EXPANDING OUR REACH
2007 ANNUAL REPORT
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NET
SALES
NET
INCOME
CAPITAL
EXPENDITURES
UNIVERSAL STAINLESS
& ALLOY PRODUCTS, INC.
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, heat treating, hot and cold rolling,
machining and cold drawing of semi-finished
and finished specialty steels. Our products are
sold to rerollers, forgers, service centers, original
equipment manufacturers, and wire redrawers.
07
Dennis M. Oates
President and CEO
Clarence M.
("Mac") McAninch
Chairman of Board
of Directors
(LEFT TO RIGHT)
LETTER TO STOCKHOLDERS
As the new President and Chief Executive Officer of Universal
Stainless & Alloy Products, I am very pleased to provide this
annual review to our stockholders.
2007 was a year of continued progress for our Company. Our
results reached record levels for the fourth consecutive year,
with sales of $230 million and net income of $22.5 million or
$3.32 per diluted share. Our cash flow from operations was a
strong $34 million. Capital expenditures totaled $8.8 million.
The efforts of all our employees combined with our capital
investments over the past three years enabled us to make
headway on several major strategic objectives:
Increasing the shift of our sales mix to higher value added
products
Improving our ability to respond to strong demand in our
end markets led by aerospace
Enhancing our position in the domestic tool steel market
Reducing our costs
Improving customer service
One of the main external challenges facing our Company, our
customers and our industry in 2007 was exceptional volatility
in the price of raw materials, particularly nickel. In 2007, the
action in nickel was extreme. Nickel prices rose 51% between
2
January and May and then fell 20% in the month of June,
following a jagged course downward until the end of December.
This disrupted the buying patterns of our customers, especially
service centers, which slowed orders in the second half of the
year to deplete as much of their existing high cost inventory as
possible and to address excess inventories in the aerospace
supply channel. Rising economic concerns also added a note
of caution to buying patterns in the second half of 2007.
Our progress against our objectives was achieved despite
these issues.
Our end markets have healthy backlogs going out several
years and the prospects of our customers remain very
positive. We expect customer order patterns to improve as
2008 progresses, helped by the fact that nickel prices
have been less volatile since the beginning of the year. Our
immediate focus is on further penetration of our end markets
and pursuing new niche markets.
Aerospace remains our largest end market, representing
approximately 45% of 2007 sales. We expect aerospace to
continue to be a major driver of our growth into the next
decade. Orders booked for commercial aircraft have been at
unprecedented levels for the past three years – the combined
backlogs of Boeing and Airbus currently stand at over 6,000
commercial aircraft – and delivery schedules extend through
2013. That demand has come mainly from new carriers in
emerging economies. The next phase of demand will potentially
come from domestic carriers. To remain competitive, they
will need to replace their 30+-year-old aircraft, with the new
fuel-efficient and environmentally friendly models that the
international carriers are using to build their fleets.
capability, pursuing joint ventures including relationships with
well-established companies in target regions and/or with
customers, and then building the kind of reputation we have
in domestic markets.
The developing economies are also driving a rapidly growing
opportunity in the power generation market, which represented
12% of our sales in 2007. We expect this percentage to
increase in 2008. While demand for power is forecast to grow
at a solid pace over the next 20 years, countries such as China
and India as well as those in the Middle East have an
immediate and mushrooming need for electricity and have
vast infrastructure projects underway. This is creating strong
Our plans for 2008 reflect our intent to accelerate our growth
going forward.
In addition to market opportunities, we are pursuing operational
improvement as a major priority. This includes strengthening
our manufacturing processes, eliminating waste through
increased yield, and enhancing product quality. Improving
customer service levels is one of our
highest priorities.
Our end markets have healthy backlogs
going out several years and the prospects
of our customers remain very positive.
We will continue to invest capital in
equipment and technology in the coming
year to increase our efficiency and
provide the capabilities necessary to
meet the needs of our customers.
demand for gas-fired turbines and turbine blades, which are
forged from our grades of steel. We are now receiving orders
from our customers for China-bound turbine blades and
expect this business to grow throughout the coming year. The
commercial nuclear power market is another developing
opportunity that we are pursuing. Spurred by environmental
concerns, the nuclear power industry is re-emerging in the
U.S. as well as continuing its growth worldwide.
The petrochemical market, including oil and gas production,
represented 14% of our sales in 2007. We also expect our
petrochemical-related sales to increase in 2008. Following a
temporary slowdown in drilling activity in North America
beginning at mid-year, growth is forecasted to resume in
2008, accompanied by higher international drilling activity,
albeit restrained to some extent by a worldwide rig shortage.
Backlog for new rigs extends to 2011. This growth and the
potential rig build-rates are an opportunity for Universal, and
we plan to pursue it aggressively.
We believe that our continued success will be based on our
ability to increase our customers’ competitiveness and growth
by providing them unparalleled service and responsiveness,
innovative solutions to their problems and quality products
and services.
Universal has a proven track record of making targeted,
successful acquisitions. They will continue to be part of our plan
for growth as we seek to meet customer needs, penetrate new
markets and develop new capabilities.
During my brief tenure at Universal Stainless & Alloy Products,
I have grown increasingly impressed with the company built by
our Chairman Mac McAninch, our management team and our
employees. Together with them and with the continued support
of our customers, we will take this Company to the next level
of growth and build additional value for our shareholders.
I am enormously excited by our opportunities.
Universal is a leader in the domestic tool steel plate market,
which represented 12% of our 2007 sales. We plan to further
our position in the tool steel market in 2008. Our investment
in a plate flattener in 2006 has given us the capability to do so.
Sincerely,
Our approach to penetrating new markets will be global in
scope. International markets are an untapped opportunity for
Universal and the weak dollar gives us an advantage we plan
to seize. We will do so by expanding our internal sales
Dennis M. Oates
President and Chief Executive Officer
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
3
FIVE-YEAR SUMMARY
For the years ended December 31,
(dollars in thousands, except per share amounts)
Consolidated Summary of Operations
Net sales
Operating income (loss)
Net income (loss)
Segment Summary of Operations
Universal Stainless & Alloy Products
2007
2006
2005
2004
2003
$ 229,936
33,407
22,504
$ 203,873
32,359
20,590
$ 170,022
20,145
12,758
$ 120,642
10,955
7,553
Net sales
Sales, net of material costs
Gross margin
Gross margin % of sales, net of material costs
$ 202,562
96,106
28,820
$ 179,170
93,872
27,066
$ 153,258
77,690
20,297
$ 108,234
58,267
13,432
30.0%
28.8%
26.1%
23.1%
Dunkirk Specialty Steel
Net sales
Sales, net of material costs
Gross margin
Gross margin % of sales, net of material costs
$ 81,725
33,820
16,416
$ 70,255
31,550
14,872
48.5%
47.1%
$ 85,921
164,296
1,836
129,602
$ 80,449
155,287
19,592
104,654
3.39
3.32
19.46
$
$ 33,623
(8,782)
(17,102)
8,782
3,731
21.5%
1.4
533
515
3.19
3.11
15.93
6,301
(7,716)
3,704
7,716
3,337
25.4%
15.8
527
504
Financial Position at Year-End
Working capital
Total assets
Total debt
Stockholders’ equity
Common Share Data
Earnings (loss) per share
Basic
Diluted
Stockholders’ equity
Other Data
Cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Capital expenditures
Depreciation and amortization
Return on stockholders’ equity
Debt to total capitalization
Employees
Customers
4
$
$
$
53,011
23,515
9,398
$ 34,723
16,889
5,236
40.0%
31.0%
61,795
129,239
18,872
81,134
$ 48,347
108,536
14,234
67,365
2.00
1.97
12.64
3,331
(8,808)
5,856
8,808
3,085
18.9%
18.9
482
501
$
1.20
1.18
10.64
(9,717)
(3,586)
8,809
3,586
3,061
12.7%
17.4
463
452
$
$
$
$
$
68,989
(2,394)
(1,425)
59,585
36,603
3,657
10.0%
19,875
8,795
(214)
(2.4)%
33,420
84,935
7,543
59,442
(0.23)
(0.23)
9.44
3,378
(1,193)
(1,158)
1,193
3,093
(2.3)%
11.3
383
399
FINANCIAL REVIEW
PART I
ITEM 1
ITEM 1A
ITEM 1B
ITEM 2
ITEM 3
ITEM 4
PART II
ITEM 5
ITEM 6
ITEM 7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for the Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 7A
Quantitative and Qualitative Disclosures about Market Risk
ITEM 8
ITEM 9
ITEM 9A
ITEM 9B
PART III
ITEM 10
ITEM 11
ITEM 12
ITEM 13
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Certain Relationships and Related Transactions, and
Director Independence
ITEM 14
Principal Accountant Fees and Services
PART IV
ITEM 15
Exhibits and Financial Statement Schedules
7
13
14
15
15
15
16
18
19
28
28
48
48
48
49
49
50
50
50
51
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-25032
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
25-1724540
(IRS Employer Identification No.)
600 MAYER STREET, BRIDGEVILLE, PA 15017
(Address of principal executive offices, including zip code)
(412) 257-7600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: [None]
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, par value $.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer [ ] Accelerated filer [x] Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2007, based on the closing
price of $35.23 per share on that date, was $117,529,000. For the purposes of this disclosure only, the registrant has assumed
that its directors, executive officers, and beneficial owners of 5% or more of the registrant’s Common Stock are the affiliates
of the registrant. The registrant has made no determination that such persons are “affiliates” within the meaning of Rule 405
under the Securities Act of 1933.
As of February 29, 2008, there were 6,659,499 shares of the Registrant’s Common Stock issued and outstanding.
Part III of this Form 10-K incorporates by reference portions of the Company’s definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held May 21, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
6
PART I
ITEM 1. Business
General
Universal Stainless & Alloy Products, Inc. and its wholly-owned subsidiaries (the “Company”), which was incorporated
in 1994, manufactures and markets semi-finished and finished specialty steel products, including stainless steel,
tool steel and certain other alloyed steels. The Company’s manufacturing process involves melting, remelting, heat
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 (“OEMs”) and wire redrawers.
The Company’s customers further process its products for use in a variety of industries, including the aerospace, power
generation, petrochemical and heavy equipment manufacturing industries. The Company also performs conversion
services on materials supplied by customers that lack certain of the Company’s production facilities or that are subject
to their own capacity constraints.
The Company comprises 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.
Dunkirk Specialty Steel represents the second reportable segment.
The Company’s products are manufactured in a wide variety of grades, widths and gauges in response to customer
specifications. At its Bridgeville facility, the Company produces specialty steel products in the form of long products
(ingots, blooms, billets and bars) and flat rolled products (slabs and plates). Certain grades requiring vacuum-arc
remelting (“VAR”) may be transported to the Titusville facility to complete that process and then be transported back
to the Bridgeville facility for further processing. The semi-finished long products are primarily used by the Company’s
Dunkirk facility and certain customers to produce finished bar, rod and wire products, and the semi-finished flat rolled
products are used by customers to produce fine-gauge plate, sheet and strip products. The finished bar products
manufactured by the Company are primarily used by OEMs and by service center customers for distribution to a variety
of end users. The Company also produces customized shapes primarily for OEMs that are cold rolled from purchased
coiled strip, flat bar or extruded bar at its Precision Rolled Products department (“PRP”), located at its Titusville facility.
Industry Overview
The specialty steel industry is a relatively small but distinct segment of the overall steel industry. Specialty steels
include stainless steels, high-speed and tool steels, electrical steels, high-temperature alloys, magnetic alloys
and electronic alloys. Specialty steels are made with a high alloy content, which enables their use in environments
that demand exceptional hardness, toughness, strength and resistance to heat, corrosion or abrasion, or combinations
thereof. Specialty steels generally must conform to more demanding customer specifications for consistency, straightness
and surface finish than carbon steels. According to the Specialty Steel Industry of North America (“SSINA”), annual
domestic consumption of specialty steels approximated 3.1 million tons in 2006. Of this amount, approximately
2.3 million tons of specialty steels consumed domestically represented stainless steel sheet and strip and electrical
alloy products which the Company does not produce. Also, according to SSINA data through November 30, 2007, while
U.S. consumption of total specialty steel products in 2007 decreased 14% from 2006 levels, those in the Company’s
addressable market decreased more moderately, with consumption of stainless steel bar down 1.5%, stainless steel
rod down 8.6% and stainless steel wire down 2.3%.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
7
The Company primarily manufactures its products within the following product lines and, generally, in response
to customer orders:
Stainless Steel. Stainless steel, which represents the largest part of the specialty steel market, contains elements
such as nickel, chrome and molybdenum that give it the unique qualities of high strength, good wear characteristics,
natural attractiveness, ease of maintenance and resistance to rust, corrosion and heat. Stainless steel is used, among
other applications, in the automotive, aerospace and power generation industries, as well as in the manufacture of
food handling, health and medical, chemical processing and pollution control equipment. The increased number
of applications for stainless steel has resulted in the development of a greater variety of stainless steel metallurgical
grades than carbon steel.
Tool Steel. Tool steels contain elements of manganese, silicon, chrome and molybdenum to produce specific hardness
characteristics that enable tool steels to form, cut, shape and shear other materials in the manufacturing process.
Heating and cooling at precise rates in the heat-treating process bring out these hardness characteristics. Tool steels are
utilized in the manufacturing of metals, plastics, paper and aluminum extrusions, pharmaceuticals, electronics and optics.
High-Temperature Alloy Steel. These steels are designed to meet critical requirements of heat resistance and
structural integrity. They generally have very high nickel content relative to other types of specialty steels. High-
temperature alloy steels are manufactured for use generally in the aerospace industry.
High-Strength Low Alloy Steel. High-strength low alloy steel is a relative term that refers to those steels that maintain
alloying elements that range in versatility. The alloy element of nickel, chrome and molybdenum in such steels typically
exceeds the alloy element of carbon steels but not that of high-temperature alloy steel. High-strength low alloy steels
are manufactured for use generally in the aerospace industry.
Net sales by principal product line were as follows:
For the years ended December 31,
(dollars in thousands)
Stainless steel
Tool steel
High-strength low alloy steel
High-temperature alloy steel
Conversion service
Other
Total net sales
Raw Materials
2007
2006
2005
$ 164,228
28,119
25,892
9,317
2,011
369
$ 229,936
$ 151,633
23,389
16,467
9,837
2,137
410
$ 203,873
$ 135,588
20,737
6,606
3,694
3,030
367
$ 170,022
The Company’s Bridgeville facility depends on the delivery of key raw materials for its day-to-day operations. These key
raw materials are ferrous and non-ferrous scrap metal and alloys, primarily consisting of nickel, chrome, molybdenum
and copper. Scrap metal is primarily generated by industrial sources and is purchased through a number of scrap
brokers and dealers. Alloys are generally purchased from domestic agents and originate in Australia, Canada, China,
Russia and South Africa. Political disruptions in countries such as these could cause supply interruptions and affect
the availability and price of the raw materials purchased by the Company.
The Bridgeville facility supplies semi-finished specialty steel products as starting materials to the Company’s Titusville
and Dunkirk facilities. Semi-finished specialty steel starting materials, not capable of being produced by the Company
at a competitive cost, are purchased from other suppliers. The Company generally purchases these starting materials
from steel strip coil suppliers, extruders, flat rolled producers and service centers. The Company believes that adequate
supplies of starting material will continue to be available.
8
The cost of raw materials represents more than 50% of the Company’s total cost of products sold in 2007 and 2006
due to significant increases in transaction prices for raw materials purchased. Raw material prices vary based on
numerous factors, including quality, and are subject to frequent market fluctuations. Future raw material prices
can not be predicted with any degree of certainty. Therefore, the Company does not maintain any long-term written
agreements with any of its raw material suppliers.
The Company has implemented a sales price surcharge mechanism on its products to help offset the impact of raw
material price fluctuations. For substantially all semi-finished products, the surcharge is calculated at the time of
order entry, based on average raw material prices reported for the previous 20-day period. For substantially all finished
products, the surcharge is calculated based on average raw material prices reported for the previous 20-day period
from the promised ship date. While the material surcharge mechanism is designed to offset modest fluctuations in
raw material prices, it can not immediately absorb significant spikes in raw material prices. A material change in raw
material prices within a short period of time could have a material adverse effect on the financial results of the Company,
and there can be no assurance that the raw material surcharge mechanism will completely offset immediate changes
in the Company’s raw material costs.
Energy Agreements
The production of specialty steel requires the ready availability of substantial amounts of electricity and natural gas for
which the Company negotiates competitive agreements for the supply of electricity and natural gas. While the Company
believes that its energy agreements allow it to compete effectively within the specialty steel industry, the potential of
curtailments exists as a result of decreased supplies during periods of increased demand for electricity and natural
gas. These interruptions not only can adversely affect the operating performance of the Company, but also can lead to
increased costs. In 2005, the Company implemented a sales price surcharge mechanism on its products to help offset
the impact of natural gas price fluctuations.
Customers
The Company’s customer base increased from 504 customers at December 31, 2006 to 515 customers at December 31, 2007.
The Company’s five largest customers in the aggregate accounted for approximately 49% and 43% of net sales for the
years ended December 31, 2007 and 2006, respectively. Sales to Fry Steel, Carpenter Technology Corporation (“CRS”)
and Reliance Steel & Aluminum accounted for 13.8%, 13.2% and 10.5% of the Company’s net sales for the year
ended December 31, 2007, respectively, and accounted for 10.4%, 12.5% and 10.5% of the Company’s net sales for
the year ended December 31, 2006, respectively. The accounts receivable balances from these customers comprised
approximately 21% and 23% of total accounts receivable at December 31, 2007 and 2006, respectively. No other
customer accounted for more than 10% of the Company’s net sales for the years ended December 31, 2007 and 2006.
The Company maintains a supply contract agreement with Talley Metals Technology, Inc., a subsidiary of CRS (“Talley
Metals”), which continues to automatically renew with the placement of new orders each month and requires a 90-day
written notice to terminate by either party. 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 12-month period. The value of the contract on a monthly basis will depend on product mix and key raw material
prices. During 2006 and 2007, Talley Metals did not comply with the monthly minimum purchase requirement due to
market conditions. The Company has granted a waiver and expects to continue granting a waiver from this requirement
until market conditions improve.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
9
Backlog
The Company primarily manufactures products to meet specific customer orders. The Company’s backlog of orders on
hand as of December 31, 2007 was approximately $85 million as compared to approximately $120 million at the same
time in 2006. The decrease in the backlog is primarily due to the impact of lower raw materials costs on the selling
prices for semi-finished products and reduced product demand from the service center industry, allowing them to
consume excess inventory during the second half of 2007. Customer orders are generally subject to cancellation with
the payment of a penalty charge prior to delivery. The Company’s backlog may not be indicative of actual sales and
therefore should not be used as a direct measure of future revenue.
Competition
Competition in the Company’s markets is based upon product quality, delivery capability, customer service and price.
Maintaining high standards of product quality, while responding quickly to customer needs and keeping production
costs at competitive levels, is essential to the Company’s ability to compete in its markets.
Annual domestic U.S. consumption of specialty steel products of the type manufactured by the Company approximates
one million tons. The Company chooses to restrict its participation in this market by limiting the volume of commodity
stainless steel products it markets because of the highly competitive nature of the commodity business.
The Company believes that nine domestic companies that manufacture one or more similar specialty steel products are
significant competitors, including Allegheny Technologies Incorporated (“ATI”) and CRS. There are many smaller producing
companies and material converters in the United States that are also considered to be competitors of the Company.
High import penetration of specialty steel products, especially stainless and tool steels, also impacts the competitive
nature within the United States. Unfair pricing practices by foreign producers have resulted in high import penetration
into the U.S. markets in which the Company participates. According to SSINA, import penetration for the years ended
December 31, 2006 and 2005 was 52% and 53%, respectively, for stainless bar, and 44% and 63%, respectively, for
stainless rod. Import penetration was higher than these levels during the first eleven months of 2007, with stainless
bar at 54% and stainless rod 49% import penetration.
The Continued Dumping and Subsidy Offset Act of 2000 (the “CDSOA”) provides for payment of import duties collected
by the U.S. Treasury to domestic companies injured by unfair foreign trade practices. The assets purchased for the
operations of 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 Company has joined other domestic producers in the filing of trade actions
against foreign producers.
In December 2006, the Company received a net payment of $463,000 as its 2006 award, and, in November 2007,
the Company received a net payment of $586,000 as its 2007 award. Benefits awarded from the CDSOA expired on
September 30, 2007. Future benefits are dependent on the amount of undistributed import duties collected as of
September 30, 2007 and the relationship of Dunkirk Specialty Steel’s claim in relation to claims filed by other domestic
specialty steel producers.
10
Employee Relations
The Company considers the maintenance of good relations with its employees to be important to the successful
conduct of its business. The Company has profit-sharing plans for certain salaried employees and for all of its
employees represented by United Steelworkers (the “USW”) and has equity ownership programs for all of its eligible
employees, in an effort to forge an alliance between its employees’ interests and those of the Company’s stockholders.
At December 31, 2007, the Company had 308 employees at its Bridgeville facility, 49 employees at its Titusville facility
and 176 employees at its Dunkirk facility, of which 246, 42 and 151 were USW members, respectively.
Collective Bargaining Agreements
The Company recognizes the USW as the exclusive representative for the Company’s hourly employees with respect to the
terms and conditions of their employment. The Company has entered into the following collective bargaining agreements:
Facility
Bridgeville
Titusville
Dunkirk
Commencement Date
December 2002
October 2005
November 2007
Expiration Date
August 2008
September 2010
October 2012
The Company believes a critical component of its collective bargaining agreements is the inclusion of a profit sharing
plan. Under the plans, the hourly employees are entitled to receive 8.5% of their respective facilities’ annual pretax
profits in excess of $1.0 million at Bridgeville and Dunkirk, and in excess of $500,000 at Titusville.
Employee Benefit Plans
The Company provides group life and health insurance plans for its hourly and salaried employees. The Company
also maintains separate 401(k) retirement plans for its hourly and salaried employees. Pursuant to each 401(k) plan,
participants may elect to make pre-tax and after-tax contributions, subject to certain limitations imposed under the
Internal Revenue Code of 1986, as amended. In addition, the Company makes periodic contributions to the 401(k) plans
based on service, except as described below.
The Company also participates in the Steelworkers Pension Trust (the “Trust”), a multi-employer defined-benefit
pension plan that is open to all hourly and salaried employees associated with the Bridgeville facility. The Company
makes periodic contributions to the Trust based on hours worked at a fixed rate for each hourly employee and a fixed
monthly contribution on behalf of each salaried employee. The hourly employees may continue their contributions to
the 401(k) retirement plan even if the Company contributions cease. The amount of the contribution for salaried
employees will be dependent upon their contribution to the 401(k) retirement plan.
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, as amended (the “Plan”), the Company is authorized to issue up to
150,000 shares of Common Stock to its full-time employees, nearly all of whom are eligible to participate. Under the
terms of the Plan, employees can choose as of January 1 and July 1 of each year to have up to 10% of their total earnings
withheld to purchase up to 100 shares of the Company’s Common Stock each six-month period. The purchase price of
the stock is 85% of the lower of its beginning-of-the-period or end-of-the-period market prices. At December 31, 2007,
the Company had issued 96,312 shares of Common Stock since the plan’s inception.
Safety
The Company has established and seeks to maintain appropriate safety standards and policies for its employees.
To encourage plant safety, the USW agreements provide that employees will be entitled to receive 50% of the savings,
if any, of reduced workers’ compensation insurance premiums obtained due to reductions in the state experience
modifier issued to the Company.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
11
Environmental
The Company is subject to federal, state and local environmental laws and regulations (collectively, “Environmental
Laws”), including those governing discharges of pollutants into the air and water, and the generation, handling and
disposal of hazardous and non-hazardous substances. The Company monitors its compliance with Environmental Laws
applicable to it and, accordingly, believes that it is currently in compliance with all laws and regulations in all material
respects. The Company is subject periodically to environmental compliance reviews by various regulatory offices.
The Company may be liable for the remediation of contamination associated with generation, handling and disposal
activities. Environmental costs could be incurred, which may be significant, related to environmental compliance, at
any time or from time to time in the future.
Executive Officers
The following table sets forth, as of February 29, 2008, certain information with respect to the executive officers
of the Company:
Name (Age)
Dennis M. Oates (55)
Paul A. McGrath (56)
Richard M. Ubinger (48)
Executive Officer Since
2008
1996
1994
Position
President and Chief Executive Officer
Vice President of Administration,
General Counsel and Secretary
Vice President of Finance,
Chief Financial Officer and Treasurer
On December 26, 2007, the Company announced the appointment of Dennis M. Oates as President and Chief Executive
Officer of the Company effective January 2, 2008. Mr. Oates was named to the Company’s Board of Directors on
October 19, 2007. Mr. Oates previously served as Senior Vice President of the Specialty Alloys Operations of Carpenter
Technology Corporation from 2003 to July 2007. Mr. Oates also served as President and Chief Executive Officer of
TW Metals from 1998 to 2003.
Paul A. McGrath has been Vice President of Administration of the Company since January 2007, General Counsel since
January 1995 and was appointed Secretary in May 1996. Mr. McGrath served as Vice President of Operations from
March 2001 to December 2006. Prior thereto, he was employed by Westinghouse Electric Corporation for approximately
24 years in various management positions.
Richard M. Ubinger has been Vice President of Finance of the Company since March 2001, Chief Financial Officer
and Principal Accounting Officer since August 1994 and was appointed Assistant Secretary in November 1995
and Treasurer in May 1996. From 1981 to 1994, Mr. Ubinger was employed by Price Waterhouse LLP. Mr. Ubinger
is a Certified Public Accountant.
Patents and Trademarks
The Company does not consider its business to be materially dependent on patent or trademark protection, and believes
it owns or maintains effective licenses covering all the intellectual property used in its business. The Company seeks
to protect its proprietary information by use of confidentiality and non-competition agreements with certain employees.
12
Available Information
Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K,
and any amendments to those reports, as well as proxy and information statements that we file with the Securities and
Exchange Commission (the “SEC”), are available free of charge on the Company’s website at www.univstainless.com as
soon as reasonably practicable after such reports are filed with the SEC. The contents of our website are not part of
this Form 10-K. You also may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers, like the Company, that file electronically with the SEC.
ITEM 1A. Risk Factors
The Company’s business and results of operations are subject to a wide range of substantial business and economic
factors including, but not limited to, the factors discussed below, many of which are not within the Company’s control.
See the information under the heading “Forward-Looking Information Safe Harbor” in Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Significant Customers and Concentrated Customer Base
Net sales to the Company’s three largest customers and their affiliates approximated 38% and 34% of total 2007 and
2006 sales, respectively. The accounts receivable balances from these three customers comprised approximately 21%
and 23% of total accounts receivable at December 31, 2007 and 2006, respectively. An adverse change in, or termination
of, the Company’s relationship with one or more of its major customers or one or more of its market segments could
have a material adverse effect upon the Company. See the information under the heading “Customers” in Item 1, Business,
of this Annual Report on Form 10-K.
Competition
The Company competes with domestic and foreign sources of specialty steel products. In addition, many of the finished
products sold by the Company’s customers are in direct competition with finished products manufactured by foreign
sources, which may affect the demand for those customers’ products. Any competitive factors that adversely affect
the market for finished products manufactured by the Company or its customers could indirectly adversely affect the
demand for the Company’s semi-finished products. Additionally, the Company’s products compete with products
fashioned from alternative materials such as aluminum, composites and plastics, the production of which includes
domestic and foreign enterprises. Competition in the Company’s field is intense and is expected to continue to be so
in the foreseeable future. There can be no assurance that the Company will be able to compete successfully in the
future. See the information under the heading “Competition” in Item 1, Business, of this Annual Report on Form 10-K.
Aerospace Market
Approximately 45% of the Company’s sales represent products sold to customers in the aerospace market. The aerospace
market is historically cyclical due to both external and internal market factors. These factors include general economic
conditions, airline profitability, demand for air travel, age of fleets, varying fuel and labor costs, price competition, and
international and domestic political conditions such as military conflict and the threat of terrorism. The length and
degree of cyclical fluctuation can be influenced by any one or a combination of these factors and therefore are difficult
to predict with certainty. A downturn in the aerospace industry would adversely affect the demand for products and/or
the prices at which the Company is able to sell its products, and its results of operations, business and financial
condition could be materially adversely affected.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
13
Supply of Raw Materials and Cost of Raw Materials
The Company relies on a limited number of suppliers, some of which are foreign owned, for its raw material needs.
Raw material prices are affected by cyclical, seasonal and other market factors. Alloys consumed by the Company
are primarily available from foreign sources, some of which are located in countries that may be subject to unstable
political and economic conditions. Those conditions might disrupt supplies or affect the prices of the raw materials
used by the Company. The Company does not maintain long-term supply agreements with any of its independent
suppliers. If its supply of raw materials were interrupted, the Company might not be able to obtain sufficient quantities
of raw materials, or obtain sufficient quantities of such materials at satisfactory prices, which, in either case, could
adversely affect the Company’s results of operations. In addition, significant volatility in the price of the Company’s
principal raw materials could adversely affect the Company’s financial results. See the information under the headings
“Raw Materials” in Item 1, Business, and “Liquidity and Capital Resources” in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Reliance on Energy Agreements
The manufacturing of specialty steels is an energy-intensive industry. While the Company believes that its energy
agreements allow it to compete effectively within the specialty steel industry, the Company is subjected to curtailments
as a result of decreased supplies and increased demand for electricity and natural gas. These interruptions not only
can adversely affect the operating performance of the Company, but also can lead to increased costs for energy. See
the information under the heading “Energy Agreements” in Item 1, Business, of this Annual Report on Form 10-K.
Labor Matters
The Company has 439 employees out of a total of 533 who are covered under collective bargaining agreements.
The collective bargaining agreement for the 246 Bridgeville facility employees will expire in August 2008. There can
be no assurance that the Company will succeed in concluding a collective bargaining agreement with the union to
replace the one that expires.
Reliance on Critical Manufacturing Equipment
The Company’s manufacturing processes are dependent upon certain critical pieces of specialty steel making
equipment, such as the Company’s 50-ton electric-arc furnace and AOD (Argon Oxygen Decarburization) vessel, its
ESR (Electro Slag Remelt) and VAR furnaces, and its universal rolling mill. In the event a critical piece of equipment
should become inoperative as a result of unexpected equipment failure, there can be no assurance that the Company’s
operations would not be substantially curtailed, which may have a negative effect on the Company’s financial results.
See Item 2, Properties.
ITEM 1B. Unresolved Staff Comments
None.
14
ITEM 2. Properties
The Company owns its Bridgeville facility, which consists of approximately 600,000 square feet of floor space and
the Company’s executive offices on approximately 74 acres. The Bridgeville facility contains melting, remelting,
conditioning, rolling, annealing and various other processing equipment. Substantially all products shipped from
the Bridgeville facility are processed through its melt shop and universal rolling mill operations.
The Company owns its Titusville facility, which consists of seven buildings on approximately 10 acres, including two
principal buildings of approximately 265,000 square feet in total area. The Titusville facility contains five VAR furnaces
and various rolling and finishing equipment.
The Company owns its Dunkirk facility, which consists of approximately 800,000 square feet of floor space on
approximately 81 acres. The Dunkirk facility processes semi-finished billet and bar stock through one or more of
its four rolling mills. The products are then finished and shipped as finished bar, rod and wire products.
Specialty steel production is a capital-intensive industry. The Company believes that its facilities and equipment
are suitable for its present needs. The Company believes, however, that it will continue to require capital from time
to time to add new equipment and to repair or replace existing equipment to remain competitive and to enable it to
manufacture quality products and provide delivery and other support service assurances to its customers.
ITEM 3. Legal Proceedings
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 alleged that steel product manufactured by the Company
was defective and that the Company was or should have been aware of the defects.
On May 31, 2007, the Company and Teledyne agreed to a complete settlement of this suit. Under the terms of the
settlement, which contains a confidentiality provision, both parties released all claims against the other party
in exchange for cash and other consideration. The net impact of this settlement, including professional fees, on
the Company’s net income after tax was $517,000.
In addition, from time to time, various lawsuits and claims have been or may be asserted against the Company relating
to the conduct of its business, including routine litigation relating to commercial and employment matters. The outcome
of any litigation can not be predicted with certainty, and some lawsuits may be determined adversely to the Company.
Management does not believe, based on information presently available, that the ultimate outcome of any pending
matters is likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution
in any quarter of one or more matters may have a material adverse effect on results of operations for that period.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 2007.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
15
PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
At December 31, 2007, a total of 6,930,294 shares of the Company’s Common Stock, par value $.001 per share, were
issued and held by approximately 147 holders of record. There were 270,795 shares of the issued Common Stock of the
Company held in treasury at December 31, 2007.
Certain holders of Common Stock and the Company are party to a stockholder agreement. That agreement maintains
in effect certain registration rights granted to non-management stockholders, which provides to them two demand
registration rights exercisable at any time upon written request for the registration of Restricted Shares of Common
Stock having an aggregate net offering price of at least $5,000,000.
Price Range of Common Stock
The Common Stock is listed on the NASDAQ Global Market under the symbol “USAP.” The following table sets forth the
range of high and low sale prices per share of Common Stock, for the periods indicated below:
First quarter
Second quarter
Third quarter
Fourth quarter
2007
2006
High
51.80
54.17
42.66
41.71
$
$
$
$
Low
31.79
34.98
28.48
29.88
$
$
$
$
High
26.25
37.05
30.47
37.90
$
$
$
$
Low
14.94
22.52
21.62
21.56
$
$
$
$
Equity Compensation Plan Information
Securities authorized for issuance under equity compensation plans at December 31, 2007 are as follows:
Plan Category
Equity compensation plans approved by security holders
Number of shares
to be issued
upon exercise of
outstanding options
403,650
Weighted-average
exercise price of
outstanding options
18.14
$
Number of
shares remaining
available for future
issuance under equity
compensation plans A
447,356
A Includes 393,668 shares of Common Stock on stock options not issued under the Stock Incentive Plan and 53,688 available under the 1996
Employee Stock Purchase Plan, as amended.
16
Performance Graph
The performance graph below compares the cumulative total shareholder return on the Company’s stock with the
cumulative total return on the equity securities of NASDAQ Market Index and a peer group selected by the Company
consisting of public companies ATI and CRS. The graph assumes an investment of $100 on December 31, 2002 and
reinvestment of dividends, if any, on the date of dividend payment. The performance graph represents past
performance and should not be considered to be an indication of future performance.
Comparison of 5-year Cumulative Total Return Among Universal Stainless & Alloy Products, Inc.,
NASDAQ Market Index and Peer Group Index
S
R
A
L
L
O
D
1,600
1,400
1,200
1,000
800
600
400
200
0
Universal Stainless & Alloy Products
NASDAQ Market Index
Peer Group Index
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
Company/Peer/Market
Universal Stainless
12/31/2002
12/31/2003
12/31/2004
12/31/2005
12/30/2006
12/29/2007
Fiscal Year Ending
& Alloy Products, Inc.
$ 100.00
$ 178.51
$ 245.49
$ 247.93
$ 553.39
$ 587.93
Company Selected
Peer Group
NASDAQ Market Index
Preferred Stock
100.00
100.00
229.61
150.36
410.78
163.00
610.62
166.58
1,321.29
183.68
1,426.42
201.91
The Company’s Certificate of Incorporation provides that the Company may, by vote of its Board of Directors, issue up
to 1,980,000 shares of Preferred Stock. The Preferred Stock may have rights, preferences, privileges and restrictions
thereon, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or designation of such series, without further
vote or action by the stockholders. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing
a change in control of the Company without further action by the stockholders and may adversely affect the voting and
other rights of the holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others.
The Company has no outstanding Preferred Stock and has no plans to issue any of the authorized Preferred Stock.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
17
Dividends
The Company has never paid a cash dividend on its Common Stock. The Company’s Credit Agreement with PNC Bank,
National Association (“PNC Bank”) currently limits the payment of cash dividends payable on its Common Stock to 50%
of the Company’s excess cash flow per fiscal year. Excess cash flow represents the amount of the Company’s earnings
before interest, taxes, depreciation and amortization that is greater than the sum of the Company’s payments for
interest, income taxes, the principal portion of long-term debt and capital lease obligations, and capital expenditures.
ITEM 6. Selected Financial Data
For the years ended December 31,
2007
2006
2005
2004
2003
(dollars in thousands, except per share amounts)
SUMMARY OF OPERATIONS
Net sales
Operating income (loss)
Net income (loss)
FINANCIAL POSITION AT YEAR-END
Cash and cash equivalents
Total assets
Long-term debt
Stockholders’ equity
COMMON SHARE DATA
Basic earnings (loss) per share
Diluted earnings (loss) per share
$ 229,936
33,407
22,504
$ 10,648
164,296
1,453
129,602
$
3.39
3.32
$ 203,873
32,359
20,590
$
$
2,909
155,287
17,228
104,654
3.19
3.11
$ 170,022
20,145
12,758
$
$
620
129,239
17,317
81,134
2.00
1.97
$ 120,642
10,955
7,553
$
$
241
108,536
12,190
67,365
1.20
1.18
$ 68,989
(2,394)
(1,425)
$
$
4,735
84,935
5,599
59,442
(0.23)
(0.23)
The restatement of maintenance expenses for the four years ended December 31, 2006 changed previously reported
financial data by the following amounts:
(dollars in thousands, except per share amounts)
Change in cost of products sold
Change in net income
Change in earnings per common share:
Basic
Diluted
2006
40
(24)
(0.01)
(0.01)
$
$
$
Increase (Decrease) in Previously Reported Amounts
2005
2004
2003
$
$
$
484
(298)
(0.05)
(0.05)
$
$
$
(686)
421
0.07
0.06
$
$
$
12
(8)
(0.00)
(0.00)
18
ITEM 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, Pa., manufactures and markets a broad line
of semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels.
The Company’s products are sold to rerollers, forgers, service centers, OEMs and wire redrawers.
An analysis of the Company’s operations is as follows:
For the years ended December 31,
(dollars in thousands)
NET SALES
Stainless steel
Tool steel
High-strength low alloy steel
High-temperature alloy steel
Conversion services
Other
Total net sales
Total cost of products sold
Selling and administrative expenses
Operating income
2007
Amount
%
2006
Amount
%
2005
Amount
%
$ 164,228
28,119
25,892
9,317
2,011
369
229,936
184,491
12,038
$ 33,407
71.4%
12.2
11.3
4.0
0.9
0.2
100.0
80.3
5.2
14.5%
$ 151,633
23,389
16,467
9,837
2,137
410
203,873
160,722
10,792
$ 32,359
74.4%
11.5
8.1
4.8
1.0
0.2
100.0
78.8
5.3
15.9%
$ 135,588
20,737
79.7%
12.2
6,606
3,694
3,030
367
170,022
141,436
8,441
$ 20,145
3.9
2.2
1.8
0.2
100.0
83.2
5.0
11.8%
Net sales by market segment are as follows:
For the years ended December 31,
(dollars in thousands)
Service centers
Forgers
Rerollers
Original equipment manufacturers
Wire redrawers
Conversion services
Miscellaneous
Net sales
Tons shipped
2007
Amount
%
2006
Amount
%
2005
Amount
%
$ 119,736
47,711
35,006
18,287
6,843
2,011
342
$ 229,936
43,644
52.1%
20.7
15.2
8.0
3.0
0.9
0.1
100.0%
$ 101,510
49.8%
$ 73,213
43.1%
38,539
33,273
18,368
9,660
2,137
386
$ 203,873
50,485
18.9
16.3
9.0
4.8
1.0
0.2
100.0%
29,914
39,254
13,992
10,263
3,030
356
$ 170,022
51,233
17.6
23.1
8.2
6.0
1.8
0.2
100.0%
2007 Results as Compared to 2006: The increase in net sales in 2007 reflects increased selling prices, primarily a
result from the impact of higher raw material surcharges assessed and an increase in higher value-added products,
partially offset by lower shipments overall. Raw material surcharges continued to escalate during 2007, led by an increase
in the monthly average nickel prices from $15.68 in December 2006 to a high of $23.67 in May 2007. Since May 2007
the monthly average nickel prices declined to $11.79 in December 2007. This decrease will reduce raw material
surcharges assessed on future shipments if the average nickel price remains at lower levels.
Cost of products sold, as a percentage of net sales, increased in 2007 as compared to 2006. This increase is primarily
due to higher raw material costs, which are generally reimbursed by the customer through raw material surcharges,
and operation cost increases.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
19
Selling and administrative expenses increased primarily due to higher employment costs and the settlement of a
lawsuit between the Company and Teledyne Technologies Incorporated (“Teledyne”). The higher employments costs
were primarily due to the addition of a corporate officer in 2007 and an increase in stock compensation expense from
$273,000 in 2006 to $427,000 in 2007. This increase was partially offset by a $367,000 expense related to a software
project the Company terminated, the establishment of a $193,000 reserve for an EPA violation which was settled in
2007 and $200,000 for certain commercial product-claim issues during 2006.
Interest expense and other financing costs decreased from $1.1 million in 2006 to $731,000 in 2007. The decrease is
primarily due to a decline in the average balance of the revolving line of credit over the prior year, as well as recognizing
lower interest expense associated with the funding of scheduled payments on the existing term debt of the Company.
In December 2007, the Company retired the $7.5 million outstanding balance on its PNC Term Loan which was not
scheduled to mature until June 30, 2011.
Other income, net increased from $522,000 in 2006 to $776,000 in 2007. This increase is primarily attributed to the
receipt of funds under the Continued Dumping and Subsidy Offset Act of 2000 (“CDSOA”) of $586,000 in 2007 in
comparison to $463,000 in 2006. In addition, the Company recognized $178,000 of interest income from excess cash
invested during the second half of 2007.
The effective income tax rates for the years ended December 31, 2007 and 2006 were 32.7% and 35.2%, respectively.
The reduction in the effective income tax rate in 2007 reflects an increase in the Company’s permanent tax deductions,
related to an increase in the manufacturer’s production activities deduction and the recognition of additional permanent
tax deductions as a result of reconciling its 2006 federal and state tax returns filed during the period to the tax provision
recognized for the year ended December 31, 2006. The 2007 rate also reflects a favorable shift in the apportionment of
taxable income for state income tax purposes.
2006 Results as Compared to 2005: The increase in net sales in 2006 reflects increased shipments of higher value-
added products, primarily those that require vacuum-arc or electro-slag remelted steels, as well as higher surcharges
assessed due to increased raw material costs. A substantial percentage of the net sales increase was derived from
shipments of product to serve the increased demands of the aerospace market. Raw material costs, especially nickel,
increased significantly during 2006 as a result of an increase in the global demand for stainless steel and supply volatility.
Cost of products sold, as a percent of net sales, decreased in 2006 as compared to 2005. This decrease is primarily due
to the Company’s shift in product mix as well as the impact of rising raw material costs throughout 2006. The duration
of the production cycle permitted the Company’s Dunkirk Specialty Steel facility to assess surcharges based on raw
material costs that were higher than those costs incurred at the time the raw materials were purchased.
Selling and administrative expenses increased primarily due to higher employment costs resulting from continued growth
of the business, and included $273,000 related to the January 1, 2006 adoption of Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective method.
Compensation related to stock-based compensation plans was not previously recognized as expense under the former
accounting guidance, Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees.” Unrecognized
stock-based compensation expense related to non-vested stock awards totaled $570,000 at December 31, 2006. At such
date, the weighted-average period over which this unrecognized expense was expected to be recognized was 25 months.
The Company also expensed $367,000 related to a software project the Company terminated during the year and
$413,000 related to fees paid for outside consultants to assist the Company in evaluating its current system of internal
accounting controls for purposes of future compliance with Section 404 of the Sarbanes-Oxley Act of 2002. In addition,
the Company established a reserve of $193,000 for the probable settlement of an EPA violation and $200,000 for certain
commercial product-claim issues that were more than offset by a $104,000 write-off of software development costs,
the $184,000 write-off of an office building at the Dunkirk Specialty Steel facility and the receipt of an additional
property tax invoice from AK Steel related to the Bridgeville facility that required the Company to record an additional
expense of $174,000 in 2005.
20
Interest expense and other financing costs increased from $851,000 in 2005 to $1.1 million in 2006. The increase was
primarily due to the Company funding the increase in working capital to support higher raw material costs with a
revolving line of credit and higher interest rates. This increase was partially offset by lower interest expense associated
with existing term debt as the Company continued to fund its scheduled payments.
Other income, net increased from $437,000 in 2005 to $522,000 in 2006. The increase was primarily due to the receipt
of $463,000, net of expenses, under the CDSOA in 2006 in comparison to $414,000 received in 2005.
The 2006 effective income tax rate was 35.2% compared to a 35.4% tax rate in 2005. The change in the effective income
tax rate is primarily attributable to a favorable shift of apportioned income for state income tax purposes as well as the
impact of recognizing a $180,000 tax credit in Pennsylvania as a result of participating in the state’s Educational
Improvement Tax Credit in 2006.
Business Segment Results
The Company comprises 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. Dunkirk Specialty Steel’s manufacturing process involves hot rolling and finishing specialty steel
bar, rod and wire products.
Universal Stainless & Alloy Products Segment
An analysis of the segment’s operations is as follows:
For the years ended December 31,
(dollars in thousands)
NET SALES
Stainless steel
Tool steel
High-strength low alloy steel
High-temperature alloy steel
Conversion service
Other
Intersegment
Total net sales
Material cost of sales
Operation cost of sales
Selling and administrative expenses
Operating income
2007
Amount
%
2006
Amount
%
2005
Amount
%
$ 108,535
25,638
12,764
4,067
1,405
295
152,704
49,858
202,562
106,456
67,286
8,345
$ 20,475
53.6%
12.7
6.3
2.0
0.7
0.1
75.4
24.6
100.0
52.6
33.2
4.1
10.1%
$ 102,372
21,747
57.1%
12.1
$ 90,530
20,047
59.1%
13.1
8,177
3,787
1,530
325
137,938
41,232
179,170
85,298
66,806
4.6
2.1
0.9
0.2
77.0
23.0
100.0
47.6
37.3
3,199
3,254
2,534
295
119,859
33,399
153,258
75,568
57,393
2.1
2.1
1.6
0.2
78.2
21.8
100.0
49.3
37.4
7,392
$ 19,674
4.1
11.0%
5,791
$ 14,506
3.8
9.5%
Net sales for the year ended December 31, 2007 increased by $23.4 million, or 13.1%, in comparison to the year ended
December 31, 2006 primarily due to raw material surcharge increases, which offset increased material cost of sales of
$21.2 million for the period. The remaining increase is primarily due to increased shipments of higher value-added
niche products partially offset by lower shipments overall. Operating income for the year ended December 31, 2007
increased by $801,000 primarily due to improved mix of products shipped and higher selling prices, partially offset by
higher raw material, labor, utilities and other manufacturing supply costs.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
21
Net sales for the year ended December 31, 2006 increased $25.9 million, or 17%, in comparison to the year ended
December 31, 2005 primarily due to increased shipments of higher value-added products to the forger, service center
and OEM markets, offset by decreased shipments to the reroller market and a reduction in conversion services
rendered, as well as the impact of price increases implemented since January 1, 2005 and higher surcharges assessed
due to increased raw material costs. Operating income for the year ended December 31, 2006 increased $5.2 million
primarily due to the impact of the favorable product mix, higher surcharges assessed and base price increases
implemented, more than offsetting higher raw material, labor, energy and other manufacturing costs.
Dunkirk Specialty Steel Segment
An analysis of the segment’s operations is as follows:
For the years ended December 31,
(dollars in thousands)
NET SALES
Stainless steel
High-strength low alloy steel
High-temperature alloy steel
Tool steel
Conversion services
Other
Intersegment
Total net sales
Material cost of sales
Operation cost of sales
Selling and administrative expenses
Operating income
2007
Amount
%
2006
Amount
%
2005
Amount
%
$ 55,693
13,128
5,250
2,481
606
74
77,232
4,493
81,725
47,905
17,404
3,693
$ 12,723
68.2%
16.1
6.4
3.0
0.7
0.1
94.5
5.5
100.0
58.6
21.3
4.5
15.6%
$ 49,261
8,290
6,050
1,642
607
85
65,935
4,320
70,255
38,705
16,678
70.1%
11.8
8.6
2.3
0.9
0.1
93.8
6.2
100.0
55.1
23.8
3,400
$ 11,472
4.8
16.3%
$
$ 45,058
85.0%
3,407
440
690
496
72
50,163
2,848
53,011
29,496
14,117
2,650
6,748
6.4
0.8
1.3
1.0
0.1
94.6
5.4
100.0
55.6
26.7
5.0
12.7%
Net sales for the year ended December 31, 2007 for this segment increased by $11.5 million, or 16.3%, in comparison
to the year ended December 31, 2006 primarily due to raw material surcharge increases, which more than offset
increased material cost of sales of $9.2 million and lower shipments for the period. Operating income increased by
$1.3 million primarily due to the impact from rising nickel prices, partially offset by higher labor, utility and other
manufacturing supply costs. For this segment, raw material surcharges are primarily assessed at the time of shipment
while the material cost of those shipments is determined at the time of order entry. Based upon the timing of surcharges,
the Company estimates Dunkirk generated an operating income benefit of $3.9 million and $1.5 million for the years
ended December 31, 2007 and 2006, respectively.
Net sales for the year ended December 31, 2006 increased $17.2 million, or 33%, in comparison to the year ended
December 31, 2005 primarily due to increased shipments of higher value-added products requiring vacuum-arc
remelting, as well as the impact of price increases implemented since January 1, 2005 and higher surcharges assessed
due to increased raw material costs. Operating income for the year ended December 31, 2006 increased $4.8 million
primarily due to the impact of the favorable product mix, higher surcharges assessed and base price increases
implemented, more than offsetting higher raw material, labor, energy and other manufacturing costs.
22
Liquidity and Capital Resources
The Company generated cash from operations of $33.6 million, $6.3 million and $3.3 million in the years ended
December 31, 2007, 2006 and 2005, respectively. Cash received from sales of $235.9 million, $198.7 million and
$167.2 million for the years ended December 31, 2007, 2006 and 2005, respectively, represent the primary source
of cash from operations. An analysis of the primary uses of cash is as follows:
For the years ended December 31,
(dollars in thousands)
Raw material purchases
Employment costs
Utilities
Other
Total uses of cash
2007
Amount
%
2006
Amount
%
2005
Amount
%
$ 100,504
36,103
18,657
47,057
$ 202,321
49.7%
17.8
9.2
23.3
100.0%
$ 92,117
47.9%
$ 88,772
54.1%
36,094
18,528
45,700
$ 192,439
18.8
9.6
23.7
100.0%
30,931
17,812
26,419
$ 163,934
18.9
10.9
16.1
100.0%
Cash used for raw material purchases increased in 2007 in comparison to 2006 and 2005 primarily due to higher transaction
prices. The Company continuously monitors market price fluctuations of its key raw materials. The following table reflects
the average market values per pound for key raw materials for selected months during the last three-year period.
Nickel
Chrome
Molybdenum
Carbon Scrap
December 2007
11.79
$
1.66
$
32.54
$
0.14
$
June 2007
18.92
1.27
32.65
0.13
$
$
$
$
December 2006
15.68
$
0.64
$
24.87
$
0.10
$
June 2006
9.41
0.64
25.28
0.15
$
$
$
$
December 2005
6.09
$
0.51
$
27.11
$
0.12
$
June 2005
7.33
0.73
37.47
0.07
$
$
$
$
The monthly average price of nickel increased from $9.41 in June 2006 to $15.68 in December 2006 to a high of $23.67
in May 2007. The significant rise is believed to be due to increased demand from foreign (primarily China) and domestic
sources coupled with supply volatility which caused raw material market values to rise significantly between June 2006
and May 2007. The sharp increase had a material negative impact on the operating margins of the Universal Stainless &
Alloy Product Segment and a material positive impact on the operating margins of the Dunkirk Specialty Steel Segment.
The monthly average nickel prices declined from its record level in May 2007 to $12.54 in August 2007 and to $11.79
in December 2007. The sharp decline resulted from decreased demand for nickel while supplies continued to increase
during the second half of 2007. The sharp decline also had a material negative impact on the operating margins of both
business segments through the recognition of increased Lower-of-Cost-or-Market inventory reserves. The reserve
increased from 2.3% of the consolidated inventory balance at December 31, 2006 to 3.3% at December 31, 2007. While the
material surcharge mechanism is designed to offset modest fluctuations in raw material prices, it can not immediately
absorb significant spikes in raw material prices. A material decline in raw material prices within a short period of time
could have a material adverse effect on the financial results of the Company, and there can be no assurance that the
raw material surcharge mechanism will completely offset immediate changes in the Company’s raw material costs.
Increases in both employment and utility costs are primarily due to higher rates substantially offset by lower production
volumes. The increased employment costs primarily relate to increased payouts under the Company’s profit-sharing
plans and higher employee-related insurance costs. Increased utility costs are primarily related to an electrical distribution
rate increase at the Bridgeville facility that became effective January 6, 2007.
The increase in other uses of cash between 2006 and 2007 is primarily attributable to the payments made to settle the
Teledyne lawsuit and EPA violation as well as incurring increased maintenance expenses. The increase between 2005
and 2006 is primarily attributable to increased income tax payments as well as purchases of operating supplies and
services to support higher production volumes. Payments for federal and state income taxes, net of refunds received,
increased from $6.7 million in 2005 to $11.8 million and $11.3 million in 2006 and 2007, respectively.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
23
At December 31, 2007, working capital approximated $85.9 million, as compared to $80.4 million at December 31, 2006.
The increase is attributable to a $7.7 million increase in the cash balance primarily resulting from a $5.8 million decrease
in accounts receivable and a $784,000 decrease in inventory, net of non-debt current liabilities. These decreases are
primarily attributable to lower shipment and production volumes experienced during the last three-month period of
2007 in comparison to the similar period in 2006.
Capital Expenditures and Investments. The Company’s capital expenditures were approximately $8.8 million and
$7.7 million in 2007 and 2006, respectively. The 2007 expenditures were primarily made to upgrade the Bridgeville melt
shop cranes, purchase and install a new high-temperature annealing furnace in Dunkirk scheduled for completion
in 2008, purchase additional testing equipment to meet more stringent specifications for higher value-added products,
as well as infrastructure improvements. Most of the 2006 expenditures were used to purchase additional equipment
in response to increased demand, including a plate flattener, milling machines and a seventh VAR furnace installed
at the Bridgeville facility. Capital expenditures are expected to approximate $10.0 million in 2008, based on current
market conditions. The expenditures will be used principally for the purchase of new equipment and infrastructure
improvements, and will be funded from operating cash flows. Commitments of additional capital expenditures may
occur if market conditions continue to improve.
Capital Resources Including Off-Balance Sheet Arrangements. The Company does not maintain off-balance sheet
arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment or
material related-party transaction arrangements.
PNC Credit Agreement. The Company is party to a credit agreement with PNC Bank (the “PNC Credit Agreement”),
which establishes a $15.0 million revolving credit facility (“PNC Line”) with a term expiring on June 30, 2009. This credit
agreement also provided for a $10.0 million term loan (“PNC Term Loan”) scheduled to mature on June 30, 2011. The
$7.5 million outstanding principal balance under the PNC Term Loan was retired in December 2007 using excess cash
flows from operations generated during the second half of the year. The PNC Line is collateralized by substantially all
of the Company’s assets.
Interest on borrowings under the PNC Line is based on short-term market rates, which may be further adjusted, based
upon the Company maintaining certain financial ratios. The Company pays a commitment fee on the unused portion of
the PNC Line of 0.25%, provided it maintains certain financial ratios.
At December 31, 2007, the Company had its $15.0 million revolving line of credit with PNC Bank available for
borrowings. The Company is in compliance with all financial ratios and restrictive covenants it is required to maintain
under the credit agreement as of December 31, 2007. The Company believes it will maintain compliance with the
financial covenants in effect throughout 2008.
Government Financing Programs. The Company maintains two loan agreements with the Commonwealth of
Pennsylvania’s Department of Commerce, aggregating $600,000. A $200,000 15-year loan bears interest at 5% per
annum with the term ending in 2011, and a $400,000 20-year loan bears interest at 6% per annum with the term ending
in 2016. In 1996, the Company entered into a ten-year, 6% interest-bearing loan with the Redevelopment Authority of
Allegheny County Economic Development Fund in the amount of $1,514,000, and was fully amortized in 2007. In 2002,
Dunkirk Specialty Steel issued two ten-year, 5% interest-bearing notes payable to the New York Job Development
Authority for the combined amount of $3.0 million. As of December 31, 2007, the total principal balance of these
government-financed debt instruments is $1.8 million.
Stock-Based Financing Activity. The Company issued 90,751 and 152,760 shares of its Common Stock for the years
ended December 31, 2007 and 2006, respectively, through its two stock-based compensation plans. In 2007, certain
employees, officers and members of the Company’s Board of Directors exercised 84,750 stock options issued under
the Stock Incentive Plan for $898,000 plus related tax benefits of $958,000. In 2006, certain employees, officers and
members of the Company’s Board of Directors exercised 144,125 stock options issued under the Stock Incentive Plan
for $1,444,000 plus related tax benefits of $1,073,000. The remaining shares were issued to employees participating
in the Employee Stock Purchase Plan.
24
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 326 shares
in 2007, 412 shares in 2006 and 157 shares in 2005. The Company is authorized to repurchase 44,205 remaining shares
of Common Stock under this program as of December 31, 2007.
Short- and Long-Term Liquidity. The Company expects to meet substantially all of its short-term liquidity requirements
resulting from operations and current capital investment plans with internally generated funds and borrowings under the
PNC Credit Agreement. At December 31, 2007, the Company had $10.6 million in cash and $15.0 million available under
the PNC Line. In addition, the ratio of current assets to current liabilities at December 31, 2007 was 4.7:1 compared
with 4.2:1 at December 31, 2006, and the debt to total capitalization ratio was 1.4% compared with 15.8%, respectively.
The Company’s long-term liquidity depends upon its ability to obtain additional orders from its existing customers,
attract new customers and control costs. Additional sources of financing may be required to fund growth initiatives
identified by the Company.
Contractual Obligations. At December 31, 2007, the Company had the following contractual obligations:
Payments Due by Period
(dollars in thousands)
Long-term debt
Operating lease obligations
Purchase obligations
Total contractual obligations
Total
Less than 1 Year
1–3 Years
3–5 Years
More than 5 Years
$
2,072
38
10,255
$ 12,365
$
468
29
10,255
$ 10,752
$
$
936
9
—
945
$
$
593
—
—
593
$
$
75
—
—
75
Long-term debt does not include any outstanding balance on the PNC Line, currently due to expire on June 30, 2009,
since there was no outstanding balance on December 31, 2007. Purchase obligations include the value of all open
purchase orders with established quantities and purchase prices as well as minimum purchase commitments.
Supply Contract. The Company maintains a supply contract agreement with Talley Metals that continues to automatically
renew with the placement of new orders each month and requires a 90-day written notice to terminate by either party.
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 12-month period. The value of
the contract on a monthly basis will depend on product mix and key raw material prices. During 2006 and 2007, Talley
Metals did not comply with the monthly minimum purchase requirement due to market conditions. The Company has
granted a waiver and expects to continue granting a waiver from this requirement until market conditions improve.
Import Protections. The CDSOA provides for payment of import duties collected by the U.S. Treasury Department to
domestic companies injured by unfair foreign trade practices. 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.
In accordance with the CDSOA, the Company filed claims to receive their appropriate share of the import duties collected
and received a net payment of $586,000 in 2007. The Company expects to benefit somewhat from the CDSOA after its
scheduled expiration on September 30, 2007. The amount of future benefit is dependent on the amount of import duties
collected through the expiration date and the relationship of Dunkirk Specialty Steel’s claim in relation to claims filed
by other domestic specialty steel producers.
Effects of Inflation
Despite modest inflation in recent years, rising costs, in particular the cost of certain raw materials and energy,
continue to affect operations. The Company strives to mitigate the effects of inflation through cost containment,
productivity improvements, sales price increases and surcharges.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
25
Contingent Items
Product Claims. The Company is subject to various claims and legal actions that arise in the normal course of
conducting business. At December 31, 2007, the Company has established a reserve of $200,000 for commercial
product-claims related to three sales by Dunkirk Specialty Steel.
Environmental Matters. 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.
Legal Matters. On June 29, 2001, suit was filed against the Company in the Court of Common Pleas of Allegheny
County, Pennsylvania by Teledyne. The suit alleged that steel product manufactured by the Company was defective
and that the Company was or should have been aware of the defects. Teledyne alleged that the steel supplied by the
Company caused certain crankshafts sold by Teledyne to be defective.
On May 31, 2007, the Company and Teledyne agreed to a complete settlement of this suit. Under the terms of the
settlement, which contains a confidentiality provision, both parties released all claims against the other party in
exchange for cash and other consideration. The net impact of this settlement, including professional fees, on the
Company’s net income after tax was $517,000.
Critical Accounting Policies and New Accounting Pronouncements
Critical Accounting Policies. Revenue recognition is the most critical accounting policy of the Company. Revenue from
the sale of products is recognized when both risk of loss and title have transferred to the customer, which in most
cases coincides with shipment of the related products, and collection is reasonably assured. The Company manufactures
specialty steel product to customer purchase order specifications and in recognition of requirements for product
acceptance. Material certification forms are executed, indicating compliance with the customer purchase orders, before
the specialty steel products are packed and shipped to the customer. Occasionally customers request that the packed
products be held at the Company’s facility beyond the stated shipment date. In these situations, the Company receives
written confirmation of the request, and acknowledgement that title has passed to the customer and that normal
payment terms apply. Such amounts included in revenue for the years ended December 31, 2007, 2006 and 2005 were
less than 1% of net sales.
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.
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 specific reserves for 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 collectible with a reserve equal to 15% of 90-day or older balances. However, the total reserve will not
be less than 1% of total accounts receivable.
The cost of inventory is principally determined by the first-in, first-out (FIFO) method for material costs as well as the
average cost method for operation costs. 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.
26
The monthly average price of nickel increased from $9.41 in June 2006 to $15.68 in December 2006 to a high of $23.67
in May 2007. Since May 2007, the monthly average nickel prices declined to $12.54 in August 2007 and to $11.79 in
December 2007. The sharp decline resulted from decreased demand for nickel while supplies continued to increase
during the second half of 2007. This event also had a material negative impact on the operating margins of both
business segments through the recognition of higher Lower-of-Cost-or-Market inventory reserves. The reserve
increased from 2.3% of the consolidated inventory balance at December 31, 2006 to 3.3% at December 31, 2007.
Long-lived assets are reviewed for impairment annually by each operating facility. An impairment write-down will
be recognized whenever events or changes in circumstances indicate that the carrying value may not be recoverable
through estimated future undiscounted cash flows. Based on management’s assessment of the carrying values of such
long-lived assets, no impairment reserve had been deemed necessary as of December 31, 2007 and 2006. Attempts
to sell the Dunkirk office building since February 2002 have not been successful, and the Company had no prospective
buyers. The change in circumstances caused the Company’s management to write off the $184,000 carrying value of
the Dunkirk office building during first quarter 2006. Retirements and disposals are removed from cost and
accumulated depreciation accounts, with the gain or loss reflected in operating income.
In addition, management assesses the need to record a valuation allowance to reduce deferred tax assets to the amount
that is more likely than not to be realized. The Company believes it will generate sufficient income in addition to taxable
income generated from the reversal of its temporary differences to utilize the deferred tax assets recorded at
December 31, 2007.
New Accounting Pronouncements. See information under the heading “Note 1: Significant Accounting Policies” within
“Notes to Consolidated Financial Statements” in Item 8, Financial Statements and Supplementary Data, in this Annual
Report on Form 10-K for details of recently issued accounting pronouncements and their expected impact on the
Company’s financial statements.
Future Outlook
The Company entered 2008 with a total backlog of approximately $85 million, which is down from the $120 million backlog
at the beginning of 2007. The decline is primarily due to the impact of lower raw materials costs on the selling prices
for semi-finished product orders and a reduction in orders placed by forging and service center customers, resulting
from an excess supply of inventory in the supply chain at December 31, 2007. End-market demand remains strong and
the company expects orders for its products will improve throughout the year as customer inventory is consumed.
Forward-Looking Information and Safe Harbor
The Management’s Discussion and Analysis and other sections of this Annual Report on Form 10-K contain forward-
looking statements that reflect the Company’s current views with respect to future events and financial performance.
Statements looking forward in time, including statements regarding future growth, cost savings, expanded production
capacity, broader product lines, greater capacity to meet customer quality reliability, price and delivery needs, enhanced
competitive posture, effect of new accounting pronouncements and no material financial impact from litigation or
contingencies are included in this Annual Report on Form 10-K pursuant to the “safe harbor” provision of the Private
Securities Litigation Reform Act of 1995.
The Company’s actual results will be affected by a wide range of factors, including those items described in Item 1A,
Risk Factors. Many of these factors are not within the Company’s control and involve known and unknown risks and
uncertainties that may cause the Company’s actual results in future periods to be materially different from any future
performance suggested herein. Any unfavorable change in the foregoing or other factors could have a material adverse
effect on the Company’s business, financial condition and results of operations. Further, the Company operates in an
industry sector where securities values may be volatile and may be influenced by economic and other factors beyond
the Company’s control.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
27
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
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 maintains some long-term,
fixed cost supply agreements for its major purchase 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.
The cost of raw materials represents more than 50% of the Company’s total cost of products sold in 2007 and 2006
due to significant increases in transaction prices for raw materials purchased. Raw material prices vary based on
numerous factors, including quality, and are subject to frequent market fluctuations. Future raw material prices can
not be predicted with any degree of certainty. Therefore, the Company does not maintain any long-term written
agreements with any of its raw material suppliers.
The Company has implemented a sales price surcharge mechanism on its products to help offset the impact of raw
material price fluctuations. For substantially all semi-finished products, the surcharge is calculated at the time of
order entry, based on average raw material prices reported for the previous 20-day period. For substantially all finished
products, the surcharge is calculated based on average raw material prices reported for the previous 20-day period
from the promised ship date. While the material surcharge mechanism is designed to offset modest fluctuations in
raw material prices, it can not immediately absorb significant spikes in raw material prices. A material change in raw
material prices within a short period of time could have a material adverse effect on the financial results of the Company
and there can be no assurance that the raw material surcharge mechanism will completely offset immediate changes
in the Company’s raw material costs.
The Company currently is not exposed to market risk from changes in interest rates related to its long-term debt.
At December 31, 2007, all of the Company’s $1.8 million of total long-term debt has fixed interest rates.
ITEM 8. Financial Statements and Supplementary Data
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting
is designed to provide reasonable assurance to management and the board of directors regarding the preparation
and fair presentation of published financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement preparation and presentation. Management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, we believe that, as of
December 31, 2007, our internal control over financial reporting is effective based on those criteria.
The effectiveness of internal control over financial reporting as of December 31, 2007 has been audited by Schneider
Downs & Co. Inc., an independent registered public accounting firm which also audited our consolidated financial
statements. Schneider Downs’ attestation report on the consolidated financial statements and management’s
maintenance of effective internal control over financial reporting is included under the heading “Report of Independent
Registered Public Accounting Firm.”
Dennis M. Oates
President and Chief Executive Officer
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
28
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Universal Stainless & Alloy Products, Inc.
We have audited the accompanying consolidated balance sheets of Universal Stainless & Alloy Products, Inc. and
subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations
and cash flows for each of the three years in the period ended December 31, 2007. In addition, our audit included the
financial statement schedule listed in the index at Item 15 (2) (Schedule II). We also have audited the Company’s
internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the financial statements included 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. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
March 6, 2008
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
29
Consolidated Statements 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, net
Income before income tax expense
Provision for income taxes
Net income
EARNINGS PER COMMON SHARE
Basic
Diluted
2007
2006
2005
$ 229,936
184,491
12,038
33,407
(731)
776
33,452
10,948
$ 22,504
$ 203,873
160,722
10,792
32,359
(1,106)
522
31,775
11,185
$ 20,590
$ 170,022
141,436
8,441
20,145
(851)
437
19,731
6,973
$ 12,758
$
$
3.39
3.32
$
$
3.19
3.11
$
$
2.00
1.97
WEIGHTED-AVERAGE COMMON SHARES USED TO COMPUTE EARNINGS PER SHARE
Basic
Diluted
6,644,374
6,774,924
6,451,037
6,612,530
6,375,257
6,479,114
The accompanying notes are an integral part of these consolidated financial statements.
30
Consolidated Balance Sheets
December 31,
(dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Accounts receivable (less allowance for doubtful accounts of $311 and $338)
Inventory
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
Accrued employment costs
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Deferred taxes
Total liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Senior Preferred Stock, par value $0.001 per share;
1,980,000 shares authorized; 0 shares outstanding
Common Stock, par value $0.001 per share; 10,000,000 shares authorized;
6,930,294 and 6,839,543 shares issued
Additional paid-in capital
Retained earnings
Treasury Stock at cost; 270,795 and 270,469 common shares held
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
2007
2006
$ 10,648
27,501
65,572
5,537
109,258
54,271
767
$ 164,296
$ 13,983
2,064
5,307
383
1,600
23,337
1,453
9,904
34,694
$
2,909
33,308
66,019
3,216
105,452
49,251
584
$ 155,287
$ 13,123
3,427
4,121
2,364
1,968
25,003
17,228
8,402
50,633
—
—
7
35,112
96,142
(1,659)
129,602
$ 164,296
7
32,654
73,638
(1,645)
104,654
$ 155,287
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
31
Consolidated Statements 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
Loss on retirement of fixed assets
Deferred taxes increase (decrease)
Stock-based compensation expense
Tax benefit from exercise of stock options
Excess tax benefits from share-based payment arrangements
Changes in assets and liabilities:
Accounts receivable
Inventory
Accounts payable
Accrued employment costs
Other, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of assets and real property through purchase agreements
Capital expenditures
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt
Long-term debt repayment
(Repayment) borrowings under revolving line of credit, net
(Decrease) increase in outstanding checks in excess of bank balance
Deferred financing costs
Proceeds from issuance of Common Stock
Excess tax benefits from share-based payment arrangements
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
2007
2006
2005
$ 22,504
$ 20,590
$ 12,758
3,731
40
253
427
—
(958)
5,807
447
860
1,186
(674)
33,623
—
(8,782)
(8,782)
—
(9,364)
(8,392)
(1,363)
—
1,059
958
(17,102)
7,739
2,909
$ 10,648
3,337
911
(1,852)
273
—
(1,073)
(5,345)
(14,621)
544
1,163
2,374
6,301
—
(7,716)
(7,716)
—
(1,555)
2,275
326
—
1,585
1,073
3,704
2,289
620
2,909
$
3,085
705
(276)
—
207
—
(3,401)
(13,080)
913
1,128
1,292
3,331
(344)
(8,464)
(8,808)
8,050
(894)
(2,518)
463
(48)
803
—
5,856
379
241
620
779
6,693
$
$
$
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid (net of amount capitalized)
Income taxes paid
$
793
$ 11,268
$
1,085
$ 11,779
The accompanying notes are an integral part of these consolidated financial statements.
32
Notes to Consolidated Financial Statements
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Description of the Company. 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, and hot and cold rolling of semi-finished
and finished specialty steels. The Company’s products are sold to rerollers, forgers, service centers, original equipment
manufacturers (“OEMs”), 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.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires 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.
Basis of Consolidation. 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.
Cash and Cash Equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates market
value, and include cash and securities having a maturity of three months or less at the time of purchase.
Concentration of Credit Risk. 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 its credit risk by performing ongoing credit evaluations and, when deemed necessary,
requiring letters of credit, guarantees or cash collateral. The allowance for doubtful accounts includes specific
reserves for 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 collectible with a reserve equal to 15% of
90-day or older balances. However, the total reserve will not be less than 1% of total accounts receivable. Receivables
are charged-off to the allowance when they are deemed to be uncollectible. Bad debt expense for fiscal years 2007,
2006 and 2005 was $(29,000), $77,000 and $125,000, respectively.
Inventories. 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 within the guidelines of normal plant capacity.
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.
Property, Plant and Equipment. Property, plant and equipment is 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 depreciation is recognized on these assets until placed in service. Retirements and disposals are removed
from cost and accumulated depreciation accounts, with the gain or loss reflected in operating income. Maintenance and
repairs are charged to expense as incurred, and costs of improvements and renewals are capitalized.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
33
In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position entitled “Accounting
for Planned Major Maintenance Activities” (“FSP”). The FSP amends an American Institute of Certified Public Accountants
Industry Audit Guide and is applicable to all industries that accrue for planned major maintenance activities. The FSP
prohibits the use of the accrue-in-advance method of accounting for planned major maintenance costs, which is the
policy the Company presently uses to record planned plant outage costs on an interim basis within a fiscal year. The FSP
became effective January 1, 2007, with retrospective application to all prior periods presented. Under the FSP, the Company
will report results using the deferral method whereby material major equipment maintenance costs are capitalized as
incurred and amortized into expense over the subsequent six-month period, while other maintenance costs are expensed
as incurred. The restatement of maintenance expenses for the years ended December 31, 2006 and 2005 changed
previously reported financial data by the following amounts:
(dollars in thousands, except per share amounts)
Change in cost of products sold
Change in net income
Change in earnings per common share:
Basic
Diluted
Increase (Decrease) in Previously Reported Amounts
2005
2006
$
$
$
40
(24)
(0.01)
(0.01)
$
$
$
484
(298)
(0.05)
(0.05)
Maintenance expense for the fiscal year 2007, 2006 and 2005 was $13,857,000, $12,060,000 and $12,412,000, 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 are between 5 and 25 years, and
the estimated useful lives of machinery and equipment are between 5 and 20 years. Direct costs incurred in the
development and implementation of internal-use software are capitalized and recorded within property, plant and
equipment, and amortized on a straight-line basis over its anticipated useful life, which generally does not exceed
three years. Depreciation and amortization expense for fiscal year 2007, 2006 and 2005 was $3,722,000, $3,315,000
and $3,058,000, respectively.
Long-Lived Asset Impairment. 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 had been deemed necessary as
of December 31, 2007 and 2006 except for the reserve attributed to the $184,000 carrying value of the Dunkirk office
building which management has not sold since its acquisition in February 2002.
Revenue Recognition. Revenue from the sale of products is recognized when both risk of loss and title have
transferred to the customer, which in most cases coincides with shipment of the related products, 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.
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. The Company manufactures specialty
steel product to customer purchase order specifications and in recognition of requirements for product acceptance.
Material certification forms are executed, indicating compliance with the customer purchase orders, before the
specialty steel products are packed and shipped to the customer. Occasionally customers request that the packed
products be held at the Company’s facility beyond the stated shipment date. In these situations, the Company receives
written confirmation of the request, and acknowledgement that title has passed to the customer and that normal
payment terms apply. Such amounts included in revenue for the years ended December 31, 2007, 2006 and 2005
were less than 1% of net sales.
34
Income Taxes. 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 for a deferred
tax asset when it is more likely than not that such asset will not be realized.
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48
prescribes recognition and measurement standards for a tax position taken or expected to be taken in a tax return.
The evaluation of a tax position includes a determination of whether a tax position should be recognized in the financial
statements, and such a position should only be recognized if the Company determines that it is more-likely-than-not
that the tax position will be sustained upon examination by the tax authorities, based upon the technical merits of
the position. For those tax positions that should be recognized, the measurement of a tax position is determined as
being the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
FIN 48 was effective at the beginning of the Company’s 2007 fiscal year. Upon adoption of FIN 48, the Company made
an accounting policy election to classify interest and penalties on estimated liabilities for uncertain tax positions as
components of the provision for income taxes. The Company believes there are no known uncertain tax positions
at December 31, 2007.
Stock-Based Compensation Plans. Prior to January 1, 2006, employee compensation expense under stock option
plans was reported only if options were granted below market price at grant date in accordance with the intrinsic
value method of Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,”
and related interpretations. Because the exercise price of the Company’s employee stock options always equaled the
market price of the underlying stock on the date of grant, no compensation expense was recognized on options
granted. On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised
2004), “Share-Based Payment” (“SFAS 123R”). This Statement replaces FASB Statement No. 123 and supersedes APB
Opinion No. 25. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires
that such transactions be recognized as compensation expense in the income statement based on their fair values on
the measurement date, which, for the Company, is the date of the grant. The Company transitioned to fair-value based
accounting for stock-based compensation using a modified version of prospective application (“modified prospective
application”). Under modified prospective application, as it is applicable to the Company, SFAS 123R applies to new
awards and to awards modified, repurchased or cancelled after January 1, 2006. Additionally, compensation cost for
the portion of awards for which the requisite service has not been rendered (generally referring to non-vested awards)
that were outstanding as of January 1, 2006 will be recognized as the remaining requisite service is rendered during
the period of and/or the periods after the adoption of SFAS 123R. The attribution of compensation cost for those earlier
awards is based on the same method and on the same grant-date fair values previously determined for the pro forma
disclosures required for companies that did not previously adopt the fair value accounting method for stock-based
employee compensation. Compensation expense for non-vested stock awards is based on the fair value of the awards,
which is calculated on the measurement date, the date of grant, using the Black-Scholes option-pricing model, and
is recognized ratably over the service period of the award. The tax effects of exercising stock options are added to
additional paid-in capital at the exercise date.
Earnings Per Common Share. 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 is assumed at the beginning of the period when the average
stock price during the period exceeds the exercise price of outstanding options, and common shares are assumed
issued. The assumed proceeds from the exercise of stock options 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.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
35
New Accounting Pronouncements. In September 2006, the SEC staff issued Staff Accounting Bulletin 108 “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”).
SAB 108 requires that public companies utilize a “dual approach” when assessing the quantitative effects of financial
misstatements. This dual approach includes both an income statement-focused assessment and a balance sheet-
focused assessment. The guidance in SAB 108 is effective for annual financial statements for fiscal years ending after
November 15, 2006. The adoption of SAB 108 did not have an effect on the Company’s consolidated financial position
or results of operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
(“SFAS 157”), which establishes a framework for measuring the fair value of assets and liabilities. This framework is
intended to provide increased consistency in how fair value determinations are made under various existing accounting
standards that permit, or in some cases require, estimates of fair market value. SFAS 157 also expands financial
statement disclosure requirements about a company’s use of fair value measurements, including the effect of
such measures on earnings. SFAS 157 is effective for fiscal years that begin after November 15, 2007. The Company
is currently evaluating the provisions of SFAS 157; however, the adoption is not expected to have a material impact
on its consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”).
This Statement permits entities to choose to measure many financial instruments and certain other items at fair value
and report unrealized gains and losses on these instruments in earnings. SFAS 159 is effective for fiscal years that
begin after November 15, 2007. The Company is currently evaluating the provisions of SFAS 159. Adoption is not
expected to have a material impact on the consolidated financial statements.
On December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”).
SFAS 141R will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:
acquisition costs will be generally expensed as incurred; noncontrolling interests will be valued at fair value at the
acquisition date; acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently
measured at either the higher of such amount or the amount determined under existing guidance for non-acquired
contingencies; restructuring costs associated with a business combination will be generally expensed subsequent to
the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the
acquisition date generally will affect income tax expense. SFAS 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. Accordingly, the Company is required to record and disclose
business combinations following existing GAAP until January 1, 2009.
On December 4, 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial
Statements – An Amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically,
this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that
changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions
if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value
of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
Reclassifications. Certain prior year amounts have been reclassified to conform to the 2007 presentation.
36
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
NOTE 4: LONG-TERM DEBT AND OTHER FINANCING
Long-term debt consists of the following:
December 31,
(dollars in thousands)
PNC Term Loan
PNC Bank revolving credit facility
Government debt
Less amounts due within one year
Total long-term debt
2007
2006
$
8,309
55,404
1,859
$ 65,572
$
9,558
54,891
1,570
$ 66,019
2007
2006
$
2,208
10,371
66,432
4,571
83,582
(29,311)
$ 54,271
$
1,573
8,469
63,484
1,330
74,856
(25,605)
$ 49,251
2007
2006
$
$
—
—
1,836
1,836
(383)
1,453
$
9,000
8,392
2,200
19,592
(2,364)
$ 17,228
The Company maintains a credit agreement with PNC Bank for a $15.0 million revolving credit facility (“PNC Line”)
with a term expiring on June 30, 2009. This credit agreement also included a term loan (“PNC Term Loan”) scheduled
to mature on June 30, 2011. The Company retired the PNC Term Loan in December 2007. The credit agreement is
collateralized by substantially all of the Company’s assets.
Interest on borrowings under the PNC Line and PNC Term Loan is based on short-term market rates, which may be
further adjusted, based upon the Company maintaining certain financial ratios. PNC Bank reduced the commitment
fee paid on the unused portion of the PNC Line from 0.5% to 0.25%, provided certain financial ratios are maintained.
The Company is required to be in compliance with three financial covenants: a minimum leverage ratio, a minimum
debt service ratio and a minimum tangible net worth. The Company was in compliance with all such covenants at
December 31, 2007.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
37
The Company maintains two separate loan agreements with the Commonwealth of Pennsylvania’s Department of
Commerce, aggregating $600,000. A $200,000 15-year loan bears interest at 5% per annum with the term ending in
2011 and a $400,000 20-year loan bears interest at 6% per annum with the term ending in 2016. 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, and was fully amortized in 2007. On February 14, 2002,
Dunkirk Specialty Steel issued two ten-year, 5% interest-bearing notes payable to the New York Job Development
Authority for the combined amount of $3.0 million.
The Company leases certain office equipment and a vehicle. The aggregate annual principal payments due under the
Company’s long-term debt and minimum lease payments under operating leases are as follows:
For the years ended December 31,
(dollars in thousands)
Long-term debt principal payments
Operating lease minimum payments
NOTE 5: INCOME TAXES
Components of the provision for income taxes are as follows:
For the years ended December 31,
(dollars in thousands)
CURRENT PROVISION
Federal
State
DEFERRED PROVISION (BENEFIT)
Federal
State
Provision for income taxes
2008
2009
2010
2011
2012
Thereafter
Total
$ 383 $ 403 $ 423 $ 432 $ 96 $ 99 $1,836
38
29
—
—
—
—
9
2007
2006
2005
$ 10,542
153
10,695
550
(297)
253
$ 10,948
$ 11,957
1,080
13,037
(1,623)
(229)
(1,852)
$ 11,185
$
$
6,801
448
7,249
(151)
(125)
(276)
6,973
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
Domestic manufacturing deduction
State income taxes, net of federal tax impact
Government grants, net of federal tax impact
Other, net
Effective income tax rate
2007
35.0%
(2.1)
(0.2)
(0.4)
0.4
32.7%
2006
35.0%
(1.2)
2.3
(0.8)
(0.1)
35.2%
2005
35.0%
(1.0)
1.9
(1.1)
(0.3)
34.5%
38
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, New York facility for up to 15 years from its 2002 acquisition date. The Company
recognized tax credit benefits of $591,000 and $378,000 for fiscal year 2007 and 2006, respectively, of which $252,000
and $339,000 was applied against the respective year’s current tax provision. The balance of the credits, which have
no expiration date, will be applied against future tax liabilities for income apportioned to New York State. The Company
believes it will generate sufficient income in addition to taxable income generated from the reversal of its temporary
differences to utilize this tax credit.
The Company also recognized Pennsylvania Educational Improvement Tax Credit benefits (“PAEIT”) of $180,000 for both
2007 and 2006, which were applied against each respective year’s current tax provision.
Deferred taxes result from the following:
December 31,
(dollars in thousands)
DEFERRED TAX ASSETS
Receivables
Inventory
Accrued liabilities
SFAS 123R compensation expense
Dunkirk office building impairment
State tax carryforwards
DEFERRED TAX LIABILITIES
Prepaid major maintenance
Property, plant and equipment
2007
2006
$
$
166
1,573
665
209
70
2,683
692
3,375
$
110
9,904
$ 10,014
$
$
$
$
171
811
478
80
71
1,611
472
2,083
66
8,402
8,468
State tax carryforwards represent New York Empire Zone tax credits with no expiration date and are included
in other assets.
The Company is routinely under audit by federal or state authorities in the areas of income taxes and the remittance
of sales and use taxes. These audits include questioning the timing and amount of deductions, the nexus of income
among various tax jurisdictions and compliance with federal and state tax laws. The Company has settled all IRS
examinations through December 31, 2004.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
39
NOTE 6: STOCKHOLDERS’ EQUITY
The Company has never paid a cash dividend on its Common Stock. The Company’s Credit Agreement with PNC Bank
limits the payment of cash dividends payable on its Common Stock to 50% of the Company’s excess cash flow per fiscal
year. Excess cash flow represents the amount of earnings before interest, taxes, depreciation and amortization that is
greater than the sum of the Company’s payments for interest, income taxes, the principal portion of long-term debt
and capital lease obligations, and capital expenditures.
Common Shares
Outstanding
Common
Stock
Additional
Paid-In Capital
Retained Earnings
Treasury Shares
Treasury Stock
(dollars in thousands)
Balance at
December 31, 2004
6,601,112
$
7
$ 28,699
$ 40,290
269,900
$ (1,631)
Common Stock issuance
under Employee Stock
Purchase Plan
Exercise of Stock Options
Tax benefit on share-
based compensation
Net income
Purchase of Treasury Stock
Balance at
9,946
75,725
103
703
207
12,758
157
(3)
December 31, 2005
6,686,783
$
7
$ 29,712
$ 53,048
270,057
$ (1,634)
8,635
144,125
Common Stock issuance
under Employee Stock
Purchase Plan
Exercise of Stock Options
Share-based compensation
Tax benefit on share-
based compensation
Net income
Purchase of Treasury Stock
Balance at
152
1,444
273
1,073
20,590
412
(11)
December 31, 2006
6,839,543
$
7
$ 32,654
$ 73,638
270,469
$ (1,645)
6,001
84,750
Common Stock issuance
under Employee Stock
Purchase Plan
Exercise of Stock Options
Share-based compensation
Tax benefit on share-
based compensation
Net income
Purchase of Treasury Stock
Balance at
176
897
427
958
22,504
326
(14)
December 31, 2007
6,930,294
$
7
$ 35,112
$ 96,142
270,795
$ (1,659)
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 is authorized to repurchase
44,205 remaining shares of Common Stock under this program as of December 31, 2007.
The Company has 1,980,000 authorized shares of Senior Preferred Stock. At December 31, 2007 and 2006, there were
no shares issued or outstanding.
40
NOTE 7: BASIC AND DILUTED EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 is
performed as follows:
For the years ended December 31,
(dollars in thousands, except per share amounts)
Income available to common Stockholders
Effect of dilutive securities
Income available to common Stockholders
plus assumed conversion
EARNINGS PER COMMON SHARE
Basic
Diluted
2007
2006
2005
Income
Shares
Income
Shares
Income
Shares
$ 22,504 6,644,374
— 130,550
$ 20,590 6,451,037
— 161,493
$ 12,758 6,375,257
— 103,857
$ 22,504 6,774,924
$ 20,590 6,612,530
$ 12,758 6,479,114
$
$
3.39
3.32
$
$
3.19
3.11
$
$
2.00
1.97
NOTE 8: STOCK-BASED COMPENSATION PLANS
At December 31, 2007, the Company has three incentive compensation plans that are described below:
Stock Incentive Plan
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, of which 393,668 are available for grant at December 31, 2007. The option price is equal to the fair
market value of the Common Stock at the date of grant. 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. Forfeited options may be reissued and are included in the
amount available for grants.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
41
A summary of the Stock Incentive Plan activity as of and for the years ended December 31, 2007, 2006 and 2005 is
presented below:
Non-Vested Stock Awards Outstanding
Stock Options Outstanding
Balance, January 1, 2005
Granted
Stock options exercised
Stock awards vested
Forfeited
Balance, December 31, 2005
Granted
Stock options exercised
Stock awards vested
Forfeited
Balance, December 31, 2006
Additional shares reserved
Granted
Stock options exercised
Stock awards vested
Forfeited
Balance, December 31, 2007
Shares Available
for Grant
190,243
(50,000)
3,300
143,543
(60,000)
19,625
103,168
400,000
(161,000)
51,500
393,668
Number
of Shares
148,750
50,000
(61,450)
137,300
60,000
(63,500)
(19,625)
114,175
161,000
(49,625)
(51,500)
174,050
Weighted-Average
Grant-Fair Value
4.80
$
6.54
4.46
5.57
9.23
5.15
5.17
7.80
16.70
6.60
13.13
14.80
$
Number
of Shares
511,675
50,000
(75,725)
(3,300)
482,650
60,000
(144,125)
(19,625)
378,900
161,000
(84,750)
Weighted-Average
Exercise Price
9.14
$
14.84
6.64
11.25
9.69
21.36
10.02
10.15
11.77
33.25
10.60
(51,500)
403,650
30.93
18.14
$
The following table summarizes information about stock options outstanding at December 31, 2007:
Options Outstanding
Options Exercisable
Range of Exercise Prices
$5.12 to $7.35
$8.45 to $9.94
$10.83 to $13.42
$14.18 to $27.29
$31.95 to $42.50
Outstanding at end of year
Exercisable at end of year
Number
of Shares
101,300
54,000
45,450
70,900
132,000
403,650
229,600
Weighted-Average
Remaining Years
Contractual Life
3.9
2.6
6.4
7.7
9.6
6.5
2.6
Weighted-Average
Exercise Price
6.61
$
9.73
11.49
17.57
33.03
18.14
$
Number
of Shares
101,300
54,000
33,650
38,175
2,475
229,600
Weighted-Average
Exercise Price
6.61
$
9.73
11.55
16.49
32.20
9.98
$
Proceeds from stock option exercises totaled $898,000 in 2007, $1.4 million in 2006 and $703,000 in 2005. Shares issued
in connection with stock option exercises are issued from available authorized shares. Tax benefits realized from stock
options exercised totaled $958,000 in 2007, $1.1 million in 2006 and $207,000 in 2005.
42
Based upon the closing stock price of $35.57, the aggregate intrinsic value of outstanding stock options and outstanding
exercisable stock options was $7.0 million and $5.9 million, respectively, at December 31, 2007. Intrinsic value of stock
options is calculated as the amount by which the market price of USAP common stock exceeds the exercise price of
the options. The aggregate intrinsic value of stock options exercised was $2.6 million in 2007, $2.8 million in 2006 and
$538,000 in 2005. The total fair value of share awards vested was $328,000 during 2007, $327,000 in 2006 and $274,000
in 2005.
Stock-Based Compensation Expense. The Company adopted the provisions of SFAS 123R on January 1, 2006. SFAS 123R
requires that stock-based compensation to employees and directors be recognized as compensation expense in the
income statement based on their fair values on the measurement date, which, for the Company, is the date of the grant.
The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite
service periods. The compensation expense recognized and its related tax effects are included in additional paid-in
capital. Additional paid-in capital is further adjusted for the difference between compensation expense recorded under
SFAS 123R and compensation expense reported for tax purposes upon actual exercise of employee stock options.
Stock-based compensation expense totaled $427,000 in 2007 and $273,000 in 2006. Stock-based compensation
expense is recognized ratably over the requisite service period for all awards. The tax benefit associated with the stock
compensation expense recognized in the accompanying Consolidated Statements of Operations was $152,000 in 2007
and $95,000 in 2006. Such cash flows were previously reported as operating activities. Unrecognized stock-based
compensation expense related to non-vested stock awards totaled $1,548,000 at December 31, 2007. At such date,
the weighted-average period over which this unrecognized expense was expected to be recognized was 33 months.
Valuation of Stock-Based Compensation. The fair value of the Company’s employee stock options granted is estimated
on the measurement date, which, for the Company, is the date of grant. The Company elected to continue using the
Black-Scholes option-pricing model, which was previously used for the Company’s pro forma information required
under SFAS 123. The weighted-average fair value of stock options granted was $2,689,000 for 2007, $554,000 for 2006,
and $327,000 for 2005. The Company’s determination of fair value of share-based payment awards on the date of grant
is affected by the Company’s stock price as well as assumptions regarding the Company’s expected stock price volatility
over the term of the awards, and actual and projected employee stock option exercise behaviors.
The assumptions used to determine the fair value of options granted are detailed in the table below:
2007
2006
2005
Risk-free interest rate
Dividend yield
Expected market price volatility
Weighted-average expected market price volatility
Expected term
3.53 to 4.87% 3.19 to 5.04% 3.76 to 4.50%
0.0%
40 to 45%
43.5%
0.0%
45 to 50%
47.6%
0.0%
47 to 49%
47.9%
5.8 to 8.2 years
5.0 years
5.0 years
The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of
the options at the grant date. No dividend yield was assumed because the Company does not pay cash dividends on
Common Stock and currently has no plans to pay a dividend. Expected volatility is based on the long-term historical
volatility (estimated over a period equal to the expected term of the options) of the Company’s stock. In estimating the
fair value of stock options under the Black-Scholes option-pricing model, separate groups of employees that have
similar historical exercise behavior are considered separately. The expected term of options granted represents the
period of time that options granted are expected to be outstanding.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
43
Pro Forma Net Income and Earnings Per Common Share. In accordance with SFAS 123R, the Company’s Consolidated
Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R.
The following pro forma information presents net income and earnings per share for 2005 as if the fair value method
of SFAS 123 had been used to measure compensation cost for stock-based compensation plans. For purposes of this
pro forma disclosure, the estimated fair value of stock options and stock awards is amortized to expense over the
related vesting periods.
For the year 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
EARNINGS PER SHARE
Basic — as reported
Basic — pro forma
Diluted — as reported
Diluted — pro forma
2005
$ 13,056
(201)
$ 12,855
$
$
$
$
2.05
2.02
2.02
1.98
Employee Stock Purchase Plan
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. At the Annual
Meeting of Stockholders of the Company held May 17, 2006, shareholders approved an amendment to the Stock
Purchase Plan to reserve an additional 60,000 shares of Common Stock for issuance under the plan. Under the terms
of the plan, employees can choose as of January 1 and July 1 of each year to have up to 10% of their total earnings
withheld to purchase up to 100 shares of the Company’s Common Stock each six-month period. The purchase price of
the stock is 85% of the lower of its beginning-of-the-period or end-of-the-period market prices. At December 31, 2007,
the Company has issued 96,312 shares of Common Stock since the plan’s inception.
Cash Incentive Plans
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, 2007, 2006 and 2005, the Company expensed $5,823,000,
$5,285,000 and $3,510,000, respectively, under these plans.
NOTE 9: RETIREMENT PLANS
The Company has defined contribution retirement plans that cover substantially all employees. The Company accrues
its contributions 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.
Effective January 6, 2003, the Company began to participate in the Steelworkers Pension Trust (“Trust”), a multi-
employer defined-benefit pension plan that is open to all hourly and salaried employees associated with the Bridgeville
facility. The Company makes periodic contributions to the Trust based on hours worked at a fixed rate for each hourly
employee and a fixed monthly contribution on behalf of each salaried employee. The hourly employees may continue
their contributions to the defined contribution retirement plan even if the Company contributions cease. The Company
also makes a contribution to the defined contribution retirement plan on behalf of each salaried employee participating
in the Trust. The amount of the contribution for salaried employees will be dependent upon their contribution to the
401(k) retirement plan.
The total expense for the years ended December 31, 2007, 2006 and 2005 was $873,000, $888,000 and $772,000,
respectively, including $531,000, $572,000 and $449,000, respectively, for the multi-employer Trust. No other post-
retirement benefit plans exist.
44
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.
The Company is subject to various claims and legal actions that arise in the normal course of conducting business.
At December 31, 2007, the Company has established a reserve of $200,000 for commercial product-claims related to
three sales by Dunkirk Specialty Steel.
The Company maintains a supply contract agreement with 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 90-day written notice to terminate by either party. 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 to average
at least 1,250 tons per month during the last 12-month period. The value of the contract on a monthly basis will depend
on product mix and key raw material prices. During 2006 and 2007, Talley Metals did not comply with the monthly
minimum purchase requirement due to market conditions. The Company has granted a waiver and expects to continue
granting a waiver from this requirement until market conditions improve.
The CDSOA provides for payment of import duties collected by the U.S. Treasury to domestic companies injured by unfair
foreign trade practices. 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. In accordance with the CDSOA, the
Company filed claims to receive its appropriate share of the import duties collected. In January 2005, the Company
received $59,000 from the U.S. Treasury, representing an increase in the total allocation of available funds awarded to
the Company for 2004. The Company received a net payment of $358,000 in December 2005 as its 2005 award. In 2006
and 2007 the Company received $586,000 and $463,000, respectively, net of expenses incurred.
The Company’s purchase obligations include the value of all open purchase orders with established quantities and purchase
prices, as well as minimum purchase commitments, all made in the normal course of business. At December 31, 2007, the
Company’s total purchase obligations were $10,255,000, all of which will be due in year 2008.
NOTE 11: SEGMENT AND RELATED INFORMATION
The Company comprises 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.
At December 31, 2007, 82% of the Company’s 533 employees are covered by USW collective bargaining agreements,
and 46% of employees are covered by an agreement for the Bridgeville facility that expires in August 2008.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
45
The accounting policies of both reportable segments are the same as those described in Note 1: 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.
For the years ended December 31,
(dollars in thousands)
NET SALES
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Intersegment
OPERATING INCOME (LOSS)
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Intersegment
INTEREST EXPENSE AND OTHER FINANCING COSTSA
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
OTHER INCOME, NET
Universal Stainless & Alloy Products
Dunkirk Specialty SteelB
DEPRECIATION AND AMORTIZATION
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Corporate
CAPITAL EXPENDITURES
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Corporate
2007
2006
2005
$ 202,562
81,725
(54,351)
$ 229,936
$ 20,475
12,723
209
$ 33,407
$
$
$
$
$
$
$
$
614
117
731
126
650
776
3,382
280
69
3,731
4,419
3,197
1,166
8,782
$ 179,170
70,255
(45,552)
$ 203,873
$ 19,674
11,472
1,213
$ 32,359
$
$
$
$
$
$
$
$
889
217
1,106
55
467
522
3,058
214
65
3,337
6,397
41
1,278
7,716
$ 153,258
53,011
(36,247)
$ 170,022
$ 14,506
6,748
(1,109)
$ 20,145
$
$
$
$
$
$
$
$
608
243
851
19
418
437
2,858
167
60
3,085
7,585
1,150
73
8,808
A Includes amortization of deferred financing costs of $9,000, $23,000 and $27,000 for the years ended December 31, 2007, 2006 and 2005,
respectively.
B Includes net receipt of import duties of $568,000 in 2007, $463,000 in 2006 and $414,000 in 2005.
December 31,
(dollars in thousands)
ASSETS
Universal Stainless & Alloy Products
Dunkirk Specialty Steel
Corporate
46
2007
2006
$ 110,669
35,983
17,644
$ 164,296
$ 117,916
31,473
5,898
$ 155,287
The following table presents net sales by product line:
For the years ended December 31,
(dollars in thousands)
Stainless steel
Tool steel
High-strength low alloy steel
High-temperature alloy steel
Conversion services
Other
Total net sales
2007
2006
2005
$ 164,228
28,119
25,892
9,317
2,011
369
$ 229,936
$ 151,633
23,389
16,467
9,837
2,137
410
$ 203,873
$ 135,588
20,737
6,606
3,694
3,030
367
$ 170,022
Net sales to the Company’s three largest customers and their affiliates approximated 38%, 34% and 34% of total 2007,
2006 and 2005 sales, respectively. The accounts receivable balances from these customers comprised approximately
21% and 23% of total accounts receivable at December 31, 2007 and 2006, respectively.
The Company derives less than 5% of its revenues from markets outside of the United States and the Company has no
assets located outside the United States.
NOTE 12: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(dollars in thousands, except per share amounts)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2007 DATA
Net sales
Gross profit margin
Operating income
Provision for income taxes
Net income
Earnings per common share:
Basic
Diluted
2006 DATA
Net sales
Gross profit margin
Operating income
Provision for income taxes
Net income
Earnings per common share:
Basic
Diluted
$ 56,239
13,219
10,665
3,655
6,787
$ 62,056
12,614
9,207
3,156
5,862
$ 62,008
11,133
8,143
2,521
5,467
$ 49,633
8,479
5,392
1,616
4,388
$
$
1.03
1.00
$
$
0.88
0.87
$
$
0.82
0.81
$
$
0.66
0.65
$ 44,937
8,767
6,511
2,249
3,998
$ 48,019
10,378
7,499
2,603
4,629
$ 55,110
12,200
9,162
3,200
5,689
$ 55,807
11,806
9,187
3,133
6,274
$
$
0.62
0.61
$
$
0.72
0.70
$
$
0.88
0.86
$
$
0.96
0.94
The Company’s 2007 third quarter results include a charge of $1.4 million for a Lower-of-Cost-or-Market reserve
due to the decline in nickel costs during the quarter, offset by the impact from increasing nickel costs in comparison
to prior quarters on the Company’s Dunkirk segment. Based upon the timing of surcharges, nickel cost changes
increased gross margin by $1.5 million. Earnings were positively impacted by a reduction in the annual income tax
rate to 34.0% from 35.0%. The change in the effective income tax rate is primarily due to adjustments to state income
provisions and New York Empire Zone tax credits.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
47
Nickel costs declined from the third to fourth quarter of 2007. The impact from the change in nickel costs on the Company’s
Dunkirk segment reduced gross margins by an estimated $53,000 compared with an increase of $1.1 million in the
fourth quarter of 2006. The impact from the change in nickel costs combined with lower total shipment volume reduced
company-wide gross margin dollars in the fourth quarter 2007 compared with the same period of 2006. The Company’s
2007 fourth quarter earnings were positively impacted by the receipt of import duties of $586,000 and a reduction in the
annual income tax rate to 32.7% from 34.2%. The change in the effective income tax rate is primarily due to adjustments
to state income provisions and tax credits as well as the impact of recognizing a $180,000 tax credit in Pennsylvania as
a result of participating in the state’s PAEIT in the fourth quarter 2007.
The Company’s 2006 fourth quarter earnings were positively impacted by the receipt of import duties of $463,000 and
a reduction in the annual income tax rate to 35.4% from 36.0%. The change in the effective income tax rate is primarily
attributable to a favorable shift of apportioned income for state income tax purposes as well as the impact of
recognizing a $180,000 PAEIT tax credit.
Earnings per share amounts for each quarter are required to be computed independently. As a result, their sum may
not equal the total year earnings per share amounts.
The restatement of maintenance expenses for the year ended December 31, 2006 changed previously reported financial
data by the following amounts:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(dollars in thousands, except per share amounts)
2006 DATA
Change in cost of products sold
Change in net income
Change in earnings per common share:
Basic
Diluted
$
$
$
(150)
96
0.01
0.02
$
$
$
(51)
33
0.00
0.01
$
$
$
(2)
1
0.00
0.00
$
$
$
243
(154)
(0.03)
(0.03)
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
The Company’s management, including the Company’s President and Chief Executive Officer and the Vice President
of Finance, Chief Financial Officer and Treasurer, performed an evaluation of the effectiveness of the Company’s
disclosure controls and procedures. Based on that evaluation, the Company’s President and Chief Executive Officer
and the Vice President of Finance, Chief Financial Officer and Treasurer concluded that, as of the end of the fiscal year
covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures are effective in the
timely identification of material information required to be included in the Company’s periodic filings with the SEC.
Management’s Report on the Company’s internal control over financial reporting is included in Item 8 of this Annual
Report on Form 10-K under the caption “Management’s Report on Internal Control Over Financial Reporting” and is
incorporated herein by reference. The Company’s independent registered public accounting firm has issued a report
on management’s maintenance of effective internal control over financial reporting and is set forth in Item 8 of this
Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm” and is
incorporated herein by reference.
During the last fiscal quarter of the fiscal year ended December 31, 2007, there were no changes in the Company’s
internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
ITEM 9B. Other Information
None.
48
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The information concerning the directors of the Company is set forth in the Proxy Statement for the 2008 Annual
Meeting of Stockholders (“Proxy Statement”) to be sent to stockholders in connection with the Company’s Annual
Meeting of Stockholders to be held on May 21, 2008, under the heading “Proposal No. 1—Election of Directors,” which
information is incorporated by reference. With the exception of the information specifically incorporated herein by
reference, the Company’s Proxy Statement is not to be deemed filed as part of this report for the purposes of this Item.
In addition to the information set forth under the caption “Executive Officers” in Part I of this report, the information
concerning our directors required by this item is incorporated and made part hereof by reference to the material
appearing under the heading “Nominees for Election as Directors” in the Company’s Proxy Statement, which will be
filed with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of the 2007 fiscal year. Information
concerning the Audit Committee and its “audit committee financial expert” required by this item is incorporated and
made part hereof by reference to the material appearing under the heading “Committees of the Board of Directors” in
the Proxy Statement. Information required by this item regarding compliance with Section 16(a) of the Exchange Act is
incorporated and made a part hereof by reference to the material appearing under the heading “Security Ownership of
Certain Beneficial Owners and Management” in the Proxy Statement. Information concerning the executive officers
of the Company is contained in Part I of this Annual Report on Form 10-K under the caption “Executive Officers.”
The Company has adopted a Code of Business Conduct and Ethics that applies to all directors and employees, including
its principal executive officer and principal financial officer. A copy is available, free of charge, through the Company’s
website at http://www.univstainless.com. Information on the Company’s website is not part of this Annual Report on
Form 10-K. The Company intends to timely disclose any amendment of or waiver under the Code of Business Conduct
and Ethics on its website and will retain such information on its website as required by applicable SEC rules.
ITEM 11. Executive Compensation
The information concerning executive compensation is set forth in the Proxy Statement under the heading “Executive
Compensation,” which information is incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company’s Proxy Statement is not to be deemed filed as part of this report for
the purposes of this Item.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
49
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy
Statement under the heading “Security Ownership of Certain Beneficial Owners and Management,” which information
is incorporated by reference. With the exception of the information specifically incorporated herein by reference, the
Company’s Proxy Statement is not to be deemed filed as part of this report for the purposes of this Item.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information concerning certain relationships and related transactions, and director independence is set forth in the
Proxy Statement under the heading “The Board of Directors,” which information is incorporated by reference. With the
exception of the information specifically incorporated herein by reference, the Company’s Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 14. Principal Accountant Fees and Services
The information concerning principal accountant fees and services is set forth in the Proxy Statement under the
heading “Principal Accountant Fees and Services,” which information is incorporated by reference. With the exception
of the information specifically incorporated herein by reference, the Company’s Proxy Statement is not to be deemed
filed as part of this report for the purposes of this Item.
50
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Form 10-K:
1) Financial Statements
The list of financial statements required by this item is set forth in Item 8, “Financial Statements and Supplementary
Data” and is incorporated herein by reference.
2) Consolidated Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
For the Years Ended December 31, 2005, 2006 and 2007
(dollars in thousands)
INVENTORY RESERVE:
Year ended December 31, 2005
Year ended December 31, 2006
Year ended December 31, 2007
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended December 31, 2005
Year ended December 31, 2006
Year ended December 31, 2007
3) Exhibits
Balance at
Beginning of Year
Charged to Costs
and Expenses
Deductions/Net
Charge-Offs
Balance at
End of Year
$
$
833
637
1,576
557
272
338
$
$
823
1,295
3,390
125
78
2
$ (1,019)
(356)
(2,771)
$
(410)
(12)
(29)
$
$
637
1,576
2,195
272
338
311
EXHIBIT NUMBER
3.1
DESCRIPTION
Amended and Restated Certificate of Incorporation Incorporated herein by reference to Exhibit 3.1 to
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
Amended and Restated By-laws of the Company
Specimen Copy of Stock Certificate for shares
of Common Stock
Stockholders Agreement dated as of
August 1, 1994, by and among the
Company and its existing stockholders
Registration No. 33-85310.
Incorporated herein by reference to Exhibit 3.1 on
Form 8-K filed November 27, 2007.
Incorporated herein by reference to Exhibit 4.1 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 1998.
Incorporated herein by reference to Exhibit 10.1 to
Registration No. 33-85310.
Third Amended and Restated Credit Agreement,
dated as of June 24, 2006, between the Company
and PNC Bank, National Association
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2006.
Employment Agreement dated February 1, 2008
by and between the Company and
Clarence M. McAninch
Filed herewith.
Employment Agreement dated February 21, 2008
between the Company and Paul A. McGrath
Filed herewith.
Employment Agreement dated February 22, 2008
between the Company and Richard M. Ubinger
Filed herewith.
Employment Agreement dated December 28, 2006 Incorporated herein by reference to Exhibit 10.6 to
between the Company and Kenneth W. Matz
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2006.
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
51
10.7
10.8
10.9
10.10
10.11
21.1
23.1
24.1
31.1
31.2
32.1
Employment Agreement dated December 21, 2007 Filed herewith.
between the Company and Dennis M. Oates
Stock Incentive Plan
Supply Contract Agreement, dated as of
July 1, 2001, between the Company and Talley
Metals Technology, Inc., a subsidiary of
Carpenter Technology Corporation
Incorporated herein by reference to Exhibit 10.9 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002.
Incorporated herein by reference to Exhibit 10.21
to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2001.
Promissory Note, dated as of February 13, 2002,
between the Company and New York Job
Development Authority
Incorporated herein by reference to Exhibit 10.24
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2001.
Promissory Note, dated as of February 14, 2002,
between the Company and New York Job
Development Authority
Incorporated herein by reference to Exhibit 10.25
to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2001.
Subsidiaries of Registrant
Consent of Schneider Downs & Co., Inc.
Filed herewith.
Filed herewith.
Powers of Attorney
Included on the signature page herein.
Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer and
Chief Financial Officer pursuant to
Rule 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Filed herewith.
Filed herewith.
Filed herewith.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 6, 2008.
Universal Stainless & Alloy Products, Inc.
By:
Dennis M. Oates
President and Chief Executive Officer
52
Power of Attorney
Each of the officers and directors of Universal Stainless & Alloy Products, Inc., whose signature appears below in so
signing also makes, constitutes and appoints Dennis M. Oates and Paul A. McGrath, and each of them acting alone, his
true and lawful attorney-in-fact, with full power of substitution, for him in any and all capacities, to execute and cause
to be filed with the SEC any and all amendment or amendments to this Report on Form 10-K, with exhibits thereto and
other documents connected therewith and to perform any acts necessary to be done in order to file such documents,
and hereby ratifies and confirms all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE
/s/ Dennis M. Oates
Dennis M. Oates
/s/ Richard M. Ubinger
Richard M. Ubinger
/s/ C. M. McAninch
Clarence M. McAninch
/s/ Douglas M. Dunn
Douglas M. Dunn
/s/ Udi Toledano
Udi Toledano
TITLE
President, Chief Executive Officer and Director
(Principal Executive Officer)
DATE
March 6, 2008
Vice President of Finance, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
March 6, 2008
Director and Chairman of the Board
Director
Director
March 6, 2008
March 6, 2008
March 6, 2008
EXHIBIT 21.1 Subsidiaries of Registrant
Below are the only active wholly-owned subsidiaries of the registrant and its jurisdiction of organization.
Doing Business As
Dunkirk Specialty Steel, LLC
USAP Holdings, Inc.
State of Incorporation
Delaware
Delaware
EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-90970,
No. 333-13509, No. 333-13511, No. 333-13599, No. 333-100263 and No. 333-136984) of Universal Stainless & Alloy
Products, Inc. of our report dated March 6, 2008 relating to the consolidated financial statements and financial
statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
March 6, 2008
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
53
EXHIBIT 31.1 Certification
I, Dennis M. Oates, certify that:
1. I have reviewed this Annual Report on Form 10-K of Universal Stainless & Alloy Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 6, 2008
Dennis M. Oates
President and Chief Executive Officer
(Principal Executive Officer)
54
EXHIBIT 31.2 Certification
I, Richard M. Ubinger, certify that:
1. I have reviewed this Annual Report on Form 10-K of Universal Stainless & Alloy Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 6, 2008
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Universal Stainless and Alloy Products
2007 ANNUAL REPORT
55
EXHIBIT 32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-oxley Act of 2002
In connection with the Annual Report on Form 10-K of Universal Stainless & Alloy Products, Inc. (the “Company”) for
the year ended December 31, 2007 as filed with the SEC on the date hereof (the “Report”), each of the undersigned, in
the capacities and on the dates indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Universal Stainless & Alloy Products, Inc.
Date: March 6, 2008
Dennis M. Oates
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 6, 2008
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
56
DIRECTORS, OFFICERS
AND MANAGEMENT
DIRECTORS
Douglas M. Dunn
Managing Partner
Dunn Associates
Clarence M. McAninch
Chairman of the Board
Dennis M. Oates
President and
Chief Executive Officer
Udi Toledano
President
Millennium 3 Capital, Inc.
OFFICERS
Paul A. McGrath
Vice President of Administration,
General Counsel and Secretary
Dennis M. Oates
President and
Chief Executive Officer
Richard M. Ubinger
Vice President of Finance,
Chief Financial Officer and Treasurer
MANAGEMENT
Michael E. Boyles
General Manager, Bridgeville Facility
Keith A. Engleka
Director, Technology
Ronald E. Hauck
Controller
Bruce J. Kramer
Director, Purchasing
Stanley W. Peak
Plant Manager, Titusville Facility
Richard J. Pincoski
General Manager, Dunkirk Specialty Steel, LLC
CORPORATE INFORMATION
Executive Offices
Universal Stainless & Alloy Products, Inc.
600 Mayer Street
Bridgeville, PA 15017
412-257-7600
Annual Meeting
The Annual Meeting of Stockholders will be held at 10 a.m. on
Wednesday, May 21, 2008 at the Clarion Hotel, Dunkirk, NY.
Common Stock
The Common Stock is listed on the Nasdaq Global Market
under the symbol “USAP”.
SHAREHOLDER INFORMATION
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.
Transfer Agent and Register
Continental Stock Transfer & Trust Company
2 Broadway
New York, NY 10004
Web Site Address
www.univstainless.com
www.dunkirkspecialtysteel.com
DESIGN: Mizrahi Design Associates, Inc.
PRINTING: Broudy Printing, Inc.
PRINCIPAL PHOTOGRAPHY: Joshua Franzos
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
600 Mayer Street, Bridgeville, PA 15017
PHONE 412.257.7600
FAX 412.257.7640