To our Stockholders,
2022 was marked by expanding recovery in aerospace, our largest market, growing momentum in our premium
alloy sales, and record growth in our backlog. It was also marked by ongoing labor shortages, supply chain
bottlenecks and mounting inflation along with internal operational challenges, which reduced activity levels and
took a toll on profitability.
Fortunately, external conditions are beginning to improve, and we have successfully resolved all operational
issues we faced in 2022. Importantly, we continued over the past year to move forward with our capital
investment plan to expand our product portfolio with more technologically advanced, higher margin premium
products, thereby enhancing our capabilities, cost structure and growth prospects.
Robust aerospace demand was the major contributor to the recovery in our 2022 net sales, which increased 30%
from 2021 to $202 million, and included a 50% increase in aerospace sales. That demand also drove the
momentum in our premium alloy sales, which increased 48% from 2021, and reached nearly 20% of total sales.
Aerospace also accounted for substantial growth in our backlog, which climbed to a record $288 million at
year-end 2022, more than double our backlog at year-end 2021.
The factors behind the growth in aerospace in 2022 — recovery in air travel demand, the resulting expansion in
airplane order books, and ramping aircraft build rates at a time of lean customer inventories — all have set the
stage for continued strong demand for our aerospace and defense products, with our customers focused on
meeting the expanding needs of the aircraft makers.
While our growth was led by aerospace demand, we also realized full-year growth in the balance of our end
markets in 2022 with the exception of heavy equipment. In total, 2022 oil & gas market sales were up 19% from
2021 with rising energy prices and catch-up investment in exploration and production spurring demand. Power
generation sales rose 32%, driven by ongoing maintenance spending. General industrial market sales, including
sales to the semiconductor industry, increased 22%, aided by new domestic spending on silicon chip production.
Heavy equipment market sales were lower by 20% compared to 2021, due to customer caution amid economic
concerns, well-stocked channel inventories, and the downward trend in commodity prices as 2022 ended,
although model changeovers, especially to Electric Vehicles, are a long-term market driver.
Our top-line progress in 2022 was achieved despite significant industry-wide challenges. At the same time, those
challenges combined with internal operational issues to negatively impact our gross margin. Most notable among
the latter was a liquid metals spill at our Bridgeville, PA Electric Arc Melting facility, with the residual effect
lasting through year-end. Unplanned equipment outrages, including those related to extreme weather conditions
in December, took a further toll on our profitability. Of even greater impact was a broad-based drop in
commodity prices, especially in the second half of the year, which resulted in a misalignment of surcharges to
material costs. As a result, gross margin for 2022 was $14.2 million, or 7.0% of sales, and we incurred a net loss
of $8.1 million, or $0.91 per diluted share. Fortunately, recent trends in surcharges, commodity prices, and
material costs in inventory should reduce the misalignment in 2023. Additionally, seven price increases
announced in 2022 have begun to be reflected in our backlog and our selling prices.
Overall, we have started 2023 on a very positive footing. Our backlog is at a record level and order entry remains
strong; operational issues over the past year have been resolved; work force, inflation and supply chain difficulties
are improving. We were pleased to reach a three-year labor agreement with our hourly employees in Dunkirk, NY.
The capital project which will add two Vacuum Arc Remelt furnaces at our North Jackson facility is moving
forward with plans to be operational in early 2024.
Our balance sheet remains strong. Our liquidity and financial flexibility were further enhanced by a new
$7 million capital financing to help fund our capital project at our North Jackson facility.
For Universal, 2022 was marked by important strategic accomplishments along with significant challenges. That
progress, as well as our ability to overcome our challenges, is a tribute to the dedication, hard work and
commitment of our team, the guidance of our Board and the support of our stockholders. It is the basis for our
strong optimism for 2023 and beyond. I remain deeply grateful to all.
Sincerely,
Dennis M. Oates
Chairman, President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the Fiscal Year Ended December 31, 2022
OF 1934
Commission File Number 001-39467
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:
Title of Each Class
Common Stock, par value $0.001 per share
Preferred Stock Purchase Rights
Trading Symbol
USAP
Name of Each Exchange
on Which Registered
The Nasdaq Stock Market, LLC
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act: [None]
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☐
☐
Accelerated filer
Smaller reporting company
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2022, based on the closing price of $7.40 per share on that date, was
approximately $63,226,000. For the purposes of this disclosure only, the registrant has assumed that its directors and executive officers 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 1, 2023, there were 9,049,748 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10-K incorporates by reference portions of the Company’s definitive Proxy Statement for the 2023
Annual Meeting of Stockholders.
INDEX
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16
.
Form 10-K Summary
1
5
11
11
11
11
12
12
13
22
23
47
47
47
47
48
48
48
49
49
50
54
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PART I
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Annual Report on Form 10-K (“Form 10-K”) of Universal Stainless & Alloy Products, Inc.
and its wholly-owned subsidiaries (collectively, “we,” “us,” “our,” or the “Company”), including, but not limited to, the
statements contained in Item 1, “Business,” and Item 7, “Management's Discussion and Analysis of the Financial Condition
and Results of Operations,” along with statements contained in other reports that we have filed with the Securities and
Exchange Commission (the “SEC”), external documents and oral presentations, which are not historical facts are considered
to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. These statements which may be expressed in a variety of ways,
including the use of forward looking terminology such as “believe,” “expect,” “seek,” “intend,” “may,” “will,” “should,”
“could,” “potential,” “continue,” “estimate,” “plan,” or “anticipate,” or the negatives thereof, other variations thereon or
compatible terminology, relate to, among other things, 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, and the effect of new accounting pronouncements. We do not undertake any obligation to publicly
update any forward-looking statements.
These forward-looking statements, and any forward looking statements contained in other public disclosures of the Company
which make reference to the cautionary factors contained in this Form 10-K, are based on assumptions that involve risks and
uncertainties and are subject to change based on the considerations described below. We discuss many of these risks and
uncertainties in greater detail in Item 1A, “Risk Factors,” of this Form 10-K. These and other risks and uncertainties may
cause our actual results, performance or achievements to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements.
ITEM 1.
BUSINESS
Universal Stainless & Alloy Products, Inc., which was incorporated in 1994, and its wholly-owned subsidiaries, manufacture
and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain
other premium alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling,
forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to service centers,
forgers, rerollers and original equipment manufacturers (“OEMs”). Our customers further process our products for use in a
variety of industries, including the aerospace, power generation, oil and gas, heavy equipment and general industrial markets.
We also perform conversion services on materials supplied by customers.
We operate in four locations: Bridgeville and Titusville, Pennsylvania; Dunkirk, New York; and North Jackson, Ohio. Our
corporate headquarters is located at our Bridgeville location. We operate these four manufacturing locations as one business
segment.
We produce a wide variety of specialty steel grades using several manufacturing processes including vacuum induction
melting (“VIM”), vacuum-arc remelting (“VAR”), electro-slag remelting (“ESR”) and argon oxygen decarburization
(“AOD”). At our Bridgeville and North Jackson facilities, we produce specialty steel products in the form of semi-finished
and finished long products (ingots, billets and bars). In addition, the Bridgeville facility produces flat rolled products (slabs
and plates). Semi-finished long products are primarily used by our Dunkirk facility and certain customers to produce
finished bar and rod. Finished bar products that we manufacture are primarily used by OEMs and by service center customers
for distribution to a variety of end users. We also produce customized shapes primarily for OEMs that are cold rolled from
purchased coiled strip, flat bar or extruded bar at our precision rolled products department, located at our Titusville facility.
We make strategic investments in our business and capabilities over time to support our growth initiatives and improve the
efficiency of our operations. This includes the installation of a new vacuum arc remelt furnace and an 18-ton crucible for our
vacuum induction melting operation at our North Jackson facility in 2021 and our remelt facility expansion at the same
facility that began in 2022. These investments expand our premium alloy production capabilities and reduce our costs.
INDUSTRY OVERVIEW
The specialty steel industry is a distinct segment of the overall steel industry. Specialty steels include stainless steels, nickel
alloys, tool steels, electrical steels, high-temperature alloys, magnetic alloys and electronic alloys. Specialty steels are made
with a high alloy content, suitable for 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. For each of the years
ended December 31, 2022, 2021 and 2020, approximately 60-70% of our net sales were derived from stainless steel products.
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We primarily manufacture our products in response to customer orders and within the following product lines:
Stainless Steel. Stainless steel, which represents the largest part of the specialty steel market, contains elements such as
nickel, chrome and molybdenum that give it the unique qualities of high strength, good wear characteristics, natural
attractiveness, ease of maintenance and resistance to corrosion and heat. Stainless steel is used, among other applications, in
the aerospace, oil and gas, power generation and automotive industries, as well as in the manufacturing of equipment for food
handling, health and medical, chemical processing and pollution control.
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 elements 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.
Tool Steel. Tool steels contain elements of chrome, vanadium 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.
RAW MATERIALS AND SUPPLIES
We depend on the delivery of key raw materials for our day-to-day melting operations. These key raw materials are carbon
and stainless scrap metal and alloys, primarily consisting of nickel, chrome, molybdenum, vanadium and copper. Scrap metal
is primarily generated by industrial sources and is purchased through a number of scrap brokers and processors. We also
recycle scrap metal generated from our own production operations as a source of metal for our melt shops. Alloys are
generally purchased from domestic agents and primarily originate in North America, Australia, China, South America and
South Africa.
Our Bridgeville and North Jackson facilities also supply semi-finished specialty steel products as starting materials to our
other operating facilities. Semi-finished specialty steel starting materials, which we cannot produce at a competitive cost, are
purchased from other suppliers. We generally purchase these starting materials from steel strip coil suppliers, extruders, flat
rolled producers and service centers. We believe that adequate supplies of starting material will continue to be available.
The cost of raw materials represents approximately 35%-40% of the cost of products sold in each of 2022, 2021 and 2020.
Raw material costs can be impacted by significant price changes. Raw material prices vary based on numerous factors,
including quality, and are subject to frequent market fluctuations. The average price of substantially all our major raw
materials increased for 2021 compared to 2020, and also increased for 2022 compared to 2021; however, prices generally
decreased in the second half of 2022 after reaching highs in April 2022. Future raw material prices cannot be predicted with
any degree of certainty. We do not maintain any fixed-price long-term agreements with any of our raw material suppliers.
We apply a raw material surcharge in our pricing to align our pricing with fluctuations in commodity costs. Most orders
apply the raw material surcharge in effect at the time of shipment to align the selling price with commodity costs. Some
shorter lead time orders embed the surcharge into the price at the time of order entry. Surcharges are published on our
website, and can fluctuate by month in line with commodity cost changes. Over time, our surcharge will effectively offset
changes in raw material costs; however, during a period of rising or falling prices the timing will cause variation between
reporting periods.
CUSTOMERS
Our largest customer accounted for approximately 21%, 19% and 23% of our net sales for the years ended December 31,
2022, 2021 and 2020, respectively. One additional customer accounted for approximately 18% of our sales during 2022, and
a third customer accounted for approximately 10% of our sales during 2021.
International sales approximated 5% of annual sales in 2022 and 7% of our annual net sales in each of 2021 and 2020.
BACKLOG
Our backlog of orders (excluding surcharges) on hand as of December 31, 2022 was approximately $287.9 million compared
to approximately $134.5 million at December 31, 2021. The majority of these orders are scheduled to ship during 2023. Our
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backlog may not be indicative of actual sales because certain surcharges are not determinable until the order is shipped to the
customer and, therefore, cannot be used as a direct measure of future revenue.
COMPETITION
Competition in our markets is based upon product quality, delivery capability, customer service, customer approval and price.
Maintaining high standards of product quality, while responding quickly to customer needs and keeping production costs at
competitive levels, is essential to our ability to compete in these markets.
We believe that there are several companies that manufacture one or more similar specialty steel products that are significant
competitors. There are a few smaller producing companies and material converters that are also considered to be competitors.
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 we participate.
HUMAN CAPITAL MANAGEMENT
Employee Relations
We consider the maintenance of good relations with our employees to be important to the successful conduct of our business.
We have profit-sharing plans for certain salaried and hourly employees and for all of our employees represented by United
Steelworkers (the “USW”) and have equity ownership programs for all of our eligible employees, in an effort to forge an
alliance between our employees’ interests and those of our stockholders. At December 31, 2022, 2021 and 2020, we had 622,
558 and 566 employees, respectively, of which 475, 421 and 430, respectively, were USW members.
Collective Bargaining Agreements
Our Bridgeville, Titusville, Dunkirk and North Jackson facilities recognize the USW as the exclusive representative for their
hourly employees with respect to the terms and conditions of their employment. The following collective bargaining
agreements are currently in place:
Facility
Bridgeville
North Jackson
Dunkirk
Titusville
Commencement Date
September 2018
July 2018
November 2022
October 2020
Expiration Date
August 2023
June 2024
October 2025
September 2025
We believe a critical component of our collective bargaining agreements is the inclusion of a profit sharing plan.
Employee Benefit Plans
We maintain a 401(k) retirement plan for our hourly and salaried employees. Pursuant to the 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, we make periodic contributions to the 401(k) plan for the hourly employees employed at the
North Jackson, Dunkirk and Titusville facilities, based on service. In addition, we make periodic contributions for the
salaried employees at all locations based upon their service and their individual contribution to the 401(k) retirement plan.
We participate 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. We make 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.
We also provide group life and health insurance plans for our hourly and salary employees.
Employee Stock Purchase Plan
Under the Amended and Restated 1996 Employee Stock Purchase Plan, as amended (the “Plan”), the Company is authorized
to issue up to 400,000 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 our 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, 2022, we have issued
315,624 shares of common stock since the Plan’s inception.
3
Employee Safety
COVID-19 emerged near the beginning of 2020, bringing significant uncertainty in our end markets. Recognizing the
potential for disruption in our operations, we began to deploy safety protocols and processes beginning in the March 2020
timeframe to help keep our employees safe while continuing to serve our customer base. The safety protocols in place have
been in line with state and CDC recommendations and Occupational Safety and Health Administration (“OSHA”)
requirements such as face coverings, physical distancing, temperature checks, work from home where applicable, enhanced
cleaning, encouraging self-health checks, contact tracing and quarantining, as applicable.
The safety of our employees is a paramount concern in managing our operations. We strive to minimize workplace injuries as
much as possible and to provide a safe, open and accountable work environment for our employees. The period 2020 through
2022 represents the three years with the fewest OSHA recordable cases in Company history.
We encourage employees to provide feedback, ask questions and report concerns related to ethics or safety violations. We
take employee concerns seriously and evaluate appropriate actions in response.
Employee Inclusion
We are an Equal Opportunity Employer. All qualified applicants for positions with the Company receive consideration for
employment without regard to race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or
veteran status. We strive to provide an equitable and inclusive environment for all our employees. We are committed to
achieving representation across all levels of our workforce that reflects the diversity of the communities in which we live and
work.
GOVERNMENT REGULATIONS
We are 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. We monitor our compliance with applicable Environmental Laws and, accordingly, believe that
we are currently in compliance with all laws and regulations in all material respects. We are subject periodically to
environmental compliance reviews by various regulatory offices. We 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. In the ordinary course of
business, we are also subject to government regulations including those enforced by OSHA.
EXECUTIVE OFFICERS
The following table sets forth, as of February 24, 2023, certain information with respect to the executive officers of the
Company:
Name (Age)
Dennis M. Oates (70)
Christopher M. Zimmer (49)
Graham McIntosh, Ph.D. (60)
John J. Arminas (51)
Wendel L. Crosby (51)
Steven V. DiTommaso (36)
Executive
Officer Since
2008
2010
2015
2020
2021
2022
Position
Chairman, President and Chief Executive Officer
Executive Vice President and Chief Commercial Officer
Executive Vice President and Chief Technology Officer
Vice President, General Counsel and Corporate Secretary
Vice President of Manufacturing
Vice President and Chief Financial Officer
Dennis M. Oates has been President and Chief Executive Officer of the Company since 2008. Mr. Oates was named to the
Company’s Board of Directors in 2007. Mr. Oates previously served as Senior Vice President of the Specialty Alloys
Operations of Carpenter Technology Corporation from 2003 to 2007. Mr. Oates also served as President and Chief Executive
Officer of TW Metals, Inc. from 1998 to 2003. In 2010, the Board of Directors elected Mr. Oates to the additional position of
Chairman.
Christopher M. Zimmer has been Executive Vice President and Chief Commercial Officer since 2014. Mr. Zimmer served as
Vice President of Sales and Marketing from 2008 to 2014. Mr. Zimmer previously served as Vice President of Sales and
Marketing for Schmoltz+Bickenbach USA from 1995 to 2008. He previously held positions of increasing responsibility
including inside sales, Commercial Manager—stainless bar, General Manager—nickel alloy products, and National Sales
Manager.
Graham McIntosh, Ph.D. has been Executive Vice President and Chief Technology Officer since May 2018. Dr. McIntosh
also served as the Company’s Vice President and Chief Technology Officer from 2013 until May 2018. Dr. McIntosh
previously served as Director of Global Technology Initiatives for Carpenter Technology Corporation where he joined in
2008. Dr. McIntosh also served as Vice President of Technology and Director of Quality for Firth Rixson Viking from 2001
4
to 2008, and also held several management and technical positions at Wyman-Gordon Livingston from 1987 to 2001, where
he began his career.
John J. Arminas has been Vice President, General Counsel and Corporate Secretary for the Company since April 2020. Mr.
Arminas also served as the Company’s Corporate Counsel from 2013 until April 2020. Prior to his tenure at the Company,
Mr. Arminas served as an attorney for the Law Firm of Goldberg, Kamin & Garvin from 2004 to 2013.
Wendel L. Crosby has been Vice President of Manufacturing of the Company since April 2019. Mr. Crosby also served as
General Manager for the Company’s Dunkirk and Titusville facilities from 2014 until April 2019. Prior to his tenure at the
Company, Mr. Crosby served as Area Operations Manager for Precision Castparts Corp. from 2012 to 2014. Prior to that,
Mr. Crosby served as the Director of Finishing for Columbus Steel Castings from 2010 to 2012. Mr. Crosby also served as
Finishing Value Stream Manager from 2004 to 2011 and Program Manager from 2007 to 2010 for Columbus Steel Castings.
Mr. Crosby is a former member of the United States Army and is a combat war veteran.
Steven V. DiTommaso was appointed Vice President and Chief Financial Officer of the Company in April 2022. Previously,
Mr. DiTommaso served as Corporate Controller of the Company since 2018. Prior to his tenure at the Company, Mr.
DiTommaso served as Director of Accounting at Thorley Industries, LLC from 2016 to 2018, and in roles of increasing
responsibility in the audit and assurance practice at PricewaterhouseCoopers from 2008 to 2016. He is a Certified Public
Accountant.
PATENTS AND TRADEMARKS
We do not consider our business to be materially dependent on patent or trademark protection, and believe we own or
maintain effective licenses covering all the intellectual property used in our business. We benefit from our proprietary rights
relating to designs, engineering and manufacturing processes and procedures. We seek to protect our proprietary information
by use of confidentiality and non-competition agreements with certain employees.
AVAILABLE INFORMATION
Our common stock is listed on the Nasdaq Global Select Market under the “USAP” ticker symbol. Copies of our 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 SEC, are available on our 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. Copies of these documents will be available to any shareholder upon request. Requests should be directed in
writing to Investor Relations at 600 Mayer Street, Bridgeville, PA 15017. The SEC maintains a website at www.sec.gov that
contains reports, proxy and information statements and other information regarding issuers, like us, that file electronically
with the SEC.
ITEM 1A.
RISK FACTORS
We wish to caution each reader of this Form 10-K to consider the following factors and other factors discussed herein and in
other past reports, including but not limited to prior year Form 10-K and Form 10-Q reports filed with the SEC. Our business
and results of operations could be materially affected by any of the following risks. The factors discussed herein are not
exhaustive. Therefore, the factors contained herein should be read together with other reports that we file with the SEC from
time to time, which may supplement, modify, supersede, or update the factors listed in this document.
Macroeconomic Risks
Our business and operations, and the operations of our customers and suppliers, have been adversely impacted by the
COVID-19 pandemic.
The outbreak of COVID-19 was declared by the World Health Organization to be a “pandemic” and spread across the world,
including the United States and many countries where the Company sells its products or sources raw materials. Our
operations and financial performance have been negatively impacted by the pandemic, which caused a global slowdown of
economic activity and is expected to continue to cause disruptions in global supply chains, volatility and disruption of
financial markets from time to time and other potentially adverse consequences on our operations and financial position.
Because the severity, magnitude and duration of the impact of COVID-19 and its future economic consequences are
unknown, its impact on our future operations and financial performance cannot be fully determined. The ultimate impact of
COVID-19 on our operations and financial performance depends on many factors that are not within our control, including,
but not limited to, governmental, business and individuals’ actions that have been and continue to be taken in response to the
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pandemic (including restrictions on travel and transport and workforce pressures); the impact of outbreaks of new strains of
COVID-19 and actions taken in response on global and regional economies, travel and economic activity; general economic
uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth;
commodity prices; and vaccination activities.
We continue to experience adverse impacts on our business due to COVID-19, including lower productivity from cases in
our employees, and global supply chain disruption. As the impact of COVID-19 on the economy and our operations evolves,
we will continue to assess our liquidity position in relation to our anticipated future liquidity needs. Under the terms of our
Credit Agreement (as defined below), our borrowing availability is based on eligible accounts receivable and inventory,
which have been impacted and will continue to be impacted by the challenging economic environment discussed herein.
Additionally, conditions in the financial and credit markets also may limit the availability of funding or increase the cost of
funding, which could adversely affect our business, financial position and results of operations.
We are a smaller reporting company, and the reduced reporting requirements applicable to smaller reporting companies
may make our Common Stock less attractive to investors.
We are a “smaller reporting company” as defined in Section 12 of the Exchange Act. For as long as we continue to be a
smaller reporting company, we may take advantage of exemptions from various reporting requirements that are applicable to
public companies that are not smaller reporting companies, such as reduced disclosure obligations regarding executive
compensation in our annual and periodic reports and proxy statements. We will remain a smaller reporting company as long
as (i) our public float remains less than $250 million or (ii) our annual revenues are less than $100 million and we either have
no public float, or our public float is less than $700 million. Public float is measured for this purpose as of the last business
day of our most recently-completed second fiscal quarter, and annual revenues are measured as of the most recently
completed fiscal year for which audited financial statements are available. If some investors find our common stock less
attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more
volatile.
We are subject to risks associated with global economic and market factors.
Our results of operations are affected directly by the level of business activity of our customers and our suppliers, which in
turn is affected by global economic and market factors, including health epidemics, impacting the industries and markets that
we participate in. We are susceptible to macroeconomic downturns in the United States and abroad that may affect the
general economic climate, our performance and the demand of our customers. We may face significant challenges if
conditions in the financial markets deteriorate. There can be no assurance that global economic and market conditions will
not adversely impact our results of operations, cash flow or financial position in the future.
Existing free trade laws and regulations, such as the United States-Mexico-Canada Agreement, provide certain beneficial
duties and tariffs for qualifying imports and exports, subject to compliance with the applicable classification and other
requirements. Changes in laws or policies governing the terms of foreign trade, and in particularly increased trade
restrictions, tariffs or taxes on imports from countries where we sell products or purchase materials could have a material
adverse effect on our business and financial results. Given the uncertainty regarding the scope and duration of current,
proposed, or future imposed tariffs, we can provide no assurance that any strategies we implement to mitigate the impact of
such tariffs on the Company will be successful.
Commercial Risks
A substantial amount of our sales is derived from a limited number of customers.
Our five largest customers in the aggregate accounted for approximately 58% of net sales for the year ended December 31,
2022 and 47% of our net sales for each of the years ended December 31, 2021 and 2020. An adverse change in, or
termination of, the relationship with one or more of our customers or market segments could have a material adverse effect
on our results of operations.
Our business is very competitive, and increased competition could reduce our sales.
We compete with domestic and foreign producers of specialty steel products. In addition, many of the finished products sold
by our 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 us or our customers could indirectly adversely affect the demand for our semi-finished products.
Additionally, our 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 our field is intense and is
6
expected to continue to be so in the foreseeable future. A majority of our business is not covered under long term supply
contracts. There can be no assurance that we will be able to compete successfully in the future.
The demand for our products may be cyclical.
Demand for our products from our customers can be cyclical in nature and sensitive to various factors, including demand,
production schedules and other conditions in each of our end markets, fluctuations in inventory levels throughout the supply
chain, and general macroeconomic conditions. A significant adverse change in demand for any reason could have a material
adverse effect on our results of operations.
A substantial amount of our sales is derived from the aerospace industry.
Approximately 68% of our sales represented products sold to customers in the aerospace market in 2022. The aerospace
market is historically cyclical due to both external and internal market factors. These factors include general economic
conditions, supply chain fluctuations, diminished credit availability, airline profitability, demand for air travel, age of fleets,
varying fuel and labor costs, price competition, new technology development 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 prolonged downturn in the aerospace industry would adversely affect the demand for our products and/or the prices at
which we are able to sell our products, and our results of operations, business and financial condition could be materially
adversely affected. The continued market uncertainty regarding the continuing impacts of COVID-19 on the aerospace
business, has and could continue to adversely impact our results.
Our business may be harmed by failure to develop, commercialize, market and sell new applications and new products.
We believe that our alloys and metallurgical manufacturing expertise provide us with a competitive advantage over other
high-performance alloy producers. Our ability to maintain this competitive advantage depends on our ability to continue to
offer products that have equal or better performance characteristics than competing products at competitive prices. Our future
growth will depend, in part, on our ability to develop, commercialize and sell new products. If we are not successful in these
efforts, or if our new products and product enhancements do not adequately meet the requirements of the marketplace and
achieve market acceptance, our business could be adversely affected.
Our business requires continuing efforts to obtain new customer approvals on existing products and applications, which is a
stringent, difficult process subject to each customer’s varying approval methodology and preferences. If we are not successful
in these efforts, our business could be adversely affected.
We believe that our international sales and purchases are associated with various risks.
We conduct business with suppliers and customers in foreign countries which exposes us to risks associated with
international business activities, including effects of the United Kingdom’s withdrawal from membership in the European
Union (referred to as “Brexit”). We could be significantly impacted by these risks, which include the potential for volatile
economic and labor conditions, political instability, collecting accounts receivable and exchange rate fluctuations (which may
affect sales revenue to international customers and the margins on international sales when converted into U.S. dollars).
International sales approximated 5% of annual sales in 2022, and 7% of annual net sales in 2021 and 2020. An immaterial
portion of the international sales are denominated in foreign currencies.
7
Financial Risks
Our business may be harmed if we are unable to meet our debt service requirements or the covenants in our Credit
Agreement, or if interest rates increase.
We have debt upon which we are required to make scheduled interest and principal payments, and we may incur additional
debt in the future. A significant portion of our debt bears interest at variable rates that may increase in the future. A
significant increase in interest rates or disruption in the global financial markets may affect our ability to obtain financing or
to refinance existing debt on acceptable terms, if at all, and could increase the cost of our borrowings.
Our ability to satisfy our debt obligations will depend upon our future operating performance, which will be affected by
prevailing economic conditions in the markets that we serve and financial, business and other factors, many of which are
beyond our control. If we are unable to generate sufficient cash to service our debt or if interest rates increase, our results of
operations and financial condition could be adversely affected. Our Credit Agreement, which provides for a $105.0 million
senior secured revolving credit facility and a $15.0 million senior secured term loan facility, also requires us to comply with
certain covenants. Failure to comply with the covenants contained in the Credit Agreement could result in a default, which,
if not waived by our lenders, could substantially increase our borrowing costs and result in acceleration of our debt. As of
December 31, 2022, we were in compliance with the applicable covenants in our Credit Agreement.
Changes in tax rules and regulations, or interpretations thereof, may adversely affect our effective tax rates.
We are a U.S. based company with customers and suppliers in foreign countries. We import various raw materials used in our
production processes and we export goods to our foreign customers. The United States, the European Commission, countries
in the European Union and other countries where we do business have implemented and may consider further changes in
relevant tax, border tax, accounting and other laws, regulations and interpretations, that may unfavorably impact our effective
tax rate or result in other costs to us.
Our ability to recognize tax benefits on our existing net operating loss positions may be limited.
We have generated meaningful net operating loss carryforwards, tax credit carryforwards and other tax attributes
(collectively, the “Tax Benefits”), which potentially can be utilized in certain circumstances to reduce our future income tax
obligations. As of December 31, 2022, we had estimated U.S. federal net operating losses of approximately $25.8 million,
state net operating losses of approximately $11.0 million, U.S. federal tax credit carryforwards of approximately $7.0 million
and state tax credit carryforwards of approximately $0.4 million. Our ability to use our Tax Benefits would be substantially
limited if we were to experience an “ownership change,” as defined under Section 382 of the Internal Revenue Code (the
“Tax Code”). In general, a corporation would experience an ownership change if the percentage of the corporation’s stock
owned by one or more “5% shareholders,” as defined under Section 382 of the Tax Code, increases by more than 50
percentage points over their lowest ownership percentage within a rolling three-year period. On August 24, 2020, our Board
of Directors adopted a Tax Benefits Preservation Plan (the “Rights Agreement”) designed to protect the availability of our
Tax Benefits and the Rights Agreement was ratified by our shareholders on May 5, 2021. The Rights Agreement contains an
ownership trigger threshold of 4.95% and reduces the likelihood that changes in our investor base would limit our future use
of our Tax Benefits, which would significantly impair the value of such Tax Benefits. However, there is no guarantee that the
Rights Agreement will be effective in protecting our Tax Benefits. Further, if we continue to be unable to generate sufficient
taxable income, these Tax Benefits may expire unutilized, and we may not be able to recognize the benefits that could arise
from such Tax Benefits.
Human Capital Risks
Our business depends largely on our ability to attract and retain key personnel.
We depend on the continued service, availability and ability to attract skilled personnel, including members of our executive
management team, other management positions, and metallurgists, along with maintenance and production positions at
various levels. Our inability to attract and retain such people may adversely impact our ability to fill existing roles and
support growth. Attraction and retention of qualified personnel remains challenging as the labor market remains tight.
Further, the loss of key personnel could adversely affect our ability to perform until suitable replacements can be found.
Our business may be harmed by strikes or work stoppages.
At December 31, 2022, we had 475 employees, out of a total of 622, who were covered under collective bargaining
agreements with the USW expiring at various dates in 2023 to 2025. There can be no assurance that we will be successful in
8
timely concluding collective bargaining agreements with the USW to succeed the agreements that expire, in which case, we
may experience strikes or work stoppages that may have a material adverse impact on our results of operations.
Costs related to our participation in a multi-employer pension plan could increase significantly.
We participate in the Trust, a multi-employer defined-benefit pension plan. We make contributions to the Trust with respect
to all hourly and salaried employees associated with our Bridgeville facility. The trustees of the Trust have provided us with
the latest data available for the year ended December 31, 2021. As of that date, the Trust is not fully funded. Our contribution
rates could increase if the Trust is required to adopt a funding improvement plan or a rehabilitation plan as a result of funding
deficiencies in excess of specified levels, which may be due to poor performance of Trust investments or other factors, or as a
result of future wage and benefit agreements. In addition, if we choose to stop participating in the Trust, our contributions to
the Trust decline or the Trust is terminated, we may be required to pay the Trust an amount based on the underfunded status
of the Trust, referred to as a withdrawal liability. Changes to any of these factors could negatively impact our future results of
operations and cash flows to a material extent.
Operational Risks
Our business is subject to stringent environmental, health and safety regulations which may result in significant liabilities
and/or costs to maintain compliance.
Our operations and properties are subject to extensive and varied federal, state, local and international laws and regulations
relating to public health, the environment, pollution, and occupational safety and health. We have used, and currently use and
manufacture, substances that are considered hazardous or toxic under worker safety and health laws and regulations. We take
measures to control or eliminate the continuing risk associated with the environmental, health and safety issues, however we
could incur substantial fines and civil or criminal sanctions, cleanup costs, compliance investments and third-party property
or injury claims as a result of violations, or non-compliance related to these regulations affecting our facilities and operations.
We are dependent on the availability and price of raw materials and operating supplies.
We purchase carbon and stainless scrap metal and alloy additives, principally nickel, chrome, vanadium, molybdenum,
manganese and copper, for our melting operation. A 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,
or other conditions that impact the availability of our key raw materials and operating supplies, might disrupt supplies or
affect the prices of the raw materials. We maintain sales price surcharges on our products to help offset the impact of raw
material price fluctuations.
We do not maintain long-term fixed-price supply agreements with any of our raw material suppliers. If our supply of raw
materials were interrupted, we 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 our results of operations. In addition,
significant volatility in the price of our principal raw materials could adversely affect our financial results and there can be no
assurance that the raw material surcharge mechanism employed by us will completely offset immediate changes in our raw
material costs in a given period.
Our production processes also require consumable operating supplies. Significant volatility in the price of our consumable
operating supplies could adversely affect our financial results.
Our business requires substantial amounts of energy.
The manufacturing of specialty steel is an energy-intensive process and requires the ready availability of substantial amounts
of electricity and natural gas, for which we negotiate competitive supply agreements. While we believe that our energy
agreements allow us to compete effectively within the specialty steel industry, the potential for increased costs exists during
periods of high demand or supply disruptions. We have a sales price surcharge to help offset the cost fluctuations.
Our business may be harmed by failures on critical manufacturing equipment.
Our manufacturing processes are dependent upon certain critical pieces of specialty steel making equipment, including our
50-ton electric-arc furnace and AOD vessel, our ESR, VIM and VAR furnaces, our radial hydraulic forge and our 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 our operations would not be substantially curtailed, which may have a negative effect on our
financial results.
9
Our business subjects us to risk of litigation claims, as a routine matter, and this risk increases the potential for a loss that
might not be covered by insurance.
Litigation claims may relate to the conduct of our business, including claims relating to product liability, commercial
disputes, employment actions, employee benefits, compliance with domestic and federal laws and personal injury. Due to the
uncertainties of litigation, we might not prevail on claims made against us in the lawsuits that we currently face, and
additional claims may be made against us in the future. The outcome of litigation cannot be predicted with certainty, and
some of these lawsuits, claims or proceedings may be determined adversely to us. The resolution in any reporting period of
one or more of these matters could have a material adverse effect on our business.
If we are unable to protect our information technology infrastructure against service interruptions, data corruption, cyber-
based attacks or network security breaches, our operations could be disrupted.
We rely on information technology networks and systems to manage and support a variety of business activities, including
procurement and supply chain, engineering support, and manufacturing. Our information technology systems, some of which
are managed by third-parties, may be susceptible to the inability to continue to receive software updates and contractual
vendor support, damage, disruptions or shutdown due to failures during the process of upgrading or replacing software,
databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers,
telecommunications failures, user errors or catastrophic events. In addition, security breaches could result in unauthorized
disclosures of confidential information. If our information technology systems suffer severe damage, disruption or shutdown
and our business continuity plans do not effectively resolve the issues in a timely manner, our manufacturing process could
be disrupted resulting in late deliveries or even no deliveries if there is a total shutdown.
10
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
We own our Bridgeville, Pennsylvania facility, which consists of approximately 800,000 square feet of floor space and our
executive offices on approximately 77 acres. The Bridgeville facility contains melting, remelting, conditioning, rolling,
annealing, testing and various other processing equipment. Substantially all products shipped from the Bridgeville facility
are processed through its melt shop and universal rolling mill operations.
We own our North Jackson, Ohio facility, which consists of approximately 257,000 square feet of floor space on
approximately 110 acres. The North Jackson facility contains melting, remelting, forging, annealing and various other
processing operations. Our obligations under our Credit Agreement, which is more fully described under Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources,” are collateralized by a first lien on our real property in North Jackson, Ohio.
We own our Dunkirk, New York facility, which consists of approximately 680,000 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 five
rolling mills, a high temperature annealing facility and/or its round and shape bar finishing and testing equipment.
We own our Titusville, Pennsylvania 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.
Specialty steel production is a capital-intensive industry. We believe that our facilities and equipment are suitable for our
present manufacturing needs. We believe, however, that we will continue to require capital from time to time to add new
equipment and to repair or replace our existing equipment to remain competitive and to enable us to manufacture quality
products and provide delivery and other support service assurances to our customers.
ITEM 3.
LEGAL PROCEEDINGS
Information regarding the Company’s legal proceedings and other commitments and contingencies is set forth in Part II, Item
8, Financial Statements and Supplementary Data, Note 14, which is incorporated by reference into this Item 3.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
11
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
At December 31, 2022, a total of 9,049,748 shares of common stock, par value $0.001 per share, were issued and held by 89
holders of record. There were no shares of the issued common stock held in treasury at December 31, 2022. Our common
stock trades under the symbol “USAP” on the Nasdaq Global Select Market.
DIVIDENDS
We have never paid a cash dividend on our common stock. Our Credit Agreement does not permit the payment of cash
dividends on our common stock. Accordingly, we do not expect to pay a cash dividend on our common stock in the near
future.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable
12
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management Discussion and Analysis (“MD&A”) is intended to help the reader understand the consolidated
results of operations and financial condition of Universal Stainless & Alloy Products, Inc. and its wholly-owned subsidiaries
(collectively, “we,” “us,” “our,” or the “Company”). This MD&A should be read in conjunction with our consolidated
financial statements and accompanying notes included in this Form 10-K. When reviewing the discussion, you should keep in
mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risk
and uncertainties described under Item 1A “Risk Factors,” of this Form 10-K. These risks and uncertainties could cause
actual results to differ materially from those forecasted in forward-looking statements or implied by past results and trends.
Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we
encourage you to review the discussion of forward-looking statements under “Cautionary Statement for Purposes of the
“Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995,” at the beginning of this report. These
statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we
undertake no obligation to update or revise the statements in light of future developments. Unless otherwise specified, any
reference to a “year” is to the year ended December 31.
Overview
We manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool
steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold
rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to service
centers, forgers, rerollers and original equipment manufacturers. Our customers further process our products for use in a
variety of industries, including the aerospace, power generation, oil and gas, heavy equipment and general industrial markets.
We also perform conversion services on materials supplied by customers.
Our aerospace end market accounted for approximately 68% of our total net sales in 2022 and will continue to be a major
driver of our future results. Sales to our aerospace end market increased 50% compared to 2021. Sales to our power
generation, oil & gas and general industrial end markets also increased compared to 2021, while sales to our heavy
equipment end market decreased. Heavy equipment end market sales can fluctuate due to a variety of factors, including
production-line retooling of automobile manufacturers and inventory management by industry service centers, who are our
primary direct customers.
Sales of our premium products increased by nearly 50% in 2022 as well, and totaled $39.2 million for the year. Total
Company backlog at the end of 2022 was $287.9 million, a new record level, and premium products represented 35% of the
backlog at the end of the year. Our premium products have a higher selling price and higher margins than our other products
and are a key component of our growth strategy.
Our 2022 gross margin was 7.0% of net sales, improved from 5.1% gross margin in 2021. The liquid metal spill that occurred
in our Bridgeville, PA melt shop in April 2022 was a significant headwind to our results in the second quarter and throughout
the second half of 2022. The spill caused seven weeks of down time at the melt shop, which is the primary melt operation in
our product process, and disrupted production throughput for the remainder of the year. The total impact on costs of goods
sold in 2022 attributed to the spill was estimated at $5.4 million, which held back our gross margin and earnings
improvement versus 2021.
During 2022, we made significant progress on a strategic capital investment in our North Jackson, OH facility which expands
our remelt capacity for production of premium products, and we used $15 million to grow inventory due to higher prices of
our raw material and carrying costs per unit of work in process. Our order backlog and inventory levels as we enter 2023
position us well to take advantage of strong specialty metals demand in our largest end markets.
Our operating facilities are integrated, and therefore our chief operating decision maker (“CODM”) views the Company as
one business unit. Our CODM sets performance goals, assesses performance and makes decisions about resource allocations
on a consolidated basis. As a result of these factors, as well as the nature of the financial information available which is
reviewed by our CODM, we maintain one reportable segment.
COVID-19 Impacts
COVID-19 related challenges negatively impacted the efficiency of our operations from 2020 through 2022. These
challenges have impacted the Company’s backlog, end markets, overall operations, cash flows and financial results, and may
continue beyond 2022. The ultimate extent of the effects of COVID-19 on the Company, and the end markets we serve,
remains uncertain and will continue to depend on future developments.
13
Results of Operations
2022 Results Compared to 2021
For the years ended December
31,
(dollars in thousands, except per shipped ton information)
% of net
sales
Amount
2022
2021
Amount
% of net
sales
Dollar
Variance
%
variance
Total net sales
Cost of products sold
Gross margin
Selling, general and administrative
expenses
Operating loss
Interest expense
Deferred financing amortization
Gain on extinguishment of debt
Other income, net
Loss before income taxes
Benefit from income taxes
Net loss
Market Segment Information:
For the years ended December
31,
(dollars in thousands)
Net sales:
Service centers
Original equipment manufacturers
Rerollers
Forgers
Conversion services and other
Total net sales
Melt Type Information:
For the years ended December
31,
(dollars in thousands)
Net sales:
Specialty alloys
Premium alloys
Conversion services and other
Total net sales
$ 202,114
187,927
14,187
100.0% $ 155,934
147,963
93.0
7,971
7.0
100.0% $
94.9
5.1
46,180
39,964
6,216
29.6%
27.0
78.0
21,180
(6,993)
4,163
225
-
(684)
(10,697)
(2,624)
$ (8,073)
10.5
(3.5)
2.1
0.1
-
(0.3)
(5.3)
(1.3)
(4.0)% $
20,243
(12,272)
1,989
225
(10,000)
(445)
(4,041)
(3,283)
(758)
13.0
(7.9)
1.3
0.1
(6.4)
(0.3)
(2.6)
(2.1)
(0.5)% $ (7,315) 965.0%
937
4.6
43.0
5,279
2,174 109.3
-
-
10,000 NM
53.7
(6,656) 164.7
20.1
(239)
659
2022
2021
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
$ 144,955
17,230
19,824
17,568
2,537
$ 202,114
71.7% $ 110,404
15,011
8.5
17,058
9.8
11,835
8.7
1,626
1.3
100.0% $ 155,934
70.8% $
9.6
11.0
7.6
1.0
100.0% $
34,551
2,219
2,766
5,734
911
46,180
31.3%
14.8
16.2
48.4
56.0
29.6%
2022
2021
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
$ 160,352
39,225
2,537
$ 202,114
79.3% $ 127,885
26,423
19.4
1,626
1.3
100.0% $ 155,934
82.0% $
17.0
1.0
100.0% $
32,467
12,802
911
46,180
25.4%
48.5
56.0
29.6%
The majority of our products are sold to service centers rather than the ultimate end market customers. The end market
information in this Annual Report is our estimate based upon our knowledge of our customers and the grade of material sold
to them, which they will in-turn sell to the ultimate end market customer.
14
End Market Information:
For the years ended December
31,
(dollars in thousands)
Net sales:
Aerospace
Power generation
Oil and gas
Heavy equipment
General industrial, conversion
services and other
Total net sales
Net sales:
2022
2021
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
$ 137,489
6,117
17,981
27,138
68.0% $
3.0
9.0
13.4
91,546
4,634
15,107
34,010
58.7% $
3.0
9.7
21.8
45,943
1,483
2,874
50.2%
32.0
19.0
(6,872) (20.2)
13,389
$ 202,114
6.6
10,637
100.0% $ 155,934
6.8
100.0% $
2,752
46,180
25.9
29.6%
Net sales for the year ended December 31, 2022 increased $46.2 million, or 29.6%, compared to 2021. The increase in our
sales is primarily due to an increase in average selling prices. Our average selling prices increased due to our base price
increases, higher raw material surcharges, and higher mix of premium products and finished bar products in the current year.
Gross margin:
Our 2022 gross margin was 7.0% of net sales, improved from 5.1% in 2021. The margin improvement was primarily due to
higher activity levels and better operating leverage as we continued to recover from the impacts the COVID-19 pandemic had
on our end markets and supply chain. Gross margin in 2022 also included negative impacts of approximately $5.4 million in
total from the liquid metal spill that occurred in April 2022 at our Bridgeville, PA facility, partly offset by $3.6 million in
total benefit from the Aviation Manufacturing Jobs Program grant we were awarded during the year.
Selling, general and administrative expenses:
Our selling, general and administrative (“SG&A”) expenses consist primarily of employee costs including salaries, incentive
compensation, payroll taxes and benefit related costs, legal and accounting services, share compensation and insurance costs.
Our SG&A expenses increased by $0.9 million in 2022 due primarily to an increase in the cost of business insurance.
Interest expense and deferred financing amortization:
Our interest expense was $4.4 million in 2022 compared to $2.0 million in 2021 due primarily to higher interest rates, as the
majority of our debt is variable and fluctuates with market rates, and due partly to higher total average debt balances during
the current year.
Gain on extinguishment of debt
2021 included a book gain of $10.0 million recorded upon receipt of forgiveness of the Company’s PPP Term Note (as
defined below).
Other income:
Other income was $0.7 million in 2022 compared to $0.4 million in 2021. The increase was due to a higher gain on insurance
recoveries recorded in the current year. The 2022 insurance gain was related to the liquid metal spill that occurred in our
Bridgeville, PA melt shop in April 2022. Separate from the insurance gain, gross margin includes approximately a net $5.4
million negative impact in 2022 due to the spill.
Benefit from income taxes:
Our 2022 income tax benefit is $2.6 million compared to an income tax benefit of $3.3 million in 2021. The decrease in our
benefit from income taxes is due to a lower taxable loss in 2022 compared to the prior year, as our 2021 taxable loss does not
include the gain on PPP Term Note forgiveness.
15
Net loss:
We had a net loss of $8.1 million in 2022 compared to a net loss of $0.8 million in 2021. The main driver of the difference is
the PPP Term Note gain in the prior year. After removing the impact of the forgiveness gain, our net loss is improved versus
the prior year by approximately $2.7 million.
2021 Results Compared to 2020
For the years ended
December 31,
(dollars in thousands, except
per shipped ton information)
2021
2020
Total net sales
Cost of products sold
Gross margin
Selling, general and
administrative expenses
Operating loss
Interest expense
Deferred financing
amortization
Gain on extinguishment of
debt
Other income, net
Loss before income taxes
Benefit from income taxes
Net loss
Amount
$
155,934
147,963
7,971
% of net
sales
Amount
% of net
sales
Dollar
Variance
%
variance
100.0% $
94.9
5.1
179,731
182,387
(2,656)
100.0% $ (23,797)
(34,424)
101.5
10,627
(1.5)
(13.2)%
(18.9)
NM
20,243
(12,272)
1,989
13.0
(7.9)
1.3
19,752
(22,408)
2,784
11.0
(12.5)
1.5
491
10,136
(795)
2.5
45.2
(28.6)
225
0.1
225
0.1
-
-
(10,000)
(445)
(4,041)
(3,283)
(758)
$
-
(6.4)
(1,123)
(0.3)
(24,294)
(2.6)
(2.1)
(5,247)
(0.5)% $ (19,047)
-
(0.6)
(13.5)
(2.9)
(10.6)% $
(10,000)
678
20,253
(1,964)
18,289 (96.0)%
NM
60.4
83.4
(37.4)
Market Segment Information:
For the years ended
December 31,
(dollars in thousands)
2021
2020
Net sales:
Service centers
Original equipment
manufacturers
Rerollers
Forgers
Conversion services and
other
Total net sales
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
$
110,404
70.8% $
126,122
70.2% $ (15,718)
(12.5)%
15,011
17,058
11,835
1,626
155,934
$
9.6
11.0
7.6
1.0
100.0% $
20,783
15,928
14,244
11.5
8.9
7.9
(5,772)
1,130
(2,410)
(27.8)
7.1
(16.9)
2,654
179,731
1.5
(1,028)
100.0% $ (23,797)
(38.7)
(13.2)%
16
Melt Type Information:
For the years ended
December 31,
(dollars in thousands)
2021
2020
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
Net sales:
Specialty alloys
Premium alloys
Conversion services and
other
Total net sales
$
$
127,885
26,423
82.0% $
17.0
141,838
35,239
78.9% $ (13,953)
(8,816)
19.6
(9.8)%
(25.0)
1,626
155,934
1.0
100.0% $
2,654
179,731
1.5
(1,028)
100.0% $ (23,797)
(38.7)
(13.2)%
The majority of our products are sold to service centers rather than the ultimate end market customers. The end market
information in this Annual Report is our estimate based upon our knowledge of our customers and the grade of material sold
to them, which they will in-turn sell to the ultimate end market customer.
End Market Information:
For the years ended
December 31,
(dollars in thousands)
2021
2020
Amount
% of net
sales
Amount
% of net
sales
Dollar
variance
%
variance
Net sales:
Aerospace
Power generation
Oil and gas
Heavy equipment
General industrial,
conversion services and other
Total net sales
$
$
91,546
4,634
15,107
34,010
58.7% $
3.0
9.7
21.8
121,900
6,879
13,065
22,400
67.8% $ (30,354)
(2,245)
3.8
2,042
7.3
11,610
12.5
(24.9)%
(32.6)
15.6
51.8
10,637
155,934
6.8
100.0% $
15,487
179,731
8.6
(4,850)
100.0% $ (23,797)
(31.3)
(13.2)%
Net sales:
Net sales for the year ended December 31, 2021 decreased $23.8 million, or 13.2%, compared to 2020. The decrease in our
sales is primarily due to a decrease in shipment volume driven by lower business activity as a result of significant challenges
facing all our end markets caused primarily by the COVID-19 pandemic. The most significant impact on our business has
been the slowdown in the global commercial airline industry, which is the largest driver of the decline in sales for our
aerospace end market. Our average selling price also decreased due to a lower mix of premium products in 2021 compared
with 2020.
Gross margin:
Our 2021 gross margin was 5.1% of net sales, improved from a negative 1.5% gross margin in 2020. The negative margin in
2020 was primarily due to the impacts of the COVID-19 pandemic, including direct charges recorded to the Cost of products
sold as a result of low activity levels. Although low activity levels continued in 2021, the improvement in gross margin
reflects lower plant spending, improvements in our production costs, and increases in activity levels at our facilities during
2021 compared with the second half of 2020.
Selling, general and administrative expenses:
Our SG&A expenses consist primarily of employee costs including salaries, incentive compensation, payroll taxes and
benefit related costs, legal and accounting services, share compensation and insurance costs. Our SG&A expenses increased
by $0.5 million in 2021 due primarily to an increase in accruals for incentive compensation.
Interest expense and deferred financing amortization:
Our interest expense was $2.0 million in 2021 compared to $2.8 million in 2020 due to lower total average debt balances for
the majority of the current year, lower interest rates on our variable rate debt, and payoff of the higher-interest rate notes in
the first quarter of 2021.
17
Gain on extinguishment of debt
2021 included a book gain of $10.0 million recorded upon receipt of forgiveness of the Company’s PPP Term Note (as
defined below).
Other income:
Other income was $0.4 million in 2021 compared to $1.1 million in 2020. The decrease is related to lower insurance
recoveries during 2021.
Benefit from income taxes:
The 2021 income tax benefit is $3.3 million compared to an income tax benefit of $5.2 million in 2020. The difference is
primarily due to a lower taxable loss in 2021 compared to the prior year.
Net loss:
We had a net loss of $0.8 million in 2021 compared to a net loss of $19.0 million in 2020. The decrease in the net loss
reflects our better gross margin in 2021, plus the $10.0 million gain recorded on forgiveness of our PPP Term Note.
Liquidity and Capital Resources
Historically, we have financed our operations through cash provided by operating activities and borrowings on our credit
facilities. At December 31, 2022, we maintained approximately $24 million of remaining availability under our revolving
credit facility. We believe that our cash flows from continuing operations, as well as available borrowings under our credit
facility, are adequate to satisfy our working capital, capital expenditure requirements, and other contractual obligations for
the foreseeable future, including at least the next 12 months.
On October 19, 2022, we entered into an amendment to the Credit Agreement (the “Amendment”) effective September 30,
2022. The Amendment amended the Credit Agreement to, among other things, (i) increase the inventory sublimit maximum
used to determine borrowing availability under the Revolving Credit Facility from $75.0 million to $80.0 million through and
including March 31, 2023, subject to the overall borrowing availability maximum of $105.0 million under the Revolving
Credit Facility; (ii) allow the Company the election to use up to $5.0 million of collateral that otherwise would not be
available for the purposes of calculating compliance with its minimum borrowing availability requirements under the
Revolving Credit Facility through and including March 31, 2023; and (iii) replace the LIBOR benchmark interest rates in the
Credit Agreement with SOFR benchmark interest rates.
Net cash used in operating activities
During 2022, we used $8.9 million of cash in our operating activities. Net loss adjusted for non-cash expenses generated $9.9
million. We used $14.2 million in growth of our managed working capital, primarily driven by $15.1 million used to grow
our inventory in support of our record backlog. The inventory growth was a result of an increase in value, due to inflation in
the price of raw materials and other production costs, and due to a higher mix of premium product inventory at December 31,
2022. The increase in value is consistent with our increase in average selling price and higher premium product mix in our
order backlog. Total volume of inventory on hand decreased at December 31, 2022 compared with the prior year. We define
managed working capital as net accounts receivable plus net inventory, minus accounts payable and other current liabilities.
During 2021, we used $18.0 million of cash in our operating activities. Net loss adjusted for non-cash expenses generated
$6.4 million, while we used $24.9 million growing our managed working capital, defined as net accounts receivable plus net
inventory, minus accounts payable and other current liabilities. The primary component of working capital growth in 2021
was also cash used to grow inventory levels to support what was also a record backlog at the end of last year.
Net cash used in investing activities
Our capital spending was $12.1 million in 2022 compared to $11.1 million in 2021. The increase of $1.0 million in the
current year was driven by a strategic project to expand our premium product remelt capability and capacity.
Net cash provided by financing activities
During 2022, our financing activities provided $22.9 million of cash, primarily through net borrowings on our revolving
credit facility. We also executed a financing lease transaction in the fourth quarter to help fund our strategic capital
expenditures which included a $1.8 million sales and leaseback component, accounted for as a loan, and made payments on
existing financing leases and on our term loan within our Credit Agreement.
18
During 2021, our financing activities provided $29.0 million of cash. This primarily includes $46.1 million of proceeds from
the facilities provided by our Credit Agreement, partly offset by payoff of the $15.0 million North Jackson acquisition notes.
The financing activities included the impacts of amending our Credit Agreement in the first quarter of 2021. Proceeds from
the Term Loan (as defined below) and borrowings under our Revolving Credit Facility (as defined below) were used to pay
the $15.0 million in North Jackson acquisition facility in 2011, we issued $20.0 million in notes that matured during the first
quarter of 2021.
Raw materials and supplies
The cost of raw materials represents approximately 40% of the cost of products sold in 2022. The major raw materials used in
our operations include nickel, molybdenum, vanadium, chrome, iron and carbon scrap. The average price of substantially all
our major raw materials increased for 2022 compared to 2021; however, prices generally decreased in the second half of
2022 after reaching highs in April. Future raw material prices cannot be predicted with any degree of certainty.
We maintain sales price surcharge to mitigate the risk of substantial raw material cost fluctuations. The market values for
these raw materials and others continue to fluctuate based on supply and demand, market disruptions and other factors. Over
time, our surcharge will effectively offset changes in raw material costs; however, during a period of rising or falling prices
the timing will cause variation between reporting periods.
Credit Facility
On March 17, 2021, we entered into the Second Amended and Restated Revolving Credit, Term Loan and Security
Agreement (the “Credit Agreement”), with PNC Bank, National Association (“PNC Bank”), as administrative agent and co-
collateral agent, Bank of America, N.A., as co-collateral agent, the Lenders (as defined in the Credit Agreement) party
thereto from time to time and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement
replaces our prior Credit Agreement, and provides for a senior secured revolving credit facility in an aggregate principal
amount not to exceed $105.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in
the amount $15.0 million (together with the Revolving Credit Facility, the “Facilities”).
The Company was in compliance with all applicable covenants throughout 2022 and at December 31, 2022.
The Facilities, which expire on March 17, 2026 (the “Expiration Date”), are collateralized by a first lien on substantially all
of the assets of the Company and its subsidiaries, except that no real property is collateral under the Facilities other than
Company’s real property in North Jackson, Ohio.
Availability under the Credit Agreement is based on eligible accounts receivable and inventory. The Company must maintain
undrawn availability under the Credit Agreement of at least $11.0 million. That requirement can be overcome if the Company
maintains a fixed charge coverage ratio of not less than 1.10 to 1.0 measured on a rolling two-quarter basis and calculated in
accordance with the terms of the Credit Agreement.
The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit
Facility.
With respect to the Term Loan, the Company must pay quarterly installments of the principal of approximately $0.5 million,
plus accrued and unpaid interest, on the first day of each fiscal quarter beginning on June 30, 2021. To the extent not
previously paid, the Term Loan will become due and payable in full on the Expiration Date.
Amounts outstanding under the Facilities, at the Company’s option, will bear interest at either a base rate or a LIBOR (prior
to September 30, 2022) or a SOFR (after September 30, 2022) based rate, in either case calculated in accordance with the
terms of the Credit Agreement. Interest under the Credit Agreement is payable monthly. We elected to use the LIBOR and
SOFR based rate for the majority of the debt outstanding under the Facilities during 2022. At December 31, 2022, the SOFR
based rate was approximately 6.9% on our Revolving Credit Facility and 7.4% for the Term Loan.
At December 31, 2022 and 2021, we net had deferred financing costs related to the Credit Agreement of approximately $0.7
million and $0.9 million recorded to the consolidated balance sheet, respectively. We amortized $0.2 million of those costs
during each of the years ended December 31, 2022 and 2021.
Paycheck Protection Program Note
On April 16, 2020, the Company entered into a promissory note, dated April 15, 2020, with PNC Bank, National Association,
evidencing an unsecured loan with a principal amount of $10.0 million made to the Company pursuant to the Paycheck
Protection Program (the “PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The PPP Term Note is guaranteed by the United States Small Business Administration.
19
The PPP Term Note incurred interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. According
to the terms of the PPP Term Note, the Company would begin to make 18 equal monthly payments of principal and interest
in November 2020 with the final payment due in April 2022. The Company did not make any principal or interest payments
related to the PPP Term Note.
The proceeds could be used to maintain payroll or make certain covered interest payments, lease payments and utility
payments. Under the terms of the CARES Act, the Company was eligible for forgiveness for all or a portion of loan granted
under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for
payment of payroll costs and any payments of certain covered interest, lease and utility payments.
The Company applied for forgiveness of the PPP Term Note during the third quarter of 2020. In July 2021, PNC Bank
notified the Company that forgiveness of the note was granted by the United States Small Business Administration.
Accordingly, the PPP Term Note was forgiven in its entirety, including all related accrued interest. In the third quarter of
2021, we recognized forgiveness of the PPP Term Note and recorded a corresponding gain on extinguishment of debt in the
Consolidated Statement of Operations for the period.
Notes
In connection with the acquisition of the North Jackson facility in 2011, we issued $20.0 million in notes to the sellers of the
facility as partial consideration in the transaction.
On January 21, 2016, the Company entered into Amended and Restated Notes in the aggregate principal amount of $20.0
million (the “Notes”), each in favor of Gorbert Inc. (“Holder”). The Company’s obligations under the Notes were
collateralized by a second lien on the same assets of the Company that collateralize the obligations of the Company under the
Facilities. The Holder had the right to elect at any time on or prior to August 17, 2017 to convert all or any portion of the
outstanding principal amount of the Notes.
The Notes were originally scheduled to mature on March 17, 2019. In 2019, the Company extended the maturity date to
March 17, 2020 in accordance with the terms of the Notes. In 2020, the Company extended the maturity date to March 17,
2021 in accordance with the terms of the Notes. The Company made partial principal payments on the notes upon extension,
and an aggregate principal amount of $15.0 million remained outstanding at the 2021 maturity date. On March 17, 2021, the
Company paid the remaining principal balance and all applicable interest to settle the notes obligation.
The Notes had an applicable interest at a rate of 6.0% per year from August 17, 2017 until the time they were paid off. All
accrued and unpaid interest was payable quarterly in arrears on September 18, December 18, March 18 and June 18 of each
year.
Leases
The Company periodically enters into leases in its normal course of business. Operating lease liabilities and right-of-use
assets are recorded to the consolidated balance sheet at the present value of minimum lease payments. The assets are included
in Other long-term assets in the consolidated balance sheets and are amortized over the respective terms, which are five years
or less. The long-term component of the lease liability is recorded in Other long-term liabilities, net and the current
component is included in Other current liabilities.
The right-of-use assets and lease liabilities for finance leases are recorded at the present value of minimum lease payments.
The assets are included in Property, plant and equipment, net on the consolidated balance sheets and are depreciated over the
respective lease terms. The long-term component of the lease liability is included in Long-term debt and the current
component is included in Current portion of long-term debt.
The Company entered into three new operating lease agreements and four new finance lease agreements during 2022. This
includes the $5.2 million lease component of our new vaccum-arc remelting expansion financing arrangement, but excludes a
$1.8 million sale and leaseback component of that agreement. The $1.8 million is accounted for as a loan secured by the
related equipment, as it did not meet the criteria for sale accounting under Accounting Standards Codification section 842.
Share-Based Activity
We granted stock options and restricted stock units, and issued shares of our common stock to officers, employees, and non-
employee directors during 2022, 2021 and 2020 through our incentive compensation plans. Refer to Note 12 to our
consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data” for further information.
Contingent Items
Product Claims. We are subject to various claims and legal actions that arise in the normal course of conducting business.
There were no material product claims outstanding at December 31, 2022.
20
Environmental Matters. We, as well as other specialty metal manufacturers, are subject to demanding environmental
standards imposed by federal, state and local environmental laws and regulations. We are not aware of any environmental
condition that currently exists at any of our facilities that are probable or reasonably possible of having a material impact on
our results of operations or liquidity. We are aware of energy usage concerns relating to climate change; however, we are not
aware of any pending regulations that are expected to have a material impact on our results of operations or liquidity.
Legal Matters. From time to time, various lawsuits and claims have been or may be asserted against us relating to the
conduct of our business, including routine litigation relating to commercial and employment matters. The ultimate cost and
outcome of any litigation or claim cannot be predicted with certainty. Management believes, based on information presently
available, that the likelihood that the ultimate outcome of any such pending matter will have a material adverse effect on its
financial condition, or liquidity or a material impact to its results of operations is remote, although the resolution of one or
more of these matters may have a material adverse effect on its results of operations for the period in which the resolution
occurs.
Critical Accounting Estimates
The Company’s revenues are primarily composed of sales of products. Revenue from the sale of products is recognized
when the Company satisfies its performance obligation under a contract by transferring control of the promised product to its
customer, which in most cases coincides with shipment of the related product. Certain sales qualify for over-time revenue
recognition. Sales of certain specified product grades and shapes, and sales from conversion services, are recognized over-
time. The Company’s identification of and accounting for these sales is discussed further in Note 2 to our consolidated
financial statements included in Item 8, “Financial Statements and Supplementary Data.”
Management regularly monitors the ability to collect its unpaid sales invoices. The allowance for doubtful accounts includes
specific reserves for the value of outstanding invoices issued to customers that are deemed potentially not collectible.
Inventories are stated at the lower of cost or net realizable value. The cost of inventory is principally determined by the
weighted average cost method for material and operation costs. An inventory reserve is provided for material on hand for
which management believes cost exceeds net realizable value. We reserve for slow-moving inventory and inventory that is
being evaluated under our quality control process. The reserves are based upon management’s expected method of
disposition.
Property, Plant and Equipment (“PP&E”) is stated at historical cost or fair value at acquisition less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful lives of the assets for book purposes.
Depreciation for income tax purposes is computed using accelerated methods. Upon disposal, assets and related accumulated
depreciation are removed from the financial statements and differences between the net book value and proceeds from
disposal are generally included in cost of goods sold in the consolidated statement of operations. PP&E is 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. No impairment reserve was
necessary as of December 31, 2022, 2021 or 2020.
Deferred income taxes are provided for temporary differences between amounts of assets and liabilities for financial
reporting purposes and the basis of such assets and liabilities as measured by tax laws and regulations. Our deferred tax
assets include net operating loss carry forwards that can be used to offset taxable income in future periods and reduce income
taxes payable in those future periods. These deferred tax assets will expire, if unused, at various times beginning in 2027.
Deferred tax liabilities primarily relate to book / tax depreciation differences. 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 calculation for our share-based compensation expense involves several assumptions. Management believes each
assumption used in the valuation is reasonable because it considers the experience of the plan and reasonable expectations.
Management estimates volatility based on historical data, future expectations and the expected term of the share-based
compensation awards. The assumptions, however, involve inherent uncertainties. As a result, if other assumptions had been
used, share-based compensation expense could have varied.
21
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Prices for our raw materials and natural gas requirements are subject to frequent market fluctuations, and profit margins may
decline in the event market prices increase. Selling price increases and surcharges are utilized to offset raw material and
natural gas market price increases.
Raw material prices vary based on numerous factors, including quality, and are subject to frequent market fluctuations.
Future raw material prices cannot be predicted with any degree of certainty. We do not maintain any fixed-price long-term
agreements with any of our raw material suppliers.
We maintain a sales price surcharge on certain of our products to help offset the impact of raw material price fluctuations.
For certain products, the surcharge is calculated at the time of order entry, based on current raw material prices or prices at
the time of shipment. For certain finished products, the surcharge is calculated based on the monthly average raw material
prices two months prior to the promised ship date. While the material surcharge is designed to offset modest fluctuations in
raw material prices, it cannot 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 effect on our financial results and there can be no assurance that the
raw material surcharge will completely offset immediate changes in our raw material costs.
At December 31, 2022, we had $91.3 million of floating rate debt outstanding with interest rates between 6.8% and 9.0%.
Since the interest rate on floating rate debt changes with the short-term market rate of interest, we are exposed to the risk that
these interest rates may increase, raising our interest expense. Exclusive of any interest rate hedges, a hypothetical 1.0%
increase or decrease in our floating rate debt interest rates would unfavorably or favorably impact our annual pre-tax results
by approximately $0.9 million.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 358)
Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022, 2021 and 2020
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules
Schedule II – Valuation and Qualifying Accounts
Page
24
25
27
28
29
30
31
32
50
50
23
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. We conducted an assessment of the effectiveness of our
internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 Framework). Based on our
assessment, we believe that, as of December 31, 2022, our internal control over financial reporting is effective.
The effectiveness of internal control over financial reporting as of December 31, 2022 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.”
/s/ Dennis M. Oates
Dennis M. Oates
Chairman, President and Chief Executive Officer
/s/ Steven V. DiTommaso
Steven V. DiTommaso
Vice President and Chief Financial Officer
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Universal Stainless & Alloy Products, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Universal Stainless & Alloy Products, Inc. (the “Company”)
as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, cash flows, and
shareholders’ equity for each of the years in the three-year period ended December 31, 2022, and the related notes and schedules
(collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over
financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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, 2022 and 2021, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2022, 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, 2022, based on criteria established in Internal Control—Integrated Framework
(2013) issued by COSO.
Basis for Opinions
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 appearing under Item 8. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
25
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventory
Critical Audit Matter Description
As discussed in Notes 1 and 3 to the consolidated financial statements, the Company’s net inventory totaled approximately
$154 million as of December 31, 2022 and is stated at the lower of cost or net realizable value with cost principally determined
by the weighted average cost method. Such costs include the acquisition cost over the production period for raw materials,
including scrap, and supplies, direct labor and applied manufacturing overhead within the guidelines of normal operating
capacity. The Company establishes reserves based upon assessments of slow-moving inventory, the results of quality control
reviews, the determination of normal capacity levels in the manufacturing process, and whether the product is valued at the
lower of cost or net realizable value.
We identified auditing the valuation of inventory as a critical audit matter. The production cycle for a unit of inventory
generally lasts several months and involves the accumulation of different types of costs at various cost centers. The ultimate
cost of a unit in inventory may be subject to reductions related to abnormal production levels, scrap valuation and recovery,
achieving customer specifications, or changes in the market, customer needs, and commodity pricing. Additionally, for certain
new products, there is limited historical data for which to evaluate recoverability of the cost of the unit. The complexity
surrounding the production process and the high degree of estimation involved in assessing net realizable value results in
significant auditor judgment around auditing the valuation of inventory.
How the Critical Audit Matter Was Addressed in the Audit
We evaluated and tested: the design and operating effectiveness of the Company’s internal controls over the accumulation of
inventory costs, the calculation to support estimated scrap values within the inventory costing model, management’s assessment
of normal capacity levels and the calculation to establish an estimate of excess costs, the calculation of lower of cost or net
realizable value reserves and the calculation of slow-moving inventory. Our audit procedures involved testing the assumptions
significant to management’s inventory valuation assessment including plant capacity levels, expected selling prices, demand
forecasts, scrap values, and recovery percentages as well as the relevant underlying data.
/s/ Schneider Downs & Co., Inc.
Schneider Downs & Co., Inc.
We have served as the Company’s auditor since 2003.
Pittsburgh, Pennsylvania
February 24, 2023
26
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(dollars in thousands, except per share information)
Net sales
Cost of products sold
Gross margin
Selling, general and administrative expenses
Operating loss
Interest expense
Gain on extinguishment of debt
Other income, net
Loss before income taxes
Benefit from income taxes
Net loss
Basic loss per share
Diluted loss per share
Weighted average shares of common stock outstanding:
Basic
Diluted
$
$
$
$
2022
2021
2020
202,114
187,927
14,187
21,180
(6,993)
4,388
-
(684)
(10,697)
(2,624)
(8,073)
(0.90)
(0.90)
$
$
$
$
155,934
147,963
7,971
20,243
(12,272)
2,214
(10,000)
(445)
(4,041)
(3,283)
(758)
(0.09)
(0.09)
$
$
$
$
179,731
182,387
(2,656)
19,752
(22,408)
3,009
-
(1,123)
(24,294)
(5,247)
(19,047)
(2.16)
(2.16)
8,972,468
8,972,468
8,907,908
8,907,908
8,818,974
8,818,974
The accompanying notes are an integral part of these consolidated financial statements.
27
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31,
(dollars in thousands)
Net loss
Other comprehensive loss, net of tax:
Unrealized gain (loss) on derivatives, net of tax
2022
2021
2020
$
(8,073)
$
(758)
$
(19,047)
93
85
(14)
Comprehensive (loss) income
$
(7,980)
$
(673)
$
(19,061)
The accompanying notes are an integral part of these consolidated financial statements.
28
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
(dollars in thousands)
ASSETS
Current assets:
Cash
Accounts receivable (less allowance for doubtful accounts of $201)
Inventory, net
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income tax assets
Other long-term assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued employment costs
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Deferred income tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity:
Senior preferred stock, par value $0.001 per share; 1,980,000 shares authorized; zero
shares issued and outstanding
Common stock, par value $0.001 per share; 20,000,000 shares authorized; 9,049,748
and 8,938,091 shares issued, respectively
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
2022
2021
$
$
$
$
2,019
30,960
154,193
10,392
197,564
163,490
143
2,137
363,334
38,179
2,790
3,419
1,112
45,500
95,015
-
3,066
143,581
-
9
97,002
133
122,609
219,753
363,334
$
$
$
$
118
21,192
140,684
8,567
170,561
159,162
-
909
330,632
24,000
4,303
2,392
943
31,638
66,852
2,461
3,360
104,311
-
9
95,590
40
130,682
226,321
330,632
The accompanying notes are an integral part of these consolidated financial statements.
29
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(dollars in thousands)
Operating Activities:
Net loss
Adjustments for non-cash items:
Depreciation and amortization
Deferred income tax
Gain on extinguishment of debt
Share-based compensation expense
Changes in assets and liabilities:
Accounts receivable, net
Inventory, net
Accounts payable
Accrued employment costs
Income taxes
Other, net
Net cash (used in) provided by operating activities
Investing Activity:
Capital expenditures
Net cash used in investing activity
Financing Activities:
Borrowings under revolving credit facility
Payments on revolving credit facility
Proceeds from term loan facility
Proceeds from other financing transactions, net
Proceeds from Paycheck Protection Program Note
Payments on term loan facility, finance leases, and notes
Payments of financing costs
Issuance of common stock under share-based plans
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Supplemental Non-Cash Financing Activity:
Financing lease liability from remelt expansion (Note 6)
Supplemental Disclosure of Cash Flow Information:
Interest paid
Income taxes paid (refunded), net
2022
2021
2020
$
(8,073)
$
(758)
$
(19,047)
19,378
(2,695)
-
1,289
(9,768)
(15,078)
10,507
(1,513)
3
(2,986)
(8,936)
(12,096)
(12,096)
147,921
(124,373)
-
1,804
-
(2,412)
(130)
123
22,933
1,901
118
2,019
5,196
3,985
2
$
$
$
$
19,300
(3,288)
(10,000)
1,121
(3,091)
(30,986)
10,986
2,477
(3)
(3,727)
(17,969)
(11,105)
(11,105)
134,120
(96,602)
8,571
-
-
(16,715)
(539)
193
29,028
(46)
164
118
-
1,980
7
$
$
$
$
19,449
(5,231)
-
1,455
17,494
34,326
(25,282)
(1,983)
243
2,387
23,811
(9,157)
(9,157)
115,876
(136,877)
-
-
10,000
(3,809)
-
150
(14,660)
(6)
170
164
-
2,885
(213)
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
30
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common
shares
Common
Additional
paid-in
Accumulated
other
Retained
comprehensive Treasury
Treasury
(dollars in thousands)
outstanding
stock
capital
earnings
income
(loss)
shares
stock
Balance at December 31, 2019
Common stock issuance under
Employee Stock Purchase Plan
Share-based compensation
Net loss on derivative instruments
Treasury Stock retirement
Net loss
Balance at December 31, 2020
Common stock issuance under
Employee Stock Purchase Plan
Other Share-based plans
Share-based compensation
Net gain on derivative instruments
Net loss
Balance at December 31, 2021
Common stock issuance under
Employee Stock Purchase Plan
Other Share-based plans
Share-based compensation
Net gain on derivative instruments
Net loss
Balance at December 31, 2022
8,799,436
21,940
62,412
-
-
-
8,883,788
22,382
5,272
26,649
-
-
8,938,091
19,915
11,452
80,290
-
-
9,049,748
$
9
-
-
-
-
-
9
-
-
-
-
-
9
-
-
-
-
-
9
94,982
150,487
(31)
294,279
(2,311)
150
1,455
-
(2,311)
-
94,276
146
47
1,121
-
-
95,590
123
101
1,188
-
-
97,002
$
-
-
-
-
(19,047)
131,440
-
-
-
-
(758)
130,682
-
-
-
-
(8,073)
$ 122,609
$
-
-
(14)
-
-
(45)
-
-
-
(294,279)
-
-
-
-
-
2,311
-
-
-
-
-
85
-
40
-
-
-
93
-
133
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
31
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Significant Accounting Policies
Basis of Consolidation. The consolidated financial statements include the accounts of Universal Stainless & Alloy Products,
Inc. and its wholly-owned subsidiaries and variable interest entities (collectively, “we,” “us,” “our,” or the “Company”). All
intercompany accounts and transactions have been eliminated in consolidation. We have no interests in any unconsolidated
entity.
Use of Estimates. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles
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.
Concentration of Credit Risk. We limit our credit risk on accounts receivable by performing ongoing credit evaluations and,
when necessary, require letters of credit, guarantees or cash collateral. Our largest customer accounted for approximately
21%, 19% and 23% of our net sales for the years ended December 31, 2022, 2021 and 2020, respectively, and 12%, 7% and
8% of our total accounts receivable balance at December 31, 2022, 2021 and 2020, respectively. Our second largest customer
in each year accounted for approximately 18%, 10% and less than 10% of our net sales for the years ended December 31,
2022, 2021 and 2020, respectively, and 25%, 6%, and less than 5% of our total accounts receivable balance at December 31,
2022, 2021 and 2020, respectively. The higher percentage of accounts receivable made up by our second largest customer in
2022 is primarily due to timing, as sales to that customer during the year were highest in the fourth quarter.
Accounts Receivable and Allowance for Doubtful Accounts. Accounts receivable are presented net of the allowance for
doubtful accounts on our consolidated balance sheets. We market our products to a diverse customer base, primarily
throughout the United States. International sales approximated 5% of total net sales in 2022 and 7% in both 2021 and 2020.
The allowance for doubtful accounts includes specific reserves for the value of outstanding invoices issued to customers that
are deemed potentially not collectible. Receivables are charged-off to the allowance when they are deemed to be
uncollectible. There was no bad debt expense recorded for the years ended December 31, 2022, 2021 and 2020.
Inventories. Inventories are stated at the lower of cost or net realizable value with cost principally determined by the
weighted average cost method. Such costs include the acquisition cost for raw materials and operating supplies, direct labor
and applied manufacturing overhead within the guidelines of normal plant capacity. We reserve for slow-moving inventory
and inventory that is being evaluated under our quality control process. The reserves are based upon management’s expected
method of disposition. The net change in inventory reserves for the year ended December 31, 2022 was a decrease of $1.1
million. The net change for the year ended December 31, 2021 was an increase of $0.3 million, and the net change for the
year ended December 31, 2020 was an increase of $1.1 million.
Included in inventory are operating materials consisting of forge dies and production molds and rolls that are consumed over
their useful lives. During the years ended December 31, 2022, 2021 and 2020, we amortized these operating materials in the
amount of $1.6 million, $1.7 million and $1.7 million, respectively. This expense is recorded as a component of cost of
products sold on the consolidated statements of operations and included as a part of our total depreciation and amortization
on the consolidated statements of cash flows.
We experienced low activity levels at our production facilities during 2021 and 2020 caused primarily by the impacts of the
COVID-19 pandemic. As a result, $6.1 million of fixed overhead costs were not absorbed into inventory and charged directly
to expense during 2021, and $8.3 million of fixed overhead costs were not absorbed into inventory charged directly to
expense during 2020.
Government Assistance. We received an award under the Aviation Manufacturing Jobs Program during 2022 totaling
approximately $3.6 million. The entire amount of the award was earned during 2022 and recorded as a reduction to costs of
goods sold in the consolidated statement of operations. Approximately $1.8 million of cash was received during 2022 and the
remaining cash is expected in 2023. Accordingly, a receivable of $1.8 million was recorded within Other current assets on the
consolidated balance sheet.
Property, Plant and Equipment. Property, plant and equipment is recorded at cost or its fair value at acquisition date. No
depreciation is recognized on assets until they are placed in service. Assets which have been retired or disposed of are
removed from cost and accumulated depreciation accounts, with the gain or loss generally reflected in cost of goods sold on
the consolidated statements of operations.
Major equipment maintenance costs are capitalized as incurred and included in other current assets and other long-term
assets, as appropriate. These costs are amortized to cost of products sold within a 12 to 36 month period. Other maintenance
32
costs are expensed as incurred. Costs of improvements and renewals are capitalized. Our maintenance expense for the years
ended December 31, 2022, 2021 and 2020 was $21.6 million, $16.7 million and $15.9 million, respectively, which is
included as a component of cost of products sold.
Depreciation is 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 10 and 40 years, and the estimated useful lives of
machinery and equipment are between five and 39 years. Our total depreciation expense for the years ended December 31,
2022, 2021 and 2020 was $17.4 million, $17.3 million and $17.5 million, respectively, of which $16.8 million, $16.8 million
and $17.0 million, respectively, was included as a component of cost of products sold while the remainder was included in
selling, general and administrative expense.
Long-Lived Asset Impairment. Long-lived assets, including property, plant and equipment and intangible assets 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 the book value. Based on management’s
assessment of the carrying values of long-lived assets, no impairment reserve was necessary as of December 31, 2022, 2021
and 2020.
Deferred Financing Costs. Deferred financing costs are amortized up to the maturity date of the related financial instrument
using the straight-line method, which approximates the effective interest method. Deferred financing cost amortization for
each of the years ended December 31, 2022, 2021 and 2020 was $0.2 million and is included as a component of interest
expense and other financing costs on the consolidated statements of operations and included as part of total depreciation and
amortization on the consolidated statements of cash flows. At December 31, 2022 and 2021, we had $1.4 million and $1.5
million, respectively, of unamortized deferred financing costs included on our consolidated balance sheets as a reduction of
debt.
Revenue Recognition. The Company’s revenues are primarily composed of sales of products. Revenue from the sale of
products is recognized when the Company satisfies its performance obligations under a contract by transferring control of the
promised product to its customer (“point-in-time”). Sales of certain specified product grades and shapes, and sales from
conversion services, are recognized over-time. These sales qualify for over-time revenue recognition as the Company does
not produce an asset with alternative use when completing its performance obligations with regard to these items, and
maintains an enforceable right to payment in the event of contract termination.
Invoiced shipping and handling costs are also accounted for as revenue. Customer claims, which are not material, are
accounted for primarily as a reduction to gross sales after the matter has been researched and an acceptable resolution has
been reached.
Income Taxes. Deferred income taxes are provided for net operating losses, 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 consolidated financial
statements. We use 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 the asset will not be realized. Income tax penalties and interest are included in the
provision for income tax expense.
We evaluate the tax positions taken or expected to be taken in our tax returns. A tax position should only be recognized in the
financial statements if we determine 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. We believe there are no material uncertain tax positions at December 31, 2022,
2021 and 2020.
We recognize excess tax benefits as a result of the exercise of employee stock options within the consolidated statements of
operations.
Share-based Compensation Plans. We recognize compensation expense based on the grant-date fair value of the awards.
The fair value of the stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model, and
is recognized ratably over the service/vesting period of the award. The fair value of time-based restricted stock grants and
restricted stock units is calculated using the market value of the stock on the date of issuance, and is recognized ratably over
the service/vesting period of the award.
33
Net Loss per Common Share. Net loss per common share is computed by dividing net loss by the weighted-average number
of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the
weighted-average number of common shares outstanding plus all dilutive potential common shares outstanding during the
period.
Treasury Stock. We account for treasury stock under the cost method and include such shares as a reduction of total
stockholders’ equity. During 2020, we retired all treasury stock previously acquired.
Financial Instruments. Financial instruments held by us include cash, accounts receivable, and accounts payable and current
and long-term debt. The carrying value of cash, accounts receivable and accounts payable is considered to be representative
of fair value because of the short maturity of these instruments. Refer to Note 8 for fair value disclosures of our financial
instruments.
Segment Reporting. Our operating facilities are integrated, and therefore our chief operating decision maker (“CODM”)
views the Company as one business unit. Our CODM sets performance goals, assesses performance and makes decisions
about resource allocations on a consolidated basis. As a result of these factors, as well as the nature of the financial
information available which is reviewed by our CODM, we maintain one reportable segment.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic
740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic
740. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and
amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the
specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. An entity is permitted to early adopt the guidance, and we early adopted ASU
2019-12 as of January 1, 2020. The adoption did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB added a new impairment model (known as the current expected credit loss (CECL) model) that is
based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its
estimate of expected credit losses applicable to trade receivables, other receivables, contract assets and most debt instruments.
The model does not have a minimum threshold for recognition of impairment losses. The Company will adopt this guidance
in 2023 and it is not expected to have a material impact to the consolidated financial statements.
The Company considers the applicability and impact of all ASUs. Recently issued ASUs not listed were assessed and
determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.
Note 2: Revenue Recognition
The Company’s revenues are primarily comprised of sales of products. Revenue is recognized when the Company satisfies its
performance obligation under the contract by transferring the promised product to its customer that obtains control of the
product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the
Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately
identifiable from other promises in the contract and, therefore, not distinct.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products.
As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are
excluded from revenues. Invoiced shipping and handling costs are included in revenue.
The Company’s revenue is primarily from products transferred to customers at a point in time. The Company recognizes
revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes
to the customer upon shipment.
34
We have determined that there are certain customer agreements involving production of specified product grades and shapes
that require revenue to be recognized over time, in advance of shipment, due to there being no alternative use for these grades
and shapes without significant economic loss. Also, the Company maintains an enforceable right to payment including a
normal profit margin from the customer in the event of contract termination. Contract assets related to services performed,
not yet billed of $1.6 million and $2.2 million are included in Accounts Receivable in the Consolidated Balance Sheets at
December 31, 2022 and 2021, respectively.
The Company has elected the following practical expedients allowed under ASC Topic 606:
•
•
Shipping activities are not considered to be separate performance obligations.
Performance obligations are satisfied within one year from a given reporting date, and consequently we omit
disclosure of the transaction price apportioned to remaining performance obligations on open orders.
The following summarizes our revenue by melt type:
Net sales:
Specialty alloys
Premium alloys (A)
Conversion services and other sales
Total net sales
Twelve Months Ended
December 31,
2022
2021
$
$
160,352
39,225
2,537
202,114
$
127,885
26,423
1,626
155,934
(A) Premium alloys represent all vacuum induction melted (VIM) products.
Note 3: Inventory
The major classes of inventory are as follows:
December 31,
(dollars in thousands)
Raw materials and starting stock
Semi-finished and finished steel products
Operating materials
Gross inventory
Inventory reserves
Total inventory, net
Note 4: 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
Gross property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
2022
2021
14,890
129,534
13,220
157,644
(3,451)
154,193
$
$
12,263
122,396
10,620
145,279
(4,595)
140,684
2022
2021
8,090
53,334
315,165
12,602
389,191
(225,701)
163,490
$
$
8,066
52,866
301,271
5,138
367,341
(208,179)
159,162
$
$
$
$
35
Note 5: Long-Term Debt
Long-term debt consists of the following:
December 31,
(dollars in thousands)
Term loan
Revolving credit facility
Finance leases
Sale and leaseback financing liability
Less: current portion of long-term debt
Less: deferred financing costs
Long-term debt
Credit Facility
2022
2021
$
$
11,786
79,545
6,663
1,804
99,798
(3,419)
(1,364)
95,015
$
$
13,929
55,997
783
-
70,709
(2,392)
(1,465)
66,852
On March 17, 2021, we entered into the Second Amended and Restated Revolving Credit, Term Loan and Security
Agreement (the “Credit Agreement”), with PNC Bank, National Association (“PNC Bank”), as administrative agent and co-
collateral agent, Bank of America, N.A., as co-collateral agent, the Lenders (as defined in the Credit Agreement) party
thereto from time to time and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement
replaces our prior Credit Agreement, and provides for a senior secured revolving credit facility in an aggregate principal
amount not to exceed $105.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in
the amount $15.0 million (together with the Revolving Credit Facility, the “Facilities”).
The Company was in compliance with all applicable covenants throughout 2022 and at December 31, 2022.
The Facilities, which expire on March 17, 2026 (the “Expiration Date”), are collateralized by a first lien on substantially all
of the assets of the Company and its subsidiaries, except that no real property is collateral under the Facilities other than
Company’s real property in North Jackson, Ohio.
Availability under the Credit Agreement is based on eligible accounts receivable and inventory. The Company must maintain
undrawn availability under the Credit Agreement of at least $11.0 million. That requirement can be overcome if the Company
maintains a fixed charge coverage ratio of not less than 1.10 to 1.0 measured on a rolling two-quarter basis and calculated in
accordance with the terms of the Credit Agreement.
The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit
Facility.
With respect to the Term Loan, the Company must pay quarterly installments of the principal of approximately $0.5 million,
plus accrued and unpaid interest, on the first day of each fiscal quarter beginning on June 30, 2021. To the extent not
previously paid, the Term Loan will become due and payable in full on the Expiration Date.
Amounts outstanding under the Facilities, at the Company’s option, will bear interest at either a base rate or a LIBOR (prior
to September 30, 2022) or a SOFR (after September 30, 2022) based rate, in either case calculated in accordance with the
terms of the Credit Agreement. Interest under the Credit Agreement is payable monthly. We elected to use the LIBOR and
SOFR based rate for the majority of the debt outstanding under the Facilities during 2022. At December 31, 2022, the SOFR
based rate was approximately 6.9% on our Revolving Credit Facility and 7.4% for the Term Loan.
At December 31, 2022 and 2021, we net had deferred financing costs related to the Credit Agreement of approximately $0.7
million and $0.9 million recorded to the consolidated balance sheet, respectively. We amortized $0.2 million of those costs
during each of the years ended December 31, 2022 and 2021.
The aggregate annual principal payments due under our Credit Agreement at December 31, 2022, are as follows:
(dollars in thousands)
2023
2024
2025
2026
$
$
2,144
2,144
2,144
84,899
91,331
36
Paycheck Protection Program Term Note
On April 16, 2020, the Company entered into a promissory note, dated April 15, 2020, with PNC Bank, National Association,
evidencing an unsecured loan with a principal amount of $10.0 million made to the Company pursuant to the Paycheck
Protection Program (the “PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The PPP Term Note is guaranteed by the United States Small Business Administration.
Under the terms of the CARES Act, the Company was eligible for forgiveness for all or a portion of the PPP Term Note, with
such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs
and any payments of certain covered interest, lease and utility payments.
The Company applied for forgiveness of the PPP Term Note during the third quarter of 2020. In July 2021, PNC Bank
notified the Company that forgiveness of the note was granted by the United States Small Business Administration.
Accordingly, the PPP Term Note was forgiven in its entirety, including all related accrued interest. In the third quarter of
2021, we recognized forgiveness of the PPP Term Note and recorded a corresponding gain on extinguishment of debt in the
Consolidated Statement of Operations for the period.
The PPP Term Note incurred interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. The
Company did not make any principal or interest payments related to the PPP Term Note.
Notes
In connection with the acquisition of the North Jackson facility in 2011, we issued $20.0 million in Notes to the sellers of the
facility as partial consideration in the transaction.
On January 21, 2016, the Company entered into Amended and Restated Notes in the aggregate principal amount of $20.0
million (the “Notes”), each in favor of Gorbert Inc. (“Holder”). The Company’s obligations under the Notes were
collateralized by a second lien on the same assets of the Company that collateralize the obligations of the Company under the
Facilities. The Holder had the right to elect at any time on or prior to August 17, 2017 to convert all or any portion of the
outstanding principal amount of the Notes.
The Notes were originally scheduled to mature on March 17, 2019. In 2019, the Company extended the maturity date to
March 17, 2020 in accordance with the terms of the Notes. In 2020, the Company extended the maturity date to March 17,
2021 in accordance with the terms of the Notes. The Company made partial principal payments on the notes upon extension,
and an aggregate principal amount of $15.0 million remained outstanding at the 2021 maturity date. On March 17, 2021, the
Company paid the remaining principal balance and all applicable interest to settle the notes obligation.
The Notes had an applicable interest at a rate of 6.0% per year from August 17, 2017 until the time they were paid off. All
accrued and unpaid interest was payable quarterly in arrears on September 18, December 18, March 18 and June 18 of each
year.
Note 6: Leases
The Company periodically enters into leases in its normal course of business. At December 31, 2022, the leases in effect
were primarily related to mobile equipment and other production equipment. The term of our leases is generally 72 months or
less, and the leases do not have significant restrictions, covenants, or other nonstandard terms.
The Company entered into three new operating lease agreements and four new finance lease agreements during 2022. This
includes the $5.2 million lease component of our new VAR expansion financing arrangement, but excludes the $1.8 million
sale and leaseback component of that agreement. The $1.8 million is accounted for as a loan secured by the related
equipment, as it did not meet the criteria for sale accounting under Accounting Standards Codification section 842. The $1.8
million is excluded from the tables below, the current portion of which is approximately $0.2 million. The total $7.0 million
principal amount of that financing arrangement has a term of 72 months and an implicit interest rate of approximately 11.2%.
The weighted average interest rate on all our financing leases is approximately 10.0%.
Right-of-use assets and lease liabilities are recorded at the present value of minimum lease payments. For our operating
leases, the assets are included in Other long-term assets on the consolidated balance sheets and are amortized within
operating income over the respective lease terms. The long-term component of the lease liability is included in Other long-
term liabilities, net, and the current component is included in Other current liabilities. For our finance leases, the assets are
included in Property, plant and equipment, net on the consolidated balance sheets and are depreciated over the respective
lease terms which range from three to six years. The long-term component of the lease liability is included in Long-term debt
and the current component is included in Current portion of long-term debt.
As of December 31, 2022, future minimum lease payments applicable to operating and finance leases were as follows:
37
2023
2024
2025
2026
2027
2028
Total minimum lease payments
Less amounts representing interest
Present value of minimum lease payments
Less current obligations
Total long-term lease obligations, net
Weighted-average remaining lease term
$
$
$
$
Operating Leases
Finance Leases
266
170
36
21
2
-
495
(15)
480
(262)
218
$
$
$
$
1,696
1,678
1,566
1,439
1,392
1,085
8,856
(2,193)
6,663
(1,045)
5,618
2.1 years
5.3 years
Right-of-use assets recorded to the consolidated balance sheet at December 31, 2022 were $0.5 million for operating leases
and $9.2 million for finance leases. For the twelve months ended December 31, 2022, the amortization of finance lease assets
was $0.2 million and was included in cost of products sold in the Consolidated Statements of Operations.
Right-of-use assets recorded to the consolidated balance sheet at December 31, 2021 were $0.7 million for operating leases
and $0.5 million for finance leases. For the twelve months ended December 31, 2021, the amortization of finance lease assets
was $0.2 million and was included in cost of products sold in the Consolidated Statements of Operations.
The Company elected the practical expedient allowed under Leases (Topic 842) to exclude leases with a term of 12 months
or less from the calculation of our lease liabilities and right-of-use assets.
In determining the lease liability and corresponding right-of-use asset for each lease, the Company calculated the present
value of future lease payments using the interest rate implicit in the lease, when available, or the Company’s incremental
borrowing rate. The incremental borrowing rate was determined with reference to the interest rate applicable under our senior
secured revolving credit facility discussed in Note 5, as this facility is collateralized by a first lien on substantially all of the
assets of the Company and its term is similar to the term of our leases.
Note 7: New Markets Tax Credit Financing Transaction
On March 9, 2018, the Company entered into a New Markets Tax Credit financing program with PNC New Markets
Investment Partners, LLC and Boston Community Capital, Inc. related to a new mid-size bar cell capital project at the
Company’s Dunkirk, NY facility. PNC New Markets Investment Partners, LLC made a capital contribution and the
Company made a loan to Dunkirk Investment Fund, LLC (“Investment Fund”) under the qualified NMTC financing program.
Through this financing transaction, the Company secured low interest financing and the potential for other future benefits
related to its mid-size bar cell capital project.
In connection with the financing transaction, the Company loaned $6.7 million aggregate principal amount (“Leverage
Loan”) due in March 2048 to the Investment Fund. Additionally, PNC New Markets Investment Partners, LLC contributed
$3.5 million to the Investment Fund, and as such, PNC New Markets Investment Partners, LLC is entitled to substantially all
tax and other benefits derived from the NMTC. The Investment Fund then contributed the proceeds to a community
development entity (“CDE”). The CDE then loaned the funds, on similar terms, as the Leverage Loan to Dunkirk Specialty
Steel, LLC, a wholly-owned subsidiary of the Company. The CDE loan proceeds are restricted for use on the mid-size bar
cell capital project.
The NMTC is subject to 100 percent recapture for a period of seven years as provided in the Internal Revenue Code. The
Company is required to comply with various regulations and contractual provisions that apply to the NMTC arrangement.
Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, require
the Company to indemnify PNC New Markets Investment Partners, LLC for any loss or recapture of NMTCs related to the
financing until the Company’s obligation to deliver tax benefits is relieved. The Company does not anticipate any credit
recaptures will be required in connection with this arrangement.
As of December 31, 2022 and 2021, the Company recorded $2.8 million within Other long-term liabilities related to this
transaction, which represents the funds contributed to the Investment Fund by PNC New Markets Investment Partners, LLC.
38
This transaction also includes a put/call provision whereby the Company may be obligated or entitled to repurchase PNC
New Markets Investment Partners, LLC’s interest in the Investment Fund. The Company believes that PNC New Markets
Investment Partners, LLC will exercise the put option in March 2025, at the end of the recapture period, resulting in a gain of
$2.8 million at that time. The value attributed to the put/call is negligible.
Direct costs incurred in structuring this financing transaction totaled $0.7 million. These costs were deferred and are
amortized over the term of the loans.
The Company has determined that the Investment Fund and CDE are each a VIE, and that it is the primary beneficiary of
each VIE. This conclusion was reached based on the following:
•
•
•
•
The ongoing activities of the VIE, collecting and remitting interest and fees, and NMTC compliance were all
considered in the initial design and are not expected to significantly affect economic performance throughout the life
of the VIE;
Contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various
other guarantees to the Investment Fund and CDE;
PNC New Markets Investment Partners, LLC lacks a material interest in the underlying economics of the project;
and
The Company is obligated to absorb losses of the VIE.
Because the Company is the primary beneficiary of each VIE, these entities have been included in the Company’s
Consolidated Financial Statements.
Note 8: Fair Value Measurements
The fair value hierarchy has three levels based on the inputs used to determine fair value, which are as follows:
Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement
date.
Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for
identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are
observable for the asset or liability.
Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the assumptions utilize
management’s estimates of market participant assumptions.
The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to
measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based
on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a
particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific
to the asset or liability.
The carrying amounts of our cash, accounts receivable and accounts payable approximated fair value at December 31, 2022
and 2021 due to their short-term nature (Level 1). The fair value of the Term Loan and Revolver at December 31, 2022 and
2021 approximated the carrying amount as the interest rate is based upon floating short-term interest rates (Level 2).
Note 9: Derivatives and Hedging
The Company invoices certain customers in foreign currencies. In order to mitigate the risks associated with fluctuations in
exchange rates with the US Dollar, the Company enters into foreign exchange forward contracts for a portion of these sales
and has designated these contracts as cash flow hedges.
The notional value of these contracts was $4.3 million at December 31, 2022 and $2.5 million at December 31, 2021. The
Company recorded an unrealized gain in accumulated other comprehensive income of less than $0.1 million at December 31,
2022 and 2021 related to the contracts.
Additionally, the Company entered into a forward interest rate swap contract during 2020 to fix the interest rate on a portion
of its variable-rate debt from January 1, 2021 to June 30, 2023. The interest rate swap was designated as a cash flow hedge.
The notional amount of the contract was $16 million at its inception and reduces throughout the term. The notional amount
was $16 million at December 31, 2021 and $10 million at December 31, 2022. The Company recorded an unrealized gain in
39
accumulated other comprehensive income of $0.1 million at December 31, 2022 and of less than $0.1 million at December
31, 2021.
Note 10: Income Taxes
The income tax benefit attributable to continuing operations during the years ended December 31, 2022, 2021 and 2020 is as
follows:
Components of the benefit from income taxes are as follows:
For the years ended December 31,
(dollars in thousands)
Current provision (benefit)
Federal
State
Deferred benefit
Federal
State
Benefit from income taxes
2022
2021
2020
$
$
(1)
5
(2,566)
(62)
(2,624)
$
$
-
5
(3,376)
88
(3,283)
The income tax benefit reconciled to taxes computed at the statutory federal rate is as follows:
For the years ended December 31,
Tax benefit at statutory tax rate
State income taxes, net of federal tax benefit
Research and development tax credit
Valuation allowance
PPP loan forgiveness
Deferred tax adjustment for stock option forfeitures
Other adjustments to deferred taxes
Other
Benefit from income taxes
2022
2021
(2,246)
(53)
(557)
(19)
-
-
213
38
(2,624)
$
$
(848)
(153)
(814)
-
(2,100)
371
230
31
(3,283)
$
$
$
$
$
$
(16)
-
(5,154)
(77)
(5,247)
2020
(5,102)
(129)
(372)
-
-
234
45
77
(5,247)
We continue to record a full valuation allowance against our New York deferred tax assets due to the zero percent state
income tax rate for qualified manufacturers. We continue to record a partial valuation allowance against our Pennsylvania net
operating loss deferred tax asset due to annual usage limitations. We have determined that federal and other state deferred tax
assets are expected to be realized and have not recorded any additional valuation allowances.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our net
deferred taxes related to continuing operations are as follows:
December 31,
(dollars in thousands)
Noncurrent deferred income taxes:
Federal and state tax carryforwards
Inventory
Share-based compensation
Receivables
Accrued liabilities
Other
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Other
Total deferred tax liabilities
Total noncurrent deferred income taxes assets (liabilities)
2022
2021
$
$
$
$
$
12,863
960
1,592
43
147
1,930
17,535
16,852
540
17,392
143
$
$
$
$
$
13,358
1,310
1,745
51
168
4
16,636
18,459
638
19,097
(2,461)
40
We file a U.S. federal income tax return and various state income tax returns. For federal income tax purposes, we had $25.8
million and $29.2 million of net operating loss carryforwards at December 31, 2022 and 2021, respectively. The net operating
loss carryforwards begin to expire in 2035. In addition, we have credit carryforwards associated with our research and
development activities of $7.0 million and $6.4 million as of December 31, 2022 and 2021, respectively. The research and
development credit carryforwards begin to expire in 2030.
We have state net operating loss carryforwards of $11.0 million at December 31, 2022 and $11.1 million at December 31,
2021, and the related valuation allowances were approximately $0.2 million at each date. We also have state credit
carryforwards of $0.4 million at December 31, 2022 and December 31, 2021. The state net operating loss carryforwards
begin to expire in 2031. The state credit carryforwards begin to expire in 2027.
We are routinely under audit by federal or state authorities. Our federal tax returns are subject to examination by the IRS for
tax years after 2018. We are subject to examination by most state tax jurisdictions for tax years after 2018.
Note 11: Net Loss Per Common Share
The computation of basic and diluted net loss per common share for the years ended December 31, 2022, 2021 and 2020 is as
follows:
For the years ended December 31,
(dollars in thousands, except per share amounts)
Numerator:
Net loss
2022
2021
2020
$
(8,073) $
(758) $
(19,047)
Denominator:
Weighted average number of shares of common stock outstanding
Weighted average effect of dilutive share-based compensation
Diluted weighted average number of shares of common stock outstanding
8,972,468
-
8,972,468
8,907,908
-
8,907,908
8,818,974
-
8,818,974
Net loss per common share:
Basic earnings per share
Diluted earnings per share
$
$
(0.90) $
(0.90) $
(0.09) $
(0.09) $
(2.16)
(2.16)
There were 711,375, 645,050 and 776,025 options to purchase shares of common stock, at an average price of $18.25, $21.00
and $22.02 for the years ended December 31, 2022, 2021 and 2020, respectively, that were not included in the computation
of diluted net loss per common share because their respective exercise prices were greater than the average market price of
our common stock.
In addition, the calculation of diluted net loss per common share for the years ended December 31, 2022, 2021 and 2020,
respectively, excluded 17,143, 39,036 and 22,533 shares for the assumed exercise of stock options as a result of being in a net
loss position.
41
Note 12: Share-Based Plans
At December 31, 2022, we had the following share-based compensation plans:
Universal Stainless & Alloy Products, Inc. Amended and Restated 2017 Equity Incentive Plan
We maintain the Universal Stainless & Alloy Products, Inc. amended and restated 2017 Equity Incentive Plan (the “2017
Plan”), which was approved by our stockholders in May 2017 and subsequently amended and restated and approved by our
stockholders in May 2021 (the “Amended and Restated 2017 Plan”). The Amended and Restated 2017 Plan permits the
issuance of stock options, restricted stock, restricted stock units, other share-based awards and performance awards to
officers, employees, non-employee directors, and consultants and advisors to the Company. At its May 2017 inception, there
were 568,357 shares authorized for issuance under the 2017 Plan.
When initially adopted in May 2017, the 2017 Plan replaced the Omnibus Incentive Plan (“OIP”) which in turn replaced the
1994 Stock Incentive Plan (“SIP”). Any awards outstanding under the SIP and OIP will remain subject to and be paid under
the SIP and OIP, respectively. No new awards will be granted under either the SIP or OIP. Any shares subject to outstanding
awards under the OIP that cease to be subject to such issuance of stock after the adoption of the Amended and Restated 2017
Plan will increase the shares authorized under the Amended and Restated 2017 Plan. As of the adoption of the Amended and
Restated 2017 Plan, any shares subject to outstanding award under the SIP that cease to be subject to such issuance of stock
will increase the shares authorized under the Amended and Restated 2017 Plan.
As of May 5, 2021, 400,000 additional shares were approved and authorized for issuance under the Amended and Restated
2017 Plan. As of May 4, 2022, 500,000 additional shares were approved and authorized for issuance under the Amended and
Restated 2017 Plan. At December 31, 2022, there were 676,977 shares available for grant under the Amended and Restated
2017 Plan.
Omnibus Incentive Plan
We maintain the OIP which was approved by our stockholders in May 2012. The OIP permitted the issuance of stock
options, restricted stock, restricted stock units and other share-based awards to non-employee directors, other than those
directors owning more than 5% of our outstanding common stock, consultants, officers and other key employees who were
expected to contribute to our future growth and success. With the adoption of the 2017 Plan, no shares of common stock were
available for grant at December 31, 2022 under the OIP.
Stock Options
The price for options granted under the both the 2017 Plan and OIP 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 both the 2017 Plan and OIP 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.
A summary of stock option activity as of and for the year ended December 31, 2022 is presented below:
Non-vested stock
options outstanding
Weighted-
average
grant-date
fair value
4.60
4.60
5.17
16.02
4.17
Number
of shares
237,844
5,000
(91,160)
(10,475)
141,209
$
$
Stock options
outstanding
Weighted-
average
exercise
price
Weighted-
average
contractual
term (years)
Number
of shares
868,875
5,000
-
(58,150)
815,725
673,641
$
$
$
17.65
10.13
-
29.31
16.78
18.36
4.8
4.1
Outstanding at December 31, 2021
Stock options granted
Stock options vested
Stock options forfeited
Outstanding at December 31, 2022
Exercisable at December 31, 2022
Shares issued in connection with stock option exercises are issued from available authorized shares. There were no stock
option exercises during 2022, 2021 or 2020.
42
Based upon the closing stock price of $7.17 at December 31, 2022, the aggregate intrinsic value of outstanding stock options
was $0.1 million, of which less than half was related to options that were exercisable. Intrinsic value of stock options is
calculated as the amount by which the market price of our common stock exceeds the exercise price of the options.
The total fair value of stock options awards vested during the years ended December 31, 2022, 2021 and 2020, respectively,
was approximately $0.2 million, $0.7 million and $0.8 million.
Share-based compensation to employees and directors is recognized as compensation expense in the consolidated statements
of operations based on the stock options fair value on the measurement date, which is the date of the grant. The fair value of
the award 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.
Share-based compensation expense related to stock options totaled $0.5 million for the years ended December 31, 2022 and
2021. Share-based compensation expense related to stock options totaled $0.8 million for the year ended December 31, 2020.
Share-based compensation expense is recognized ratably over the requisite service period for all stock option awards.
Unrecognized share-based compensation expense related to non-vested stock option awards totaled $0.5 million at
December 31, 2022, and the weighted-average period over which this unrecognized expense was expected to be recognized
was 2.1 years.
The fair value of our stock options granted is estimated on the measurement date, which is the date of grant. We use the
Black-Scholes option-pricing model. Our determination of fair value of stock option awards on the date of grant is affected
by our stock price as well as assumptions regarding our expected stock price volatility over the term of the awards, and actual
and projected stock option exercise behaviors. The weighted-average grant-date fair value of stock options granted during the
years ended December 31, 2022, 2021 and 2020 was $4.60, $4.27 and $2.99, respectively.
The assumptions used to determine the fair value of stock options granted are detailed in the table below:
Risk-free interest rate
Dividend yield
Expected market price volatility
Weighted-average expected market price volatility
Expected term
2022
2021
1.75% 0.89% to 1.40%
0.0%
46.8%
46.8%
47% to 52%
49.0%
0.0%
2020
0.37% to 0.94%
0.0%
46% to 51%
49.2%
5.8 years
4.6 to 6.5 years
4.6 to 6.5 years
The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the
stock options at the grant date. No dividend yield was assumed because we do not pay cash dividends on common stock and
currently have 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 stock options) of our common 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.
43
Restricted Stock and Restricted Stock Units
A summary of restricted stock activity for the years ended December 31, 2022 and 2021 is presented below:
Number
of shares
Weighted-average
grant-date
fair value
Balance, December 31, 2020
Restricted stock granted in May
Restricted stock vested in May
Restricted stock granted in November
Restricted stock vested in October
Restricted stock vested in November
Restricted stock forfeited in 2021
Balance, December 31, 2021
Restricted stock vested in February
Restricted stock granted in April
Restricted stock granted in May
Restricted stock vested in May
Restricted stock vested in October
Restricted stock vested in November
Restricted stock forfeited in 2022
Balance, December 31, 2022
204,214
6,492
(6,493)
151,500
(2,622)
(6,500)
(14,380)
332,211
(9,530)
5,000
32,720
(6,388)
(2,622)
(61,750)
(10,500)
279,141
$
$
9.25
10.75
14.81
9.35
5.80
20.29
8.37
9.06
26.23
8.68
8.04
10.50
5.80
7.89
9.35
8.50
Share-based compensation expense related to restricted stock totaled $0.7 million for the year ended December 31, 2022 and
$0.5 million for each of the years ended 2021 and 2020.
During the years ended December 31, 2022 and 2021, we granted 37,720 and 157,992 time-based restricted stock units,
respectively, to certain employees and directors. The restricted stock units typically vest over four years for employees and
three years for directors. The fair value of the non-vested time-based restricted common stock awards was calculated using
the market value of the stock on the date of issuance.
As of December 31, 2022, total unrecognized compensation cost related to non-vested time-based restricted stock units was
$1.7 million. That cost is expected to be recognized over a weighted-average period of 2.5 years.
Employee Amended and Restated Stock Purchase Plan
Under the Amended and Restated 1996 Employee Stock Purchase Plan, as amended (the “Plan”), the Company is authorized
to issue up to 400,000 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 our 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, 2022, we have
issued 315,624 shares of common stock since the Plan’s inception.
Tax Benefits Preservation Plan
On August 24, 2020, the Company's Board of Directors (the “Board”) adopted the Tax Benefits Preservation Plan (“Rights
Agreement”), which is a stockholder rights plan designed to reduce the risk that the Company’s ability to use its net operating
loss carryforwards and certain other tax attributes to reduce potential future income tax obligations would become subject to
limitation by reason of the Company experiencing an “ownership change,” as defined in Section 382 of the Internal Revenue
Code of 1986. The Rights Agreement was ratified by the shareholders on an advisory, nonbinding basis at the May 2021
shareholder meeting.
Under the Rights Agreement, the Board declared a dividend of one right (a “Right”) for each of the Company’s issued and
outstanding shares of common stock, par value $0.001 per share (“Common Stock”). The dividend will be paid to the
stockholders of record at the close of business on September 3, 2020 (the “Record Date”). Each Right entitles the registered
holder, subject to the terms of the Rights Agreement (as defined below), to purchase from the Company one one-thousandth
of a share of the Company’s Series A Junior Participating Preferred Stock, par value $0.001 per share (the “Series A
Preferred Stock”), at a price of $35.00 (the “Exercise Price”), subject to certain adjustments. The fair value of the Rights was
not significant.
The Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public
announcement or filing that a person or group of affiliated or associated persons has become an “Acquiring Person,” which is
44
defined as a person or group of affiliated or associated persons that, at any time after the date of the Rights Agreement, has
acquired, or obtained the right to acquire, beneficial ownership of 4.95% or more of the Company’s outstanding shares of
Common Stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement
of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result
in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”).
The Rights, which are not exercisable until the Distribution Date, will expire at or prior to the earliest of (i) the close of
business on August 24, 2023; (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement; (iii) the time
at which the Rights are exchanged pursuant to the Rights Agreement; (iv) the time at which the Rights are terminated upon
the occurrence of certain mergers or other transactions approved in advance by the Board; and (v) the close of business on the
date set by the Board following a determination by the Board that (x) the Rights Agreement is no longer necessary or
desirable for the preservation of the Tax Benefits or (y) no Tax Benefits are available to be carried forward or are otherwise
available.
There were no issuances of Series A Preferred Stock during the twelve months ended December 31, 2022 or 2021.
Note 13: Retirement Plans
We have a defined contribution retirement plan (“401(k) plan”) that covers substantially all employees. Pursuant to the
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, we make periodic contributions to the 401(k) plan based on
service for the North Jackson, Titusville and Dunkirk hourly employees. We make periodic contributions for the salaried
employees at all locations based upon their service and their individual contribution to the 401(k) plan.
We also participate in the Steelworkers Pension Trust (the “Trust”), a multi-employer defined-benefit pension plan that is
open to all hourly and salary employees associated with the Bridgeville facility. We make periodic contributions to the Trust
based on hours worked at a fixed rate for each hourly employee, as determined by the collective bargaining agreement, and a
fixed monthly contribution on behalf of each salary employee. The trustees of the Trust have provided us with the latest data
available for the Trust year ended December 31, 2021. As of that date, the Trust is not fully funded. We could be held liable
to the Trust for our own obligations, as well as those of other employers, due to our participation in the Trust. Contribution
rates could increase if the Trust is required to adopt a funding improvement plan or a rehabilitation plan, if the performance
of the Trust assets do not meet expectations, or as a result of future collectively-bargained wage and benefit agreements. If
we choose to stop participating in the Trust, we may be required to pay the Trust an amount based on the underfunded status
of the Trust, referred to as a withdrawal liability.
The Pension Protection Act (PPA) defines a zone status for each trust. Trusts in the green zone are at least 80% funded,
trusts in the yellow zone are at least 65% funded, and trusts in the red zone are generally less than 65% funded. The Trust
recertified its zone status after using the extended amortization provisions as allowed by law. The Trust has not implemented
a funding improvement or rehabilitation plan, nor are such plans pending. Our contributions to the Trust have not exceeded
more than 5% of the total contributions to the Trust.
Trusts employer
identification
number /
plan number
23-6648508 / 499
Pension
fund
Trust
Funding plan Company contributions to the Trust
PPA zone status
2021
2022
Green
Green
pending /
implemented
No
(dollars in thousands)
2021
2022
2020
$
691
$
647
$
711
Surcharge
imposed
No
The total expense of all retirement plans for the years ended December 31, 2022, 2021 and 2020 was $1.6 million, $1.5
million and $1.8 million, respectively. The Company does not sponsor or participate in any other post-retirement benefit
plans.
Note 14: Commitments and Contingencies
From time to time, various lawsuits and claims have been or may be asserted against us relating to the conduct of our
business, including routine litigation relating to commercial and employment matters. The ultimate cost and outcome of any
litigation or claim cannot be predicted with certainty. Management believes, based on information presently available, that
the likelihood that the ultimate outcome of any such pending matter will have a material adverse effect on our financial
condition, or liquidity or a material impact to our results of operations is remote, although the resolution of one or more of
these matters may have a material adverse effect on our results of operations for the period in which the resolution occurs.
45
We, as well as other specialty metal manufacturers, are subject to demanding environmental standards imposed by federal,
state and local environmental laws and regulations. We are not aware of any environmental condition that currently exists at
any of our facilities that would cause a material adverse effect on our financial condition, results of operations or liquidity in
a particular future quarter or year.
Our 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, 2022, our total
purchase obligations were approximately $39.8 million, of which approximately $36.4 million will be due in 2023.
46
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
ITEM 9A.
Our management, including our Chairman, President and Chief Executive Officer and our Vice President and Chief Financial
Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our
Chairman, President and Chief Executive Officer and our Vice President and Chief Financial Officer concluded that, as of the
end of the fiscal year covered by this Annual Report on Form 10-K, our disclosure controls and procedures are effective.
Management’s Report on our 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. Our 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, 2022, there were no changes in our internal control over
financial reporting which have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C.
Not applicable.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
47
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 2023 Annual Meeting of
Stockholders (the “Proxy Statement”) to be sent to stockholders in connection with our 2023 Annual Meeting of
Stockholders, 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, our 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 our Proxy Statement, which will be filed with the SEC, pursuant
to Regulation 14A, not later than 120 days after the end of the 2022 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 Securities Exchange Act of 1934, as amended, to the extent
required to be included therein, is incorporated and made a part hereof by reference to the material appearing under the
heading “Delinquent Section 16(a) Reports” 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.”
We have 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 through our website at http://www.univstainless.com.
Information on our website is not part of this Annual Report on Form 10-K. We intend to timely disclose any amendment of
or waiver under the Code of Business Conduct and Ethics on our website and will retain such information on our 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 Proxy Statement is not to be deemed filed as part of this report for the purposes of this
Item.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 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 Proxy
Statement is not to be deemed filed as part of this report for the purposes of this Item.
Equity Compensation Plan Information:
Securities authorized for issuance under equity compensation plans at December 31, 2022 were as follows:
Plan Category
Equity compensation plans
approved by security holders
Total
Number of shares
to be issued upon
exercise of outstanding
options
Weighted-average
exercise price of
outstanding options
Number of shares
remaining available
for future issuance under
equity compensation
plans (A)
815,725
815,725
$
$
16.78
16.78
761,353
761,353
(A) Includes 676,977 shares of common stock not issued under the Universal Stainless & Alloy Products, Inc. 2017
Equity Incentive Plan and 84,376 available under the 1996 Employee Stock Purchase Plan, as amended.
48
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 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 Proxy Statement is not to be deemed filed as part of this report
for the purposes of this Item.
49
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, 2022, 2021 and 2020
(dollars in thousands)
Allowance for doubtful accounts:
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
Valuation allowance for deferred income taxes:
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
Balance at
beginning
of year
Charged to
costs and
expenses
Deductions/
net charge-
offs (A)
Balance at
end of year
$
$
201
203
295
412
412
2,105
-
-
-
-
-
-
$
-
(2)
(92)
(19) $
-
(1,693)
201
201
203
393
412
412
(A) Credits to the allowance for doubtful accounts represent the write-off of bad debts net of recoveries. Credits to the
valuation allowance for deferred income taxes represent adjustments to existing valuation allowances.
50
3) Exhibits
EXHIBIT
NUMBER
3.1
DESCRIPTION
Amended and Restated Certificate of Incorporation, as
amended
3.2
Third Amended and Restated By-laws of the Company
3.3
4.1
4.2
4.3
Certificate of Designations of Series A Junior Participating
Preferred Stock of Universal Stainless & Alloy Products, Inc.
Specimen Copy of Stock Certificate for shares of Common
Stock
Description of Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934
Tax Benefits Preservation Plan, date as of August 24, 2020,
by and between Universal Stainless & Alloy Products, Inc.
and Continental Stock Transfer & Trust Company, as Rights
Agent
10.1
Stockholders Agreement dated as of August 1, 1994, by and
among the Company and its existing stockholders
10.2
Omnibus Incentive Plan
10.3
10.4
10.5
10.6
Employment Agreement dated December 21, 2007 between
the Company and Dennis M. Oates
Employment Agreement dated April 21, 2008 between the
Company and Christopher M. Zimmer
Employment Agreement dated August 5, 2015 between the
Company and Graham McIntosh
Employment Agreement dated April 1, 2020, between the
Company and John J. Arminas
10.7
Form of notice of grant of restricted stock award.
10.8
Form of non-statutory stock option agreement.
10.9
Form of incentive stock option agreement.
Incorporated herein by reference to Exhibit 3.1 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2017.
Incorporated herein by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed
March 16, 2022.
Incorporated herein by reference to Exhibit 3.1 to
the Company’s Current Report on Form 8-K filed
August 24, 2020.
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 4.3 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020.
Incorporated herein by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K filed
August 24, 2020.
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2017.
Incorporated herein by reference to Appendix B of
the Company’s Definitive Proxy Statement dated
April 25, 2012.*
Incorporated herein by reference to Exhibit 10.7 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2007.*
Incorporated herein by reference to Exhibit 10.7 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2010.*
Incorporated herein by reference to Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2015.*
Incorporated herein by reference to Exhibit 10.7 to
the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020.*
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2012.*
Incorporated herein by reference to Exhibit 10.12
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2014.*
Incorporated herein by reference to Exhibit 10.13
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2014.*
51
EXHIBIT
NUMBER
10.10
10.11
DESCRIPTION
Form of non-statutory stock option agreement for eligible
directors.
Second Amended and Restated Revolving Credit, Term Loan
and Security Agreement, dated as of March 17, 2021, by and
among Universal Stainless & Alloy Products, Inc., the other
borrowers party thereto, the guarantors party thereto from
time to time, PNC Bank, National Association, as
administrative agent and co-collateral agent, Bank of
America, N.A., as co-collateral agent, the lenders party
thereto from time to time and PNC Capital Markets LLC, as
sole lead arranger and sole bookrunner.
Incorporated herein by reference to Exhibit 10.14
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2014.*
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed
on March 17, 2021.
10.12
Universal Stainless & Alloy Products, Inc. Amended and
Restated 1996 Employee Stock Purchase Plan.
10.13
Universal Stainless & Alloy Products, Inc. Amended and
Restated 2017 Equity Incentive Plan.
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed
on May 7, 2021.*
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed
on May 7, 2021.*
10.14
10.15
10.16
Form of Non-Employee Director Stock Option Award
Agreement (Universal Stainless & Alloy Products, Inc. 2017
Equity Incentive Plan)
Incorporated herein by reference to Exhibit 10.3 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
Form of Non-Employee Director RSU Award Agreement
(Universal Stainless & Alloy Products, Inc. 2017 Equity
Incentive Plan)
Incorporated herein by reference to Exhibit 10.4 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
Form of Employee Stock Option Award Agreement
(Universal Stainless & Alloy Products, Inc. 2017 Equity
Incentive Plan)
Incorporated herein by reference to Exhibit 10.6 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
10.17
Form of Employee RSU Award Agreement (Universal
Stainless & Alloy Products, Inc. 2017 Equity Incentive Plan)
Incorporated herein by reference to Exhibit 10.7 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
52
EXHIBIT
NUMBER
10.18
DESCRIPTION
Form of Retention Stock Option Award Agreement
(Universal Stainless & Alloy Products, Inc. 2017 Equity
Incentive Plan)
10.19
Form of Retention RSU Award Agreement (Universal
Stainless & Alloy Products, Inc. 2017 Equity Incentive Plan)
10.20
Amendment to the Employment Agreement dated December
21, 2007 between the Company and Dennis M. Oates
10.21
Amendment to the Employment Agreement dated April 21,
2008 between the Company and Christopher M. Zimmer
10.22
Employment Agreement dated April 15, 2019, between the
Company and Wendel L. Crosby
10.23
Employment Agreement dated April 1, 2022, between the
Company and Steven V. DiTommaso
10.24
Amendment to the Universal Stainless & Alloy Products,
Inc. Amended and Restated 2017 Equity Incentive Plan
First Amendment to Second Amended and Restated
Revolving Credit, Term Loan and Security Agreement, dated
as of October 19, 2022, by and among Universal Stainless &
Alloy Products, Inc., the other borrowers party thereto, the
guarantors party thereto from time to time, PNC Bank,
National Association, as administrative agent and co-
collateral agent, Bank of America, N.A., as co-collateral
agent, the lenders party thereto from time to time and PNC
Capital Markets LLC, as sol lead arranger and sole
bookrunner
Incorporated herein by reference to Exhibit 10.5 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
Incorporated herein by reference to Exhibit 10.8 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2017.
Incorporated herein by reference to Exhibit 10.22
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019.*
Incorporated herein by reference to Exhibit 10.24
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2019.*
Incorporated herein by reference to Exhibit 10.22
to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2021.*
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2022.*
Incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed
on May 6, 2022.*
Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on
October 24, 2022.
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
Filed herewith.
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
Filed herewith.
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.
53
10.25
21.1
23.1
24.1
31.1
31.2
32.1
Filed herewith.
EXHIBIT
NUMBER
101
DESCRIPTION
The following financial information from this Annual Report
on Form 10-K for the fiscal year ended December 31, 2022,
formatted in XBRL (Extensible Business Reporting
Language) and furnished electronically herewith: (i) the
Consolidated Balance Sheets as of December 31, 2022 and
2021 (ii) the Consolidated Statements of Operations for the
years ended December 31, 2022, 2021 and 2020; (iii) the
Consolidated Statements of Comprehensive Income; (iv) the
Consolidated Statements of Cash Flows for the years ended
December 31, 2022, 2021 and 2020; (v) the Consolidated
Statements of Shareholders’ Equity for the years ended
December 31, 2022, 2021 and 2020; and (vi) the Notes to
Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as inline XBRL). Contained in Exhibit 101.
* - Reflects management contract or compensatory plan or arrangement to be filed as an exhibit pursuant to Item 15(b) of this
Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
54
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 February 24, 2023.
SIGNATURES
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
By:
/s/ Dennis M. Oates
Dennis M. Oates
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
Each of the officers and directors of Universal Stainless & Alloy Products, Inc., whose signature appears below in so signing
also makes, constitutes and appoints Dennis M. Oates and John Arminas, 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
TITLE
DATE
/s/ Dennis M. Oates
Chairman, President, Chief Executive Officer and
February 24, 2023
Dennis M. Oates
Director (Principal Executive Officer)
/s/ Steven V. DiTommaso
Steven V. DiTommaso
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 24, 2023
/s/ Christopher L. Ayers
Christopher L. Ayers
Director
/s/ Judith L. Bacchus
Judith L. Bacchus
/s/ M. David Kornblatt
M. David Kornblatt
/s/ Udi Toledano
Udi Toledano
Director
Director
Director
February 24, 2023
February 24, 2023
February 24, 2023
February 24, 2023
55