATS COIL PRODUCT UP TO 1,975 DEGREES FAHRENHEIT
AND IS IMMEDIATELY WATER QUENCHED TO PROVIDE HIGHER QUALITY ROD AND
WIRE PRODUCTS TO OUR CUSTOMERS.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

Bruce Kramer, Director of Purchasing and Production Planning at Universal Stainless,
and Dick Pincoski, Dunkirk’s General Manager, discuss the advantages of the new coil
shot blaster installed in 2002.

How Dunkirk Does It

An exciting opportunity for Dunkirk is the emerging market for stainless steel reinforcing bar (rebar).
Dunkirk is a leader in the production of stainless rebar, which has superior corrosion resistance
compared to the carbon steel rebar that has been used in the past. Corrosion of carbon steel rebar
is the single most important cause of deterioration in reinforced concrete structures. Rebar is used
for bridge decks, overpasses and retaining walls. Applications also include MRI rooms, laboratories
and emergency facilities. Although the price of stainless rebar is higher, it has measurable engineering
and cost advantages over the lifecycle of a project. Industry groups project substantial growth in the
use of stainless rebar over the next ﬁve years.

GROWTH

DUNKIRK’S BAR DRAWING EQUIPMENT
EXPANDS THE COMPANY’S CAPABILITY
TO PRODUCE COLD FINISHED BARS
IN ROUNDS, HEXAGONS, FLATS AND
SQUARES THAT MEET STRINGENT
CUSTOMER SPECIFICATIONS.

S T R AT E G Y 2 :

Maintain a productive alliance with our employees.

Respect for employees, led by a policy of open communication and dialogue, helped keep Universal
Stainless on the path of performance in 2002. One of the most striking examples came in the willingness
of United Steelworkers of America Local 3403 in Bridgeville to continue working on a day-to-day extension
of a prior agreement from the end of August until a new six-year pact was agreed to in early December.

Management and United Steelworkers of America representatives invested substantial time and
effort in evaluating alternatives that would be beneficial both to employees and to stockholders.
The agreement maintained the ﬂexible terms and proﬁt sharing incentives contained in prior contracts.
That flexibility is critical when facing the difficult task of maintaining the lowest possible cost
operation in times of depressed market conditions while making responsible choices to maintain
the ﬁnancial strength of the entire company.

THE PICKLING OPERATION
PROVIDES UNIVERSAL
STAINLESS WITH THE ABILITY
TO TREAT BOTH BAR AND COIL
PRODUCTS IN-HOUSE TO REDUCE
PRODUCTION COSTS.

How Dunkirk Does It

The 120 employees of Dunkirk Specialty Steel have demonstrated a tremendous spirit and commit-
ment to their new company. Before becoming part of Universal Stainless, Dunkirk had gone through
a succession of absentee owners, ranging from foreign-based companies to government ownership.
As Universal Stainless explained its vision and purpose, and how Dunkirk ﬁt into that, our employees
agreed with and embraced this philosophy. In return, they are seeing serious investment through
equipment upgrades, infrastructure improvements and enhancements to the plant itself.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

S T R AT E G Y 3 :

Identify opportunities to lower manufacturing costs of high quality products.

Universal Stainless has invested in and distinguished itself by the efficiency of our operations and the
quality of our products. That combination is crucial to our ability to respond to customer needs and
effectively compete in the marketplace.

With the integration of Dunkirk into our company, our operations are now working in tandem as never
before. The Bridgeville and Titusville plants provide high-quality product to Dunkirk, which produces
a wider array of ﬁnished products on its four rolling mills and ﬁnishing operations. The resulting
increased utilization at Bridgeville and Titusville adds to company-wide efficiency and proﬁtability.

How Dunkirk Does It

In the area of operations, Dunkirk installed new mechanical bar and coil descalers to improve efficiency
and reduce costs. This automated equipment works like a sandblaster to remove scale from hot rolled
steel prior to ﬁnishing operations. The descalers will replace a less-efficient and higher-cost chemical
process. In addition, the installation of our existing computer systems provides the information necessary
to identify additional cost-reduction opportunities.

TEAMWORK

Gary Zaffalon, Dunkirk’s Manager of Bar and Rebar Products, shows Vice President of Finance,
Rick Ubinger, how Dunkirk’s bar shot blaster ﬁnishes multiple bars at once.

S T R AT E G Y 4 :

Focus on building value for stockholders.

Several principles have guided us in our commitment to building value for stockholders. The ﬁrst is to
maintain a strong balance sheet. There is no question that our industry faces cyclical highs and lows.
By maintaining a strong balance sheet, Universal Stainless is better able to respond to the opportu-
nities and challenges at each point in those cycles. In the current period, our balance sheet strength
has given us the ﬂexibility to anticipate our customers’ current need for shorter lead times.

A second principle is to pursue acquisitions with a high level of ﬁnancial and strategic discipline. The
terms of our agreement to acquire the assets of today’s Dunkirk Specialty Steel were highly favorable
to Universal Stainless and the acquisition will continue to beneﬁt us for years to come. From a strategic
standpoint, Universal Stainless could only participate in less than 25 percent of the ﬁnished product
market in stainless steel prior to acquiring Dunkirk. With Dunkirk, we can now participate in more than
90 percent of the market.

VALUE.
CREATION.

FINISHED WIRE PRODUCT READY
TO BE WRAPPED AND SHIPPED
TO CUSTOMERS ACROSS
THE COUNTRY.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

Jim Gugino, Manager of Rod and Wire Products at the Dunkirk Facility, reviews
the production of wire products with Paul McGrath, Vice President of Operations.

DIVERSIFICATION

How Dunkirk Does It

Universal Stainless remains focused on becoming a lower-cost domestic producer of bar, rod and
wire products through strategic capital expenditures in automation. Our expanded marketing team
is actively pursuing niche opportunities with our targeted customer base. Teams from Bridgeville,
Titusville and Dunkirk are working together to make sure that we can respond competitively to
new opportunities presented.

THE 12 DRUM MORGAN-KOCH
MULTIPLE-HOLE WIRE DRAWING
MACHINE PROVIDES OUR
CUSTOMERS WITH HIGH-QUALITY
STAINLESS STEEL WIRE
PRODUCTS FROM 0.030" TO
0.085" IN DIAMETER.

K
R

K
N
U
D

E
L
L
I
V
S
U
T
I
T

E
L
L
I
V
E
G
D

R
B

FA C I L I T I E S

MELTING AND REFINING

50-ton electric arc furnace
50-ton AOD vessel
Ladle treatment facility with wire feed
100% bottom pour ingot casting
4 electro-slag remelt furnaces
5 vacuum-arc remelt furnaces

ROLLING

High-lift universal rolling mill
5 hot rolling bar mills
Rod and bar mill
Precision cold rolling mills

FINISHING

Round bar ﬁnishing facility
Flat bar ﬁnishing facility
Wire ﬁnishing facility
Plate ﬂattening and saw cutting
4 milling and grinding machines
Heat treating and annealing facilities

P R O D U C T S

INGOT
REROLL OR FORGING BILLET
FORGED ROUNDS
SLAB
PLATE
BAR Round

Hexagon
Square
Flat

REBAR
ROD
WIRE
SPECIAL SHAPES

As required
2" – 14" RCS
6" – 15" diameter
6" – 12" thick • 26" – 52" wide
0.5" – 6" thick • 26" – 42" wide
0.187" – 6"
0.187" – 1.875"
0.187" – 3"
0.250" – 9" thick • 0.625" – 18" wide
Sizes #3 to #11
0.200" – 0.843"
0.030" – 0.750"
0.035" – 0.375" thick • 2" – 9" wide

Conversion melting, remelting and rolling are available.

C O N TA C T I N F O R M AT I O N

Toll-Free

Phone

Fax

Universal Stainless & Alloy Products, Inc.

600 Mayer Street, Bridgeville, PA 15017
121 Caldwell Street, Titusville, PA 16354

800.625.7610
800.743.5970

412.257.7600
814.827.9723

412.257.7640
814.827.2766

Dunkirk Specialty Steel, LLC

88 Howard Avenue, Dunkirk, NY 14048

800.916.9133

716.366.1000

716.366.0478

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

RESULTS OF OPERATIONS

On February 8, 2002, the Company, through its wholly-owned subsidiary, Dunkirk Specialty Steel, LLC
(“Dunkirk Specialty Steel”) entered into a Property Asset Purchase Agreement and a Real Property Purchase
Agreement (the “Purchase Agreements”) with the New York Job Development Authority (the “JDA”) to acquire
certain assets and real property formerly owned by Empire Specialty Steel, Inc. at its idled production facility
located in Dunkirk, New York. These transactions were completed on February 14, 2002 and the facility
became operational on March 14, 2002.

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” (“SAB 101”). 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 pre-
viously 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:

AMOUNT

2002

AMOUNT

2001

AMOUNT

2000

(DOLLARS IN THOUSANDS)

N E T S A L E S

Stainless steel
Tool steel
High-temperature alloy steel
High-strength low alloy steel
Conversion services
Other

Net sales on shipments
Effect of accounting change

Total net sales

Total cost of products shipped
Effect of accounting change

Total cost of products sold
Selling and administrative expenses

Operating income from shipments
Effect of accounting change

$ 56,813
6,643
3,474
2,213
1,495
239

70,877
–

70,877

61,971
–

61,971
5,883

3,023
–

80.1%
9.4
4.9
3.1
2.1
0.4

$ 76,908
4,503
2,471
3,379
3,054
343

84.8%
5.0
2.7
3.7
3.4
0.4

$ 62,346
6,960
1,754
2,161
2,309
355

100.0
–

100.0

87.4
–

87.4
8.3

4.3
–

90,658
–

90,658

71,915
–

71,915
6,199

12,544
–

100.0
–

100.0

79.4
–

79.4
6.8

13.8
–

75,885
12,462

88,347

61,873
9,988

71,861
4,998

9,014
2,474

70.6%
7.9
2.0
2.4
2.6
0.4

85.9
14.1

100.0

70.0
11.3

81.3
5.7

10.2
2.8

Operating income

3,023

4.3%

$ 12,544

13.8%

$ 11,488

13.0%

Net sales on shipments by market segment are as follows:

AMOUNT

(DOLLARS IN THOUSANDS)

Rerollers
Service centers
Original equipment manufacturers
Forgers
Wire redrawers
Conversion services
Miscellaneous

$ 26,791
23,478
8,578
8,370
1,926
1,495
239

2002

37.8%
33.1
12.1
11.8
2.7
2.1
0.4

AMOUNT

$ 31,936
19,178
17,714
18,484
–
3,054
292

2001

35.2%
21.2
19.5
20.4
–
3.4
0.3

AMOUNT

2000

$ 33,549
16,137
9,321
14,288
–
2,309
281

44.2%
21.3
12.3
18.8
–
3.0
0.4

Net sales on shipments

$ 70,877

100.0%

$ 90,658

100.0%

$ 75,885

100.0%

2 0 0 2 R E S U LT S A S C O M P A R E D T O 2 0 0 1 The decrease in net sales on shipments in 2002
reﬂected reduced demand from two important end markets, aerospace and power generation. Net sales to
those markets in 2002 decreased 36% and 53%, respectively, from 2001. These declines were primarily due
to production cutbacks of power generation equipment and commercial aircraft. Sales of bar, rod and wire
products from Dunkirk Specialty Steel, and sales of tool steel and commodity reroller products partially offset
the lower sales to the power generation and aerospace markets. The Company shipped approximately 38,400
tons in 2002, compared to shipments of 46,800 tons in 2001. During the ﬁrst half of 2002, management
believed the increase in demand for tool steel products represented the beginning of an economic recovery.
In addition, the increase in demand for commodity reroller products reﬂected the impact of the Section 201
tariffs imposed by President Bush in March 2002 on imported specialty steel products. While increased
demand for tool steel products continued during the second half of the year, the economic recovery did not
materialize and demand for the Company’s remaining products declined.

Cost of products sold, as a percent of net sales, increased in 2002 as compared to 2001. This increase is
primarily due to the shift in product mix, lower production volumes at the Bridgeville and Titusville facilities,
and the start-up of Dunkirk Specialty Steel.

Selling and administrative expenses decreased by $316,000 in 2002 as compared to 2001. The Bridgeville
facility operated under a day-to-day extension of its collective bargaining agreement from August 31, 2002 to
December 7, 2002. While the facility operated under the extension, management modiﬁed certain aspects of
the facility’s normal operations relating to production processes, security and maintenance to accommodate the
situation. These modiﬁcations resulted in a $267,000 increase in selling and administrative expenses. This
event and the inclusion of direct expenses of $740,000 associated with Dunkirk Specialty Steel were more than
offset by a $460,000 decrease in employee compensation, a $283,000 decrease in bad debt expense and the
absence of several signiﬁcant charges in 2001. The 2001 charges included a $200,000 charge to demolish
certain vacant buildings within the Bridgeville facility, a $190,000 obligation to a former vice president of operations
and a $115,000 charge for the services of an investment-banking ﬁrm previously engaged by the Company.

Interest expense and other ﬁnancing costs decreased from $576,000 in 2001 to $455,000 in 2002. The
decrease was primarily due to a reduction in borrowings under the revolving line of credit with PNC Bank and
lower interest rates between the two periods. This decrease was partially offset by $125,000 of amortization
expense associated with the discount recognized on debt issued by Dunkirk Specialty Steel in 2002.

Other income (expense), net increased from $57,000 in 2001 to $457,000 in 2002. The increase was
primarily due to an increase in cash available for investing during the respective periods and the receipt
of $310,000, net of expenses, under the Continued Dumping and Subsidy Act of 2000 (“CDSOA”).

The 2002 effective income tax rate was 30.8% compared to 36.5% in 2001. The decrease in the effective
income tax rate was primarily attributable to tax credit beneﬁts and the impact of permanent tax differences
applied against lower levels of income in 2002. Dunkirk Specialty Steel operates within a New York State
Empire Zone that allowed the Company to recognize $340,000 of income tax credits in 2002.

2 0 0 1 R E S U LT S A S C O M P A R E D T O 2 0 0 0 The increase in net sales on shipments in 2001
reﬂected 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 original
equipment manufacturers (“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 reﬂected higher insurance and other costs that are 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 a former vice president of operations and a $115,000
charge for the services of an investment-banking ﬁrm previously engaged by the Company.

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 was 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.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

BUSINESS SEGMENT RESULTS

The Company is comprised of three operating locations and one corporate headquarters. For segment reporting,
the Bridgeville and Titusville facilities have been aggregated into one reportable segment, Universal Stainless
& Alloy Products, because of the management reporting structure in place. The Universal Stainless & Alloy
Products manufacturing process involves melting, remelting, treating and hot and cold rolling of semi-ﬁnished
and ﬁnished specialty steels. A second reportable segment, Dunkirk Specialty Steel, was created in 2002 as
a result of the acquisition of certain assets and real property formerly owned by Empire Specialty Steel, Inc.
Dunkirk Specialty Steel’s manufacturing process involves hot rolling and finishing specialty steel bar, rod
and wire products.

U N I V E R S A L S TA I N L E S S & A L L O Y P R O D U C T S S E G M E N T Net sales on shipments for the
years ended December 31, 2002, 2001 and 2000 were $70.1 million, $90.7 million and $75.9 million,
respectively. The 2002 decrease in comparison to 2001 reﬂected lower demand for power generation and
aerospace products, partially offset by an increase in demand for tool steel products and for commodity reroller
products, including $8.6 million of net sales on shipments to the Dunkirk Specialty Steel segment. The 2001
increase in comparison to 2000 was 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.

Operating income for the years ended December 31, 2002, 2001 and 2000 were $5.0 million, $12.6 million
and $11.5 million, respectively. Changes in production volumes and shifts in product mix between years
represent the primary causes for the difference in operating income between each year. In addition, the 2000
operating income result included $2.5 million associated with revenues and cost of goods sold in 1999 but
deferred until 2000 as a result of implementing SAB 101.

D U N K I R K S P E C I A LT Y S T E E L S E G M E N T Net sales on shipments and the operating loss for the
year ended December 31, 2002 was $10.5 million and $2.0 million, respectively. Net sales primarily reﬂected
sales to service centers, OEMs and wire redrawers. The operating loss primarily related to the start-up costs
incurred since February 14, 2002 and production volumes below the level necessary to sufficiently absorb the
period costs incurred.

LIQUIDITY AND CAPITAL RESOURCES

The Company generated cash ﬂow from operations in 2002 and 2001 of $3.8 million and $11.9 million,
respectively. This decrease was primarily due to the decrease in net income and increases in working capital
related to the start-up of Dunkirk Specialty Steel and recoverable federal income taxes associated with
estimated payments made during the ﬁrst half of 2002.

At December 31, 2002, working capital approximated $33.5 million, as compared to $28.7 million at
December 31, 2001. The increase was primarily attributable to the addition of Dunkirk Specialty Steel in
2002, including the purchase of $4.0 million of inventory from the JDA. The ratio of current assets to current
liabilities at December 31, 2002 and 2001, was 5.4:1 and 4.0:1, respectively. The debt to total capitalization
ratio was 13.5% at December 31, 2002 and 12.9% at December 31, 2001.

C A P I TA L E X P E N D I T U R E S A N D I N V E S T M E N T S The Company’s capital expenditures, excluding
the costs of the Dunkirk Specialty Steel acquisition, were approximately $4.2 million and $5.3 million in 2002
and 2001, respectively. These expenditures primarily reﬂected the upgrade or replacement of various pieces of
equipment at the Bridgeville facility and the installation of grit blasting equipment at the Dunkirk facility. The
Company also expended $1.3 million in connection with the Purchase Agreements entered into with the JDA to
acquire certain assets and real property formerly owned by Empire Specialty Steel, Inc. Capital expenditures are
expected to approximate $2.0 million in 2003, based on current market conditions, and will be used primarily
to upgrade or replace various pieces of equipment at the Bridgeville and Dunkirk facilities. Commitments of
additional capital expenditures may occur if current market conditions improve.

C A P I TA L R E S O U R C E S I N C L U D I N G O F F - B A L A N C E S H E E T A R R A N G E M E N T S
The Company satisﬁes its capital requirements primarily through the sale of Common Stock and the issuance
of long-term debt. The Company does not maintain off-balance sheet arrangements other than operating leases
nor does it participate in non-exchange traded contracts requiring fair value accounting treatment or material
related party transaction arrangements.

P N C C R E D I T A G R E E M E N T
revolving credit facility (“PNC Line”) through April 30, 2005. 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.

The Company maintains a credit agreement with PNC Bank for a $6.5 million

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. In addition, the
Company pays a commitment fee of 0.5% per annum on the unused portion of the PNC Line. 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, 2002, the Company was in compliance
with all ﬁnancial ratios and restrictive covenants. On February 18, 2003, the Company and PNC Bank agreed
to adjust certain ﬁnancial ratio covenants through December 31, 2003 as a result of the Company’s projected
earnings throughout 2003. The Company believes it will maintain compliance with the adjusted covenants
unless economic conditions remain at 2002 fourth quarter levels throughout 2003.

G O V E R N M E N T F I N A N C I N G P R O G R A M S The Company has entered into several separate loan
agreements with the Commonwealth of Pennsylvania’s Department of Commerce aggregating $1.6 million
with terms ending between the years 2002 and 2016. The loans bear interest at rates ranging from 5% to
6% per annum. In 1996, the Company entered into a ten-year, 6% interest-bearing loan agreement with the
Redevelopment Authority of Allegheny County Economic Development Fund in the amount of $1.5 million.

On February 14, 2002, Dunkirk Specialty Steel issued two ten-year, 5% interest-bearing notes payable to
the JDA (the “JDA Notes”) for the combined amount of $3.0 million. No principal or interest payments are
due under the notes during the first year. The notes were recorded net of a $143,000 debt discount, of
which $125,000 was amortized in 2002 and included as interest expense.

S T O C K - B A S E D F I N A N C I N G A C T I V I T Y
Common Stock for the years ended December 31, 2002 and 2001, respectively, through its two stock-based
compensation plans. In 2002, certain members of the Company’s Board of Directors exercised 200,000 stock
options issued under the Stock Incentive Plan for $1.9 million plus related tax beneﬁts of $417,000. The
remaining shares were issued to employees participating in the Employee Stock Purchase Plan.

The Company issued 207,366 and 8,044 shares of its

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. The Company repurchased no
shares of Common Stock during 2002 while 12,000 shares of Common Stock were repurchased during 2001.
The Company is authorized to repurchase 45,100 additional shares of Common Stock as of December 31, 2002.

S H O R T- A N D L O N G - T E R M L I Q U I D I T Y
term liquidity requirements resulting from operations and current capital investment plans with internally
generated funds and borrowings under the PNC Line. At December 31, 2002, the Company had $3.3 million
in cash and $6.5 million available under the PNC Line.

The Company expects to meet substantially all of its short-

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.

C O N T R A C T U A L O B L I G AT I O N S At December 31, 2002, the Company had the following
contractual obligations:

(DOLLARS IN THOUSANDS)

Long-term debt
Capital lease obligations
Operating lease obligations
Purchase obligations

TOTAL

LESS THAN
1 YEAR

1-3
YEARS

3-5
YEARS

MORE THAN
5 YEARS

$ 10,660
134
117
2,493

2,253
54
53
2,013

4,424
66
58
480

1,946
14
6
–

2,037
–
–
–

Total contractual obligations

$ 13,404

4,373

5,028

1,966

2,037

Long-term debt includes the PNC Term Loan. The Company has ﬁxed the rate of interest at 2.84% through
December 12, 2003. The table assumes the Company will maintain that interest rate until maturity.
Purchase obligations primarily include minimum purchase commitments under various utility contracts.
One utility contract expires in August 2004. The table assumes the minimum monthly payment under this
contract is $60,000.

M A R K E T R I S K The Company does not use derivative financial instruments to reduce its financial risk.
The Company’s customers and suppliers absorb fluctuations in foreign currency exchange rates. In addition,
the Company does not maintain long-term, ﬁxed cost supply agreements for its major raw material and natural
gas requirements. Prices for the Company’s raw materials and natural gas requirements are subject to frequent
market ﬂuctuations and proﬁt margins may decline in the event market values increase. Selling price increases
and surcharges are implemented to offset raw material and natural gas market price increases.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

The Company is exposed to market risk from changes in interest rates related to its long-term debt.
At December 31, 2002, $4.4 million of the Company’s total long-term debt and capital lease obligations
has ﬁxed interest rates. The remaining $5.1 million represents the PNC Term Loan outstanding balance that
bears a variable interest rate.

The Company maintains a supply contract agreement with Talley Metals Technology,

S U P P LY C O N T R A C T
Inc., a subsidiary of Carpenter Technology Corporation (“Talley Metals”), and the Company’s largest customer.
While the initial term of the agreement expired December 31, 2002, the agreement continues to automatically
renew with the placement of new orders each month and requires a ninety-day notice to terminate. In addition,
Talley Metals is required under the agreement to purchase a minimum of 1,000 tons of stainless reroll billet
products each calendar month and average at least 1,250 tons per month during the last twelve-month period.
The value of the contract on a monthly basis will depend on product mix and key raw material prices. During
2002, Talley Metals did not comply with the monthly minimum purchase requirement due to market conditions.
The Company granted a waiver from this requirement until market conditions improve, which the Company
believes will coincide with a market price increase for stainless steel bar, rod and wire products.

I M P O R T P R O T E C T I O N S On October 22, 2001, the U.S. International Trade Commission determined
that import of certain stainless steel and alloy tool steel products are seriously injuring the domestic specialty
steel industry. 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 under Section 201 of the 1974 Trade
Act. During the 2002 second quarter, the Company experienced a signiﬁcant increase in demand for commodity
reroller products. This trend did not continue during the second half of the year and is not expected to signiﬁ-
cantly impact future results.

The assets purchased by Dunkirk Specialty Steel were previously owned and operated by AL Tech Specialty
Steel, Inc. and Empire Specialty Steel, Inc. During their ownership, both organizations participated in
several anti-dumping lawsuits with other domestic specialty steel producers. CDSOA provides for payment of
import duties collected by the U. S. Treasury to domestic companies injured by unfair foreign trade practices.
In accordance with CDSOA, the Company ﬁled claims to receive their appropriate share of the import duties
collected during the past ﬁscal year and received $310,000, net of expenses. The Company expects to beneﬁt
from CDSOA in future years unless the Act is repealed. The amount of future beneﬁts is dependent on the
amount of import duties collected and the relationship of Dunkirk Specialty Steel’s claim in relation to claims
ﬁled by other domestic specialty steel producers.

B R I D G E V I L L E L E A S E 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.

On February 6, 2003, the Company submitted a notice to exercise its option to purchase all of the property
permitted under the Bridgeville Lease for $1. The ESR building, which houses the Company’s four electro-slag
remelting furnaces and ancillary equipment, is not included in the option to purchase. The Company will
continue to operate the equipment in the ESR building under the existing lease which is due to expire on
August 15, 2004. The Company has expressed an interest to purchase or extend the current lease for the ESR
building from AK Steel. In the event that the lease of the ESR building is not extended and the property is not
purchased, the relocation of the ESR equipment would have an adverse material effect on the ﬁnancial
condition of the Company.

CONTINGENT ITEMS

E N V I R O N M E N TA L M AT T E R S The Company, as well as other steel companies, is subject to demanding
environmental standards imposed by federal, state and local environmental laws and regulations. The Company
is not aware of any environmental condition that currently exists at any of its facilities that would cause
a material adverse effect on the ﬁnancial condition of the Company.

In connection with the 1994 acquisition of the Bridgeville facility assets, 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 August 15, 1994, and to indemnify the Company up to $6.0 million. This
indemniﬁcation, due to expire on August 15, 2004, will terminate if the Company purchases the Bridgeville
property prior to the expiration date.

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 also agreed to indemnify the Company for any liabilities arising out of environmental
conditions existing off-site as of June 2, 1995 and is not subject to the $3.0 million limitation.

The Company has ﬁled no claims against Armco since the inception of the acquisition agreements. In addition,
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 connection with the acquisition of the Dunkirk facility, Dunkirk Specialty Steel entered into an order with
the New York State Department of Environmental Conservation (“NY DEC”) that precludes NY DEC from
bringing any action against the Company. In addition, the order releases the Company from any and all claims
and liabilities arising from, or related to, the existing environmental conditions at the Dunkirk facility. There
can be no assurance that any other party will not assert any claims with respect to environmental conditions
at the Dunkirk facility, or that the Company will have the ﬁnancial resources to discharge any liabilities if
legally compelled to do so.

L E G A L M AT T E R On June 29, 2001, suit was ﬁled against the Company in the Court of Common Pleas
of Allegheny County, Pennsylvania by Teledyne Technologies, Incorporated (“Teledyne”). The suit alleges that
steel product manufactured by the Company was defective and the Company was or should have been aware of
the defects. Teledyne has alleged that the defective steel supplied by the Company caused certain crankshafts
sold by Teledyne to be defective. As a result, Teledyne is claiming damages relating to the recall, replacement
and repair of aircraft engines.

Teledyne was recently unsuccessful in its pursuit of a similar claim brought against another specialty steel
producer who supplied the same steel product. After in-depth investigation, it is the Company’s position that
the suit is without merit and it intends to vigorously defend that position. Additionally, the Company believes
that insurance coverage will be available for this claim. At this time, the Company is engaged in discovery and
believes that the ﬁnal disposition of this suit will not have a material adverse effect on the ﬁnancial condition
or results of operation for the Company.

CRITICAL ACCOUNTING POLICIES
AND NEW ACCOUNTING PRONOUNCEMENTS

C R I T I C A L A C C O U N T I N G P O L I C I E S 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 has transferred. Revenue is also 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 material on hand for more than one year not assigned to
a speciﬁc customer order.

Long-lived assets are reviewed for impairment annually by operating facility. An impairment write down will be
recognized whenever events or changes in circumstances indicate that the carrying value may not be recover-
able through estimated future undiscounted cash ﬂows. The Company has not recognized an impairment write
down on any of its assets held at December 31, 2002.

N E W A C C O U N T I N G P R O N O U N C E M E N T S In July 2001, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”
(“SFAS 141”) and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). These standards
require that all business combinations be accounted for using the purchase method and that goodwill and
intangible assets with indefinite useful lives not be amortized but should be tested for impairment at least
annually. These standards also outline the criteria for initial recognition and measurement of intangibles,
assignment of assets and liabilities including goodwill to reporting units and goodwill impairment testing. The
provisions of SFAS 141 apply to all business combinations after June 30, 2001. Effective January 1, 2002,
the Company adopted SFAS 142, which did not impact the Company’s results of operations or ﬁnancial condition.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

On August 15, 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS
143”). SFAS 143 establishes accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. SFAS 143 is effective for the Company on January 1, 2003
and is not expected to have a material impact on the Company’s results of operations or ﬁnancial condition.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS 144”). This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”). It also amends Accounting Principles
Board Statement No. 30, “Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions” (“APB 30”). SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell.
SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of the impairment
of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. This
statement also retains APB 30's requirement that a company report discontinued operations separately from
continuing operations. All provisions of SFAS 144 were adopted on January 1, 2002 and did not have a material
impact on the Company’s consolidated ﬁnancial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”
(“SFAS 146”). This statement supersedes Emerging Issues Task Force Issue No. 94-3, “Liability Recognition
for Certain Employee Termination Beneﬁts and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring).” SFAS 146 requires the recognition of a liability for costs associated with an exit or
disposal activity when incurred. SFAS 146 also establishes that the liability should initially be measured and
recorded at fair value. The provisions of SFAS 146 will be effective for any exit and disposal activities initiated
after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45
requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an
obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its
interim and annual financial statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are issued or modified after
December 31, 2002. The provisions of FIN 45 are not expected to have a material impact on our results
of operations or ﬁnancial position.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and
Disclosure – an amendment of FASB Statement No. 123” (“SFAS 148”). This statement amends SFAS No. 123,
“Accounting for Stock Based Compensation” to provide alternative methods of voluntarily transitioning to the fair
value based method of accounting for stock-based employee compensation. SFAS 148 also requires disclosure
of the method used to account for stock-based employee compensation and the effect of the method on reported
results in both annual and interim ﬁnancial statements. The Company does not intend to change its current
method of accounting for stock-based employee compensation unless required by the issuance of a new pronounce-
ment. The Company has adopted the disclosure requirements of SFAS 148 as of December 31, 2002.

FUTURE OUTLOOK

The Company enters 2003 with a total backlog of $14 million and expects demand for aerospace and power
generation products to remain weak due to projected reductions in the deliveries of commercial airplanes and
industrial gas turbines. The Company expects its results will improve throughout 2003 in conjunction with the
pace of the domestic economy’s recovery and the market’s increasing acceptance of Dunkirk Specialty Steel as
a reliable supplier of quality specialty steel bar, rod and wire products.

The Company’s actual results will be affected by a wide range of factors including the limited operating history
of Dunkirk Specialty Steel; 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; the ability of the Company to meet its current debt covenants; the ultimate outcome of the Company’s
current and future litigation matters; 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, 2002 and other reports on ﬁle with the Securities and Exchange Commission.

Report of Management
T O T H E S T O C K H O L D E R S O F U N I V E R S A L S TA I N L E S S & A L L O Y P R O D U C T S , I N C .

The ﬁnancial statements and related information contained in this report were prepared in conformity with
accounting principles generally accepted in the United States of America and, as such, includes amounts
based on management’s best judgments and estimates. We maintain a system of policies, procedures and
controls designed to provide reasonable assurance that transactions are properly executed, recorded and
included within the ﬁnancial statements and that the Company’s assets are safeguarded from improper or
unauthorized use. The Audit Committee of the Board of Directors, composed of independent directors, meets
regularly with management and our independent accountants to discuss audit results and ﬁnancial reporting
matters. The independent accountants have full access to the Audit Committee without our presence.

Clarence M. McAninch
President and Chief Executive Officer

February 18, 2003

Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer

Report of Independent Accountants
T O T H E B O A R D O F D I R E C T O R S A N D S T O C K H O L D E R S
O F U N I V E R S A L S TA I N L E S S & A L L O Y P R O D U C T S , I N C .

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 subsidiaries (the Company) at December 31, 2002 and 2001, and the results
of their operations and their cash ﬂows for each of the three years in the period ended December 31, 2002,
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.

PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania

February 18, 2003

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

Consolidated Statement of Operations

FOR THE YEARS ENDED DECEMBER 31,

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

Net sales
Cost of products sold
Selling and administrative expenses

Operating income
Interest expense and other ﬁnancing costs
Other income (expense), net

Income before taxes and cumulative effect of accounting change
Provision for income taxes

Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax

Net income

EARNINGS PER COMMON SHARE

B A S I C

Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax

Net income

D I L U T E D

Income before cumulative effect of accounting change
Cumulative effect of accounting change, net of tax

Net income

2002

2001

2000

$ 70,877
61,971
5,883

$ 90,658
71,915
6,199

$ 88,347
71,861
4,998

3,023
(455)
457

3,025
933

2,092
–

12,544
(576)
57

12,025
4,386

7,639
–

11,488
(905)
(3)

10,580
3,970

6,610
(1,546)

2,092

7,639

5,064

0.34
–

0.34

0.34
–

0.34

1.26
–

1.26

1.25
–

1.25

1.09
(0.26)

0.83

1.09
(0.26)

0.83

Weighted average number of shares of Common Stock outstanding

6,203,800 6,080,045 6,074,701

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

Consolidated Balance Sheets

DECEMBER 31,

(DOLLARS IN THOUSANDS)

ASSETS

Current Assets

Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of $298 and $434)
Inventory
Deferred taxes
Other current assets

Total current assets
Property, plant and equipment, net
Other assets

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Trade accounts payable
Outstanding checks in excess of bank balance
Current portion of long-term debt
Accrued employment costs
Other current liabilities

Total current liabilities
Long-term debt
Deferred taxes

Total liabilities

Commitments and Contingencies

Stockholders’ Equity
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 and 6,347,172 shares issued

Additional paid-in capital
Retained earnings
Treasury Stock at cost; 269,900 common shares held

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

2002

2001

3,308
11,550
22,717
1,127
2,454

41,156
42,246
642

5,454
13,257
17,900
1,022
460

38,093
41,202
151

$ 84,044

$ 79,446

4,190
275
1,971
1,019
163

7,618
7,502
8,123

4,597
857
1,832
1,562
590

9,438
6,490
7,146

23,243

23,074

–

7
28,277
34,148
(1,631)

60,801

6
25,941
32,056
(1,631)

56,372

$ 84,044

$ 79,446

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

Consolidated Statement of Cash Flows

FOR THE YEARS ENDED DECEMBER 31,

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income
Adjustments to reconcile to net cash and cash equivalents

provided by operating activities:
Depreciation and amortization
Deferred taxes
Tax beneﬁt from exercise of stock options

Changes in assets and liabilities:

Accounts receivable, net
Inventory
Accounts payable
Accrued employment costs
Refundable income taxes paid
Other, net

Net cash provided by operating activities

2002

2001

2000

2,092

7,639

5,064

3,271
596
417

1,150
(859)
(407)
(543)
(990)
(903)

3,824

2,782
1,087
–

(438)
888
(1,027)
265
–
709

11,905

2,466
1,509
–

(706)
(3,058)
147
570
–
293

6,285

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of assets and real property through purchase agreements
Capital expenditures

Net cash used in investing activities

(1,283)
(4,194)

(5,477)

–
(5,253)

(5,253)

–
(4,598)

(4,598)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long-term debt
Long-term debt repayment
Borrowings under revolving line of credit
Repayments under revolving line of credit
(Decrease) increase in outstanding checks

in excess of bank balance

Proceeds from issuance of Common Stock
Purchase of Treasury Stock

Net cash used in ﬁnancing activities

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period

–
(1,831)
–
–

(582)
1,920
–

(493)

(2,146)
5,454

136
(1,821)
8,893
(8,893)

(588)
53
(87)

–
(1,834)
14,107
(14,107)

338
50
–

(2,307)

(1,446)

4,345
1,109

241
868

Cash and cash equivalents at end of period

3,308

5,454

1,109

SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION

Interest paid (net of amount capitalized)
Income taxes paid

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

$
$

318
1,329

$
$

605
3,144

$
$

827
1,593

Notes to the Consolidated Financial Statements

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

D E S C R I P T I O N O F T H E C O M P A N Y 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, hot and cold rolling, machining and cold drawing of semi-finished and finished specialty steels.
The Company’s products are sold to rerollers, forgers, service centers, original equipment manufacturers,
which primarily include the power generation and aerospace industries, and wire redrawers. 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.

U S E O F E S T I M AT E S The preparation of ﬁnancial statements in conformity with accounting principles
generally accepted in the United States of America require management to make estimates and assumptions
that affect the amounts reported in the consolidated ﬁnancial statements. The estimates and assumptions used
in these consolidated ﬁnancial statements are based on known information available as of the balance sheet
date. Actual results could differ from those estimates.

B A S I S O F C O N S O L I D AT I O N The consolidated ﬁnancial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation. The Company has no interests in any unconsolidated entity nor does it have any off-balance
sheet ﬁnancing arrangements other than operating leases.

C A S H A N D C A S H E Q U I V A L E N T S Cash equivalents are stated at cost plus accrued interest, which
approximates market value, and include only securities having an original maturity of three months or less
at the time of purchase.

C O N C E N T R AT I O N O F C R E D I T R I S K 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.

I N V E N T O R I E S 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.

The Company purchases scrap metal and alloy additives, principally nickel, chrome and molybdenum, for
its melting operation. 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.

P R O P E R T Y, P L A N T A N D E Q U I P M E N T 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 interest was capitalized for the ﬁscal year 2002,
2001 and 2000. 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. Maintenance expense for the ﬁscal year 2002, 2001 and
2000 was $6,390,000, $6,611,000 and $6,626,000, respectively.

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 buildings and land improvements is 25 years, machinery
and equipment is between 5 and 20 years, and software is 3 years. When property, plant and equipment
are retired, or otherwise disposed of, the asset and related accumulated depreciation are removed from the
accounts, with any resulting gain or loss included in results of operations. Depreciation and amortization
expense for ﬁscal year 2002, 2001 and 2000 was $3,130,000, $2,764,000 and $2,448,000, respectively.

The Company’s manufacturing processes are dependent upon certain 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 an unexpected equipment failure, there can be no assurance that the
Company’s operations would not be substantially curtailed.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

L O N G - L I V E D A S S E T I M P A I R M E N T 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, 2002 and 2001.

R E V E N U E R E C O G N I T I O N Revenue from the sale of products is recognized when both risk of loss and
title has transferred to the customer, which generally coincides with shipment of the related products, provided
that no significant company obligation exists, the fee is fixed or determinable and collection is reasonably
assured. Revenue from conversion services is recognized when the performance of the service is complete.
Invoiced shipping and handling costs are also accounted for as revenue. Customer claims are accounted for
primarily as a reduction to gross sales after the matter has been researched and an acceptable resolution has
been reached.

I N C O M E TA X E S Deferred income taxes are provided for unused tax credits earned and 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. Valuation allowances are
provided if a deferred tax asset will more likely than not be realized.

S T O C K - B A S E D C O M P E N S AT I O N P L A N S The Company accounts for stock-based employee and
director compensation using the intrinsic value method. No stock-based employee compensation cost is
reﬂected in net income if the exercise price of the options granted equals or exceeds market value of the
underlying common stock on the date of grant. The tax effects of exercising stock options are added to
additional paid-in capital at the exercise date. The following table illustrates the effect on net income and
earnings per share if the company had applied the fair value recognition provisions of issued Statement of
Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”), to stock-based employee and director compensation:

FOR THE YEARS ENDED DECEMBER 31,

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

Net income, as reported
Total stock-based compensation expense determined

under fair-value based method, net of taxes

Pro forma net income

E A R N I N G S P E R S H A R E

Basic – as reported
Basic – pro forma

Diluted – as reported
Diluted – pro forma

2002

2001

2000

2,092

7,639

5,064

(129)

(131)

(350)

1,963

7,508

4,714

$
$

0.34
0.32

0.34
0.31

$
$

1.26
1.23

1.25
1.23

$
$

0.83
0.78

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 2002, 2001 and 2000,
respectively: dividend yield of 0.0% for each year; interest rate of 3.7%, 5.0% and 6.0%; expected volatility
of 53.0%, 50.0% and 50.0%; and expected lives for options of ﬁve years.

E A R N I N G S P E R C O M M O N S H A R E 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 assumed
proceeds from the exercise of stock options and warrants are 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.

A C C O U N T I N G C H A N G E 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, “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101, retroactively
adopted as of January 1, 2000, outlined certain criteria that must be met to recognize revenue. 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.

N E W A C C O U N T I N G P R O N O U N C E M E N T S In July 2001, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 141, “Business Combinations” (“SFAS 141”) and SFAS No. 142, “Goodwill and
Other Intangible Assets” (“SFAS 142”). These standards require that all business combinations be accounted
for using the purchase method and that goodwill and intangible assets with indefinite useful lives not be
amortized but should be tested for impairment at least annually. These standards also outline the criteria for
initial recognition and measurement of intangibles, assignment of assets and liabilities including goodwill to
reporting units and goodwill impairment testing. The provisions of SFAS 141 apply to all business combinations
after June 30, 2001. Effective January 1, 2002, the Company adopted SFAS 142, which did not impact the
Company’s results of operations or ﬁnancial condition.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“SFAS 144”). This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS 121”). It also amends Accounting Principles
Board Statement No. 30, “Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions” (“APB 30”). SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell.
SFAS 144 retains the fundamental provisions of SFAS 121 for recognition and measurement of the impairment
of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. This
statement also retains APB 30's requirement that a company report discontinued operations separately from
continuing operations. All provisions of SFAS 144 were adopted on January 1, 2002 and did not have a
material impact on the Company’s consolidated ﬁnancial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities” (“SFAS 146”). This statement supersedes Emerging Issues Task Force Issue No. 94-3, “Liability
Recognition for Certain Employee Termination Beneﬁts and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).” SFAS 146 requires the recognition of a liability for costs associated
with an exit or disposal activity when incurred. SFAS 146 also establishes that the liability should initially
be measured and recorded at fair value. The provisions of SFAS 146 will be effective for any exit and disposal
activities initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45
requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation
assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual
ﬁnancial statements about the obligations associated with guarantees issued. The recognition provisions of
FIN 45 will be effective for any guarantees that are issued or modiﬁed after December 31, 2002. The provisions
of FIN 45 are not expected to have a material impact on our results of operations or ﬁnancial position.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition
and Disclosure – an amendment of FASB Statement No. 123” (“SFAS 148”). This statement amends
SFAS No. 123 to provide alternative methods of voluntarily transitioning to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also requires disclosure of the method used
to account for stock-based employee compensation and the effect of the method on reported results in
both annual and interim ﬁnancial statements. The Company does not intend to change its current method of
accounting for stock-based employee compensation unless required by the issuance of a new pronouncement.
The Company has adopted the disclosure requirements of SFAS 148 as of December 31, 2002.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

NOTE 2: INVENTORY

The major classes of inventory are as follows:

DECEMBER 31,

(DOLLARS IN THOUSANDS)

Raw materials and supplies
Semi-ﬁnished and ﬁnished steel products
Operating materials

Total inventory

NOTE 3: PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

DECEMBER 31,

(DOLLARS IN THOUSANDS)

Land and land improvements
Buildings
Machinery and equipment
Construction in progress

Accumulated depreciation

Property, plant and equipment, net

2002

2001

1,719
18,588
2,410

1,880
13,593
2,427

$ 22,717

$ 17,900

2002

2001

822
5,987
48,110
980

822
4,701
43,572
2,641

55,899
(13,653)

51,736
(10,534)

$ 42,246

$ 41,202

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.

On February 6, 2003, the Company submitted a notice to exercise its option to purchase all of the property
permitted under the Bridgeville Lease for $1. The ESR building, which houses the Company’s four electro-slag
remelting furnaces and ancillary equipment, is not included in the option to purchase. The Company will continue
to operate the equipment in the ESR building under the existing lease due to expire on August 15, 2004. The
Company has expressed an interest to purchase or extend the current lease for the ESR building to AK Steel. In
the event that the lease of the ESR building is not extended and the property is not purchased, the relocation
of the ESR equipment would have an adverse material effect on the ﬁnancial condition of the Company.

NOTE 4: LONG-TERM DEBT AND OTHER FINANCING

Long-term debt consists of the following:

DECEMBER 31,

(DOLLARS IN THOUSANDS)

PNC Term Loan
Government debt
Capital lease obligations

Less amounts due within one year

Total long-term debt

2002

2001

5,100
4,252
121

9,473
(1,971)

6,500
1,598
224

8,322
(1,832)

7,502

6,490

The Company maintains a credit agreement with PNC Bank for a $6,500,000 revolving credit facility
(“PNC Line”) through April 30, 2005. This credit agreement, which also includes a term loan scheduled
to mature in June 2006 (“PNC Term Loan”), 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 effective interest
rate at December 31, 2002 was 2.84%. In addition, the Company pays a commitment fee of 0.5% per annum
on the unused portion of the PNC Line. 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 was in compliance with all ﬁnancial ratios and restrictive covenants at December 31,
2002. On February 18, 2003, the Company and PNC Bank agreed to adjust certain ﬁnancial ratio covenants
through December 31, 2003 as a result of the Company’s projected earnings throughout 2003.

The Company has entered into several separate loan agreements with the Commonwealth of Pennsylvania’s
Department of Commerce aggregating $1,600,000 with terms ending between the years 2002 and 2016.
The loans bear interest at rates ranging from 5% to 6% per annum. In 1996, the Company entered into a
ten-year, 6% interest-bearing loan agreement with the Redevelopment Authority of Allegheny County Economic
Development Fund in the amount of $1,514,000.

On February 14, 2002, Dunkirk Specialty Steel, LLC (“Dunkirk Specialty Steel”) issued two ten-year, 5%
interest-bearing notes payable to the New York Job Development Authority (the “JDA”) for the combined
amount of $3,000,000 (“JDA Notes”). No principal or interest payments are due under the JDA Notes
during the ﬁrst year. The JDA Notes were recorded net of a $143,000 debt discount, of which $125,000
was amortized in 2002 and included as interest expense.

The Company leases certain equipment and vehicles. The aggregate annual principal payments due under the
Company’s long-term debt and the minimum lease payments under capitalized and operating leases are as follows:

FOR THE YEARS ENDED DECEMBER 31,

2003

2004

2005

2006

2007

THERE-
AFTER

DEDUCTIONS

TOTAL

(DOLLARS IN THOUSANDS)

Long-term debt
Capital lease

minimum payments

Operating lease

minimum payments

$1,923 $1,916 $2,014 $1,343

$365

$1,809

(18)

$9,352

–

(13)

121

–

117

The deduction for long-term debt represents the unamortized portion of the debt discount recognized on the
JDA Notes at December 31, 2002. The deduction for capital lease minimum payments represents the imputed
interest included within the remaining capital lease payments.

NOTE 5: INCOME TAXES

Components of the provision for income taxes are as follows:

FOR THE YEARS ENDED DECEMBER 31,

(DOLLARS IN THOUSANDS)

C U R R E N T P R O V I S I O N ( B E N E F I T )

Federal
State

D E F E R R E D P R O V I S I O N ( B E N E F I T )

Federal
State

Provision for income taxes

2002

2001

2000

453
(116)

337

3,160
139

3,299

2,461
–

2,461

602
(6)

596

933

903
184

1,087

1,238
271

1,509

4,386

3,970

A reconciliation of the federal statutory tax rate and the Company’s effective tax rate is as follows:

FOR THE YEARS ENDED DECEMBER 31,
Federal statutory tax
State income taxes, net of federal beneﬁt
Government grants, net of federal beneﬁt
Other, net

Effective income tax rate

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

2002
34.0%
4.5
(7.2)
(0.5)

30.8%

2001
34.0%
2.7
(0.4)
0.2

36.5%

2000
34.0%
3.3
–
0.2

37.5%

Dunkirk Specialty Steel operates in a New York State Empire Zone and is qualiﬁed to beneﬁt from investments
made and employees hired at the Dunkirk, NY facility for up to ﬁfteen years. The Company recognized tax
credit beneﬁts of $340,000 in 2002, of which $170,000 was applied against the current tax provision and
the balance will be applied against future tax liabilities for income apportioned to New York State. The
Company believes it will generate sufficient income in conjunction with the reversal of its temporary differences
to utilize this tax credit.

Deferred taxes result from the following:

DECEMBER 31,

(DOLLARS IN THOUSANDS)

D E F E R R E D TA X A S S E T S

Receivables
Inventory
Accrued liabilities

Federal and state tax carry forwards

Total deferred tax assets

D E F E R R E D TA X L I A B I L I T I E S

Property, plant and equipment

2002

2001

130
861
136

1,127
470

187
600
235

1,022
–

1,597

1,022

8,123

7,146

Federal and state tax carry forwards include federal alternative minimum tax and New York Empire Zone tax
credits of $377,000 with no expiration date. The remaining balance relates to net operating loss carry forwards
allocated to certain states which expire within 5 to 20 years.

NOTE 6: STOCKHOLDERS’ EQUITY

COMMON
SHARES
OUTSTANDING

COMMON
STOCK

ADDITIONAL
PAID-IN
CAPITAL

RETAINED
EARNINGS

TREASURY
SHARES

TREASURY
STOCK

(DOLLARS IN THOUSANDS)

Balance at

December 31, 1999

6,330,416

$ 25,838

$ 19,353

257,900

$ (1,544)

Common Stock issuance under

Employee Stock Purchase Plan

8,712

Net income

Balance at

5,064

December 31, 2000

6,339,128

25,888

24,417

257,900

(1,544)

8,044

Common Stock issuance under
Employee Stock Purchase Plan

Purchase of Treasury Stock
Net income

Balance at

December 31, 2001

6,347,172

Common Stock issuance under
Employee Stock Purchase Plan

Exercise of Stock Options
Tax beneﬁt from exercise

of Stock Options

7,366
200,000

Net income

Balance at

12,000

(87)

7,639

25,941

32,056

269,900

(1,631)

44
1,875

417

2,092

December 31, 2002

6,554,538

$ 28,277

$ 34,148

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, 2002, the Company is authorized to
repurchase 45,100 additional shares of the Company’s Common Stock.

The Company has 1,980,000 authorized shares of Preferred Stock. At December 31, 2002 and 2001, 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, 2002, 2001 and
2000 is performed as follows:

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

INCOME

2002

INCOME

2001

INCOME

2000

Income available to

common Stockholders
Effect of dilutive securities

Income available to

common Stockholders
plus assumed conversion

B A S I C E A R N I N G S

P E R C O M M O N S H A R E

Income before cumulative

effect of accounting change

Net income

D I L U T E D E A R N I N G S

P E R C O M M O N S H A R E

Income before cumulative

effect of accounting change

Net income

2,092 6,203,800
32,048

7,639 6,080,045
17,379

5,064 6,074,701
5,057

2,092 6,235,848

7,639 6,097,424

5,064 6,079,758

0.34

1.26

1.25

1.09

0.83

1.09

0.83

NOTE 8: INCENTIVE COMPENSATION PLANS

At December 31, 2002, the Company has three incentive compensation plans that are described below:

S T O C K I N C E N T I V E P L A N The Company maintains the Stock Incentive Plan that has been adopted and
amended from time to time by the Company’s Board of Directors, and approved by its stockholders. The Stock
Incentive Plan permits the issuance of 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. The Company may grant
options up to a maximum of 950,000 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 Stock Incentive Plan will expire no later than ten years after the grant date.

A summary of the Stock Incentive Plan activity as of and for the years ended December 31, 2002, 2001 and
2000 is presented below:

2002

WEIGHTED-
AVERAGE
EXERCISE
PRICE

2001

WEIGHTED-
AVERAGE
EXERCISE
PRICE

2000

WEIGHTED-
AVERAGE
EXERCISE
PRICE

F I X E D O P T I O N S

Outstanding at beginning of year 617,500
25,000
Granted
(200,000)
Exercised
(14,501)
Forfeited

9.36
10.31
9.40
9.86

522,500
100,000
–
(5,000)

Outstanding at end of year

427,999

9.38

617,500

9.58
8.22
–
9.88

9.36

331,996

472,746

482,500
40,000
–
–

522,500

414,287

9.79
7.13
–
–

9.58

Options exercisable at year-end
Weighted-average fair value of

options granted during the year

5.09

4.07

3.63

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

The following table summarizes information about stock options outstanding at December 31, 2002:

RANGE OF EXERCISE PRICES
$ 6.06 to $ 7.30
$ 8.00 to $ 9.94
$10.25 to $15.60
Outstanding at end of year

OPTIONS OUTSTANDING

OPTIONS EXERCISABLE

WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
LIFE
8.2
4.9
4.1
5.7

WEIGHTED-
AVERAGE
EXERCISE
PRICE
6.88
9.66
11.66
9.38

$
$
$
$

NUMBER
EXERCISABLE
61,164
155,032
115,800
331,996

WEIGHTED-
AVERAGE
EXERCISE
PRICE
6.71
9.63
11.40
9.71

$
$
$
$

NUMBER
OUTSTANDING
129,666
175,033
123,300
427,999

E M P L O Y E E S T O C K P U R C H A S E P L A N Under the 1996 Employee Stock Purchase Plan (the “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, 2002, the Company has issued 52,905 shares
of Common Stock since the plan’s inception.

C A S H - I N C E N T I V E P L A N S 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,
2002, 2001 and 2000, the Company expensed $511,000, $1,949,000 and $1,328,000, respectively,
under these plans.

NOTE 9: RETIREMENT PLANS

The Company has deﬁned contribution retirement plans that cover substantially all employees. The Company
accrues its contribution 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, 2002, 2001 and 2000 was $418,000, $413,000 and
$320,000, respectively. $74,000 of the total expense for the year ended December 31, 2002 related to the
Dunkirk Specialty Steel employees.

Effective January 6, 2003, the Company will participate in the Steelworkers Pension Trust (“Trust”), a multi-
employer deﬁned beneﬁt pension plan, that will be open to all hourly and salaried employees associated with
the Bridgeville facility. The Company will make periodic contributions based on hours worked at a ﬁxed rate
for each hourly employee. The hourly employees may continue their contributions to the deﬁned contribution
retirement plan even though the Company contributions will cease. The Company will also make a fixed
monthly contribution on behalf of each salaried employee to the Trust in addition to a contribution to the
deﬁned contribution retirement plan. The amount of the Company’s contribution will be dependent upon each
salaried employee’s contribution to the deﬁned contribution retirement plan.

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. The Company is not aware of any environmental
condition that currently exists at any of its facilities that would cause a material adverse effect on the ﬁnancial
condition of the Company.

In connection with the 1994 acquisition of the Bridgeville facility assets, 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 August 15, 1994, and to indemnify the Company up to $6,000,000. This
indemniﬁcation, due to expire on August 15, 2004, will terminate if the Company purchases the Bridgeville
property prior to the expiration date.

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 $3,000,000 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 also agreed to indemnify the Company for any liabilities arising out of environmental
conditions existing off-site as of June 2, 1995 and is not subject to the $3,000,000 limitation.

In connection with the acquisition of the Dunkirk facility, Dunkirk Specialty Steel entered into an order with
the New York State Department of Environmental Conservation (“NY DEC”) that precludes NY DEC from
bringing any action against the Company. In addition, the order releases the Company from any and all claims
and liabilities arising from, or related to, the existing environmental conditions at the Dunkirk facility. There
can be no assurance that any other party will not assert any claims with respect to environmental conditions
at the Dunkirk facility, or that the Company will have the financial resources to discharge any liabilities
if legally compelled to do so.

On June 29, 2001, suit was ﬁled against the Company in the Court of Common Pleas of Allegheny County,
Pennsylvania by Teledyne Technologies, Incorporated (“Teledyne”). The suit alleges that steel product
manufactured by the Company was defective and the Company was or should have been aware of the defects.
Teledyne has alleged that the defective steel supplied by the Company caused certain crankshafts sold by
Teledyne to be defective. As a result, Teledyne is claiming damages relating to the recall, replacement and
repair of aircraft engines.

Teledyne was recently unsuccessful in its pursuit of a similar claim brought against another specialty steel
producer who supplied the same steel product. After in-depth investigation it is the Company’s position that
the suit is without merit and it intends to vigorously defend that position. Additionally, the Company believes
that insurance coverage will be available for this claim. At this time, the Company is engaged in discovery and
believes that the ﬁnal disposition of this suit will not have a material adverse effect on the ﬁnancial condition
or results of operation for the Company.

The Company maintains a supply contract agreement with Talley Metals Technology, Inc., a subsidiary of
Carpenter Technology Corporation (“Talley Metals”). While the initial term of the agreement expired December 31,
2002, the agreement continues to automatically renew with the placement of new orders each month and
requires a ninety-day notice to terminate. In addition, Talley Metals is required under the agreement to purchase
a minimum of 1,000 tons of stainless reroll billet products each calendar month and average at least 1,250
per month during the last twelve-month period. The value of the contract on a monthly basis will depend on
product mix and key raw material prices. During 2002, Talley Metals did not comply with the monthly minimum
purchase requirement due to market conditions. The Company granted a waiver from this requirement until
market conditions improve, which the Company believes will coincide with a market price increase for stainless
steel bar, rod and wire products.

NOTE 11: SEGMENT AND RELATED INFORMATION

The Company is comprised of three operating locations and one corporate headquarters. For segment reporting,
the Bridgeville and Titusville facilities have been aggregated into one reportable segment, Universal Stainless
& Alloy Products, because of the management reporting structure in place. The Universal Stainless & Alloy
Products manufacturing process involves melting, remelting, treating and hot and cold rolling of semi-ﬁnished
and ﬁnished specialty steels. A second reportable segment, Dunkirk Specialty Steel, was created in 2002
with the acquisition of certain assets and real property formerly owned by Empire Specialty Steel, Inc.
Dunkirk Specialty Steel’s manufacturing process involves hot rolling and ﬁnishing specialty steel bar, rod
and wire products.

The accounting policies of both reportable segments are the same as those described in the Summary of
Signiﬁcant Accounting Policies. Sales between the segments are generally made at market-related prices.
Corporate assets are primarily cash and cash equivalents, prepaid expenses, deferred income taxes and
property, plant and equipment.

DECEMBER 31,

(DOLLARS IN THOUSANDS)

A S S E T S

Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Corporate

2002

2001

$ 65,413
12,337
6,294

$ 72,599
–
6,847

$ 84,044

$ 79,446

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

FOR THE YEARS ENDED DECEMBER 31,

2002

2001

2000 (a)

(DOLLARS IN THOUSANDS)

N E T S A L E S

Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Intersegment

O P E R AT I N G I N C O M E ( L O S S )

Universal Stainless & Alloy Products
Dunkirk Specialty Steel

I N T E R E S T E X P E N S E A N D O T H E R F I N A N C I N G C O S T S (b)

Universal Stainless & Alloy Products
Dunkirk Specialty Steel

O T H E R I N C O M E ( E X P E N S E ) , N E T

Universal Stainless & Alloy Products
Dunkirk Specialty Steel

D E P R E C I AT I O N A N D A M O R T I Z AT I O N

Universal Stainless & Alloy Products
Dunkirk Specialty Steel

C A P I TA L E X P E N D I T U R E S

Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Corporate

$ 70,120
10,483
(9,726)

$ 90,658
–
–

$ 88,347
–
–

$ 70,877

$ 90,658

$ 88,347

5,013
(1,990)

$ 12,544
–

$ 11,488
–

3,023

$ 12,544

$ 11,488

330
125

455

119
338

457

3,049
81

3,130

2,104
1,928
162

576
–

576

57
–

2,764
–

2,764

5,253
–
–

905
–

905

(3)
–

(3)

2,448
–

2,448

4,401
–
197

4,194

5,253

4,598

(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 amortization of deferred ﬁnancing costs and debt discount of $141,000, $18,000 and $18,000 for the years ended December 31,

2002, 2001 and 2000, respectively.

The following table presents net sales by product line:

FOR THE YEARS ENDED DECEMBER 31,

(DOLLARS IN THOUSANDS)

Stainless steel
Tool steel
High-temperature alloy steel
High-strength low alloy steel
Conversion services
Miscellaneous

Net sales on shipments
Effect of accounting change

Total net sales

2002

2001

2000

$ 56,813
6,643
3,474
2,213
1,495
239

70,877
–

$ 76,908
4,503
2,471
3,379
3,054
343

90,658
–

$ 62,346
6,960
1,754
2,161
2,309
355

75,885
12,462

$ 70,877

$ 90,658

$ 88,347

Net sales on shipments to the Company’s largest customer and its affiliates, which were generated primarily
from the Bridgeville operations, approximated 35%, 32% and 39% of total 2002, 2001 and 2000 sales,
respectively. The accounts receivable balances from this customer comprised approximately 25% and 21%
of total accounts receivable at December 31, 2002 and 2001, 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: ACQUISITION

On February 8, 2002, Dunkirk Specialty Steel entered into a Personal Property Asset Purchase Agreement and
a Real Property Purchase Agreement (the “Purchase Agreements”) with the JDA to acquire certain assets and
real property formerly owned by Empire Specialty Steel, Inc., at its idled production facility located in Dunkirk,
New York. These transactions were completed on February 14, 2002 and the plant became operational on
March 14, 2002. Pursuant to the Purchase Agreements, Dunkirk Specialty Steel paid $1,283,000 in cash
and issued the JDA Notes. The purchase price, including related acquisition costs and adjustments for the
discounted value of the JDA Notes, was $4,140,000. $3,958,000 was allocated to inventory and $182,000
was allocated to assets held for sale.

Through December 31, 2002, the Company has sold certain assets for $18,000 and has invested $33,000
to prepare certain assets for sale. While the speciﬁc identiﬁcation of assets to be sold continues, management
intends to sell an office building located on the property. Based on available information, management believes
the market value of the office building supports the recorded asset value. Future costs will be expensed as
incurred in accordance with SFAS 146.

The assets purchased by Dunkirk Specialty Steel were previously owned and operated by AL Tech Specialty
Steel, Inc. and Empire Specialty Steel, Inc. During their ownership, both organizations participated in several
anti-dumping lawsuits with other domestic specialty steel producers. The Continued Dumping and Subsidy
Act of 2000 (“CDSOA”) provides for payment of import duties collected by the U. S. Treasury to domestic
companies injured by unfair foreign trade practices. In accordance with CDSOA, the Company ﬁled claims
to receive their appropriate share of the import duties collected during the past ﬁscal year. In 2002, the
Company received $310,000, net of expenses, which is included in other income.

NOTE 13: QUARTERLY FINANCIAL DATA (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2 0 0 2 D ATA

Net sales
Gross proﬁt
Operating income (loss)
Net income (loss)

Earnings (loss) per common share:

Basic
Diluted

2 0 0 1 D ATA

Net sales
Gross proﬁt
Operating income
Net income

Earnings per common share:

Basic
Diluted

FIRST
QUARTER

SECOND
QUARTER

THIRD
QUARTER

FOURTH
QUARTER

$ 17,596
3,351
1,978
1,206

$ 21,422
2,848
1,311
777

$ 15,919
1,739
198
191

$ 15,940
968
(464)
(82)

$
$

0.20
0.20

$
$

0.13
0.12

$
$

0.03
0.03

$
$

(0.01)
(0.01)

$ 21,259
4,138
2,580
1,512

$ 24,233
5,026
3,210
1,908

$ 23,344
5,152
3,851
2,330

$ 21,822
4,427
2,903
1,889

$
$

0.25
0.25

$
$

0.31
0.31

$
$

0.38
0.38

$
$

0.31
0.31

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

PRICE RANGE OF COMMON STOCK

The Common Stock is listed on the Nasdaq National Market under the symbol “USAP.” There were 155
stockholders of record as of February 18, 2003. The following table sets forth the range of high and low sale
prices per share of Common Stock, for the periods indicated below:

Y E A R 2 0 0 2

First quarter
Second quarter
Third quarter
Fourth quarter

Y E A R 2 0 0 1

First quarter
Second quarter
Third quarter
Fourth quarter

HIGH

LOW

$
$
$
$

11.59
16.40
11.75
7.65

8.06
10.40
10.73
8.49

$
$
$
$

8.30
10.36
5.26
4.86

7.00
7.19
6.84
6.85

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 com-
petitive posture, effect of new accounting pronouncements and no material ﬁnancial impact from litigation
or contingencies 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,

2002

2001

2000 (a)

1999

1998

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

S U M M A R Y O F O P E R AT I O N S

Net sales
Operating income
Income before cumulative effect

of accounting change

Cumulative effect of accounting change,

net of tax
Net income

P R O F O R M A S U M M A R Y

O F O P E R AT I O N S (b)

Net sales
Operating income
Net income

F I N A N C I A L P O S I T I O N

AT Y E A R - E N D

Working capital
Total assets
Total debt
Stockholders’ equity

C O M M O N S H A R E D ATA

Basic earnings per share:

As reported
Pro forma under SAB 101(b)

Diluted earnings per share:

As reported
Pro forma under SAB 101(b)

Stockholders’ equity

O T H E R D ATA

Cash ﬂow from operations
Cash ﬂow from investments
Cash ﬂow from ﬁnancing activities
EBITDA(c)
Capital expenditures
Depreciation and amortization
Return of stockholders’ equity
Debt to total capitalization
Employees
Customers

$ 70,877
3,023

$ 90,658
12,544

$ 88,347
11,488

$ 66,663
3,731

$ 72,595
7,566

2,092

7,639

6,610

2,103

5,004

–
2,092

–
7,639

(1,546)
5,064

–
2,103

–
5,004

$ 70,877
3,023
2,092

$ 90,658
12,544
7,639

$ 88,347
11,488
6,610

$ 66,330
3,373
1,854

$ 78,170
8,437
5,558

$ 33,538
84,044
9,473
60,801

$ 28,655
79,446
8,322
56,372

$ 23,558
73,747
10,007
48,767

$ 20,800
68,179
11,841
43,653

$ 21,829
64,450
12,958
42,565

0.34
0.34

0.34
0.34
9.67

1.26
1.26

1.25
1.25
9.28

3,824
(5,477)
(493)
6,610
4,194
3,271

$ 11,905
(5,253)
(2,307)
15,365
5,253
2,782

3.7%

13.5
393
372

13.6%
12.9
304
288

0.83
1.09

0.83
1.09
8.03

6,285
(4,598)
(1,446)
11,459
4,598
2,466

10.4%
17.0
280
250

0.34
0.30

0.34
0.30
7.19

4,967
(3,366)
(2,170)
5,844
3,366
2,101

4.8%

21.3
277
235

0.79
0.88

0.79
0.87
6.82

9,007
(12,146)
4,399
8,960
12,146
1,516

11.8%
23.3
280
200

A V E R A G E S H A R E S O U T S TA N D I N G

(IN THOUSANDS)

Basic
Diluted

6,204
6,236

6,080
6,097

6,075
6,080

6,111
6,111

6,305
6,355

(a) Includes $12,462,000 of net sales and $9,988,000 of cost 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” (SAB 101). 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 SAB 101 as required under generally accepted accounting principles in 2000.

(c) Represents earnings before interest expense, income taxes and depreciation and amortization. This is not a generally accepted accounting

principle measure and is presented to disclose the liquidity of the Company.

Universal Stainless & Alloy Products, Inc. • 2002 Annual Report

CORPORATE INFORMATION

E X E C U T I V E O F F I C E S

Universal Stainless & Alloy Products, Inc.
600 Mayer Street
Bridgeville, PA 15017
412.257.7600

A N N U A L M E E T I N G

The Annual Meeting of Stockholders will be
held at 10 a.m. on Tuesday, May 20, 2003,
at the Southpointe Golf Club, Canonsburg, PA.

S T O C K H O L D E R I N F O R M AT I O N

T R A N S F E R A G E N T A N D R E G I S T R A R

Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004

S T O C K L I S T I N G

NASDAQ Symbol: USAP

W E B S I T E A D D R E S S E S

www.univstainless.com
www.dunkirkspecialtysteel.com

DIRECTORS

D O U G L A S M . D U N N

Managing Partner
Dunn Associates

G E O R G E F. K E A N E

President Emeritus
Common Fund Group

C L A R E N C E M . M c A N I N C H

President and Chief Executive Officer
Universal Stainless & Alloy Products, Inc.

U D I T O L E D A N O

President
Millennium 3 Capital, Inc.

OFFICERS

C L A R E N C E M . M c A N I N C H

President and Chief Executive Officer

R I C H A R D M . U B I N G E R

Vice President of Finance,
Chief Financial Officer and Treasurer

P A U L A . M c G R AT H

Vice President of Operations,
General Counsel and Secretary

MANAGEMENT

M I C H A E L J . O B I E C U N A S

Director, Employee Relations

B R U C E J . K R A M E R

Director, Purchasing and Production Planning

K E I T H A . E N G L E K A

Director, Technology

R I C H A R D J . P I N C O S K I

General Manager, Dunkirk Specialty Steel, LLC

12.1

CAPITAL
EXPENDITURES
in millions

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Corporate

4.6

5.3

4.2

3.4

1998

1999

2000

2001

2002

280

277

280

304

393

1998

1999

2000

2001

2002

E M P L O Y E E S

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Corporate

235

250

288

372

C U S T O M E R S

200

Universal Stainless & Alloy Products

Dunkirk Specialty Steel

Both

1998

1999

2000

2001

2002

D E S I G N : Mizrahi Design Associates, Inc.
P H O T O G R A P H Y: Mark Perrott
P R I N T E R : Wallace Hoechstetter Printing

Universal Stainless & Alloy Products, Inc.
2002 Annual Report

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

600 Mayer Street
Bridgeville, PA 15017

P : 412.257.7600
F : 412.257.7640