Market Overview

Universal Stainless Reports Strong Second Quarter 2011 Results

EPS is $0.79 on Sales of $63.3 Million

Backlog Was $90 Million at Quarter-End

Pending Patriot Special Metals Acquisition Receives Early Termination of HSR Waiting Period

BRIDGEVILLE, Pa., July 29, 2011 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) reported today that sales for the second quarter of 2011 were $63.3 million, an increase of 23% from the second quarter of 2010 and up 6% from the 2011 first quarter.

Operating income for the second quarter of 2011 was $8.5 million, an increase of 32% from the second quarter of 2010 and 22% higher than the first quarter of 2011. Operating income as a percentage of sales, reached 13.4% for the 2011 second quarter. The Company noted that this operating margin is the highest achieved since 2007.

Net income for the second quarter of 2011 was $5.5 million, or $0.79 per diluted share, an increase of 33% from the second quarter of 2010 and 24% from the first quarter of 2011.

Net income for the first and second quarters of 2011 included pre-tax expenses of $0.4 million and $0.5 million, equivalent to $0.03 and $0.04 per diluted share, respectively, related to the Company's previously announced agreement to acquire the assets of Patriot Special Metals. The Company has received early termination of the Hart-Scott-Rodino Act waiting period for the acquisition and expects to close the transaction in the current third quarter.

Cash flow from operations for the second quarter of 2011 was $1.1 million while the Company continued to invest in working capital. Capital expenditures were $2.4 million for the quarter. At June 30, 2011, the Company had cash of $28.0 million and total debt of $9.4 million. 

Total shipment volume for the second quarter of 2011 increased 7% from the second quarter of 2010 but was 3% lower than the first quarter of 2011. Compared with the first quarter of 2011, volume shipped to the petrochemical market increased 3%, while volumes shipped to the aerospace, power generation and service center plate markets were down 6%, 14% and 4%, respectively. 

Chairman, President and CEO Dennis Oates commented: "Business continued at healthy levels in the second quarter despite some order entry slowing in June amidst declining nickel prices and lower surcharges. Backlog remained strong at $90 million, in line with both the first quarter and with the favorable outlook for our end markets, especially aerospace and petrochemical. Our consolidated operating margin continued to improve through a higher value sales mix and further cost reductions. Our investment in working capital and capital improvements also continued in the second quarter.

"We are proceeding towards the closing of the Patriot Special Metals acquisition, with early regulatory approval received and with financing as well as construction and installation of equipment on track. This acquisition is a major growth initiative for Universal that will broaden our production capabilities, expand our range in higher value products and enhance our ability to enter into attractive new market niches. We expect the acquisition to significantly strengthen our industry position and enable us to better serve clients and to capture substantial new market opportunity."

Segment Review

For the second quarter of 2011, the Universal Stainless & Alloy Products segment had sales of $60.5 million and operating income of $6.4 million, yielding an operating margin of 10.7% of sales. This compares with sales of $49.7 million and operating income of $6.8 million, or 13.7% of sales, in the second quarter of 2010. In the first quarter of 2011, sales were $55.2 million and operating income was $4.9 million, or 8.9% of sales.

Segment sales rose 22% from the second quarter of 2010 on a 13% increase in tons shipped mainly due to higher shipments to Dunkirk for finished product production. Segment sales rose 10% from the first quarter of 2011 on equivalent volume due to higher shipments to Dunkirk and service centers offset by lower shipments to rerollers.

Sales for the Dunkirk Specialty Steel segment reached a record $25.6 million for the second quarter of 2011 and operating income was $3.0 million, yielding an operating margin of 11.6% of sales. This compares with sales in the second quarter of 2010 of $13.3 million and operating income of $1.3 million, or 9.6% of sales. In the first quarter of 2011, sales were $22.0 million and operating income was $2.3 million, or 10.6% of sales.

Dunkirk's sales increased 93% from the second quarter of 2010 on a 67% increase in tons shipped mainly due to an 86% increase in shipments to service centers. Dunkirk's sales increased 16% from their previous record level in the first quarter of 2011 on an 11% increase in tons shipped, also mainly due to higher shipments to service centers.   

Webcast

A simultaneous webcast of the Company's conference call discussing the second quarter of 2011, scheduled at 10:00 a.m. (Eastern) today, will be available on the Company's website at www.univstainless.com, and thereafter archived on the website through the end of the third quarter of 2011. 

About Universal Stainless & Alloy Products, Inc.

Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, PA., manufactures and markets semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The Company's products are used in a variety of industries, including aerospace, power generation, petrochemical and heavy equipment manufacturing. Established in 1994, the Company, with its experience, technical expertise, and dedicated workforce, stands committed to providing the best quality, delivery, and service possible. More information is available at www.univstainless.com.

Forward-Looking Information Safe Harbor

Except for historical information contained herein, the statements in this release are forward-looking statements that are made pursuant to the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, the concentrated nature of the Company's customer base to date and the Company's dependence on its significant customers; the receipt, pricing and timing of future customer orders; changes in product mix; the limited number of raw material and energy suppliers and significant fluctuations that may occur in raw material and energy prices; risks related to property, plant and equipment,  including the Company's reliance on the continuing operation of critical manufacturing equipment; risks associated with labor matters; the Company's ongoing requirement for continued compliance with laws and regulations, including applicable safety and environmental regulations; the ultimate outcome of the Company's current and future litigation and matters; risks related to acquisitions that the Company may make; and the impact of various economic, credit and market risk uncertainties. Many of these factors are not within the Company's control and involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from any future performance suggested herein. Any unfavorable change in the foregoing or other factors could have a material adverse effect on the Company's business, financial condition and results of operations. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company's control. Certain of these risks and other risks are described in the Company's filings with the Securities and Exchange Commission (SEC) over the last 12 months, copies of which are available from the SEC or may be obtained upon request from the Company. 

         
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share information)
(Unaudited)
         
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
         
  For the Quarter Ended For the Six-Months Ended
  June 30, June 30,
  2011 2010 2011 2010
Net Sales        
Stainless steel   $ 48,253  $ 36,715  $ 95,051  $ 60,764
Tool steel   7,478  8,863  12,969  15,038
High-strength low alloy steel   4,771  2,985  9,485  4,997
High-temperature alloy steel   1,778  1,396  3,458  3,221
Conversion services   996  781  2,010  1,192
Scrap sales and other  42  551  156  758
Total net sales   63,318  51,291  123,129  85,970
Cost of products sold   51,146  41,594  100,159  71,354
Selling and administrative expenses   3,697  3,291  7,527  5,951
Operating income   8,475  6,406  15,443  8,665
Interest expense   (118)  (112)  (243)  (208)
Other income   143  1  143  1
Income before income taxes   8,500  6,295  15,343  8,458
Income tax provision   2,975  2,140  5,370  2,876
Net income   $ 5,525  $ 4,155  $ 9,973  $ 5,582
         
Earnings per common share – Basic   $ 0.81  $ 0.61  $ 1.46  $ 0.82
Earnings per common share – Diluted   $ 0.79  $ 0.61  $ 1.43  $ 0.82
         
Weighted average shares of Common Stock outstanding        
Basic   6,821,567  6,774,653  6,817,317  6,773,995
Diluted   6,995,361  6,853,372  6,973,785  6,847,078
         
MARKET SEGMENT INFORMATION
         
  For the Quarter Ended For the Six-Months Ended
  June 30, June 30,
  2011 2010 2011 2010
Net Sales        
Service centers   $ 34,305  $ 23,774  $ 62,933  $ 41,005
Forgers   11,925  13,127  23,795  23,111
Rerollers   10,672  8,892  23,477  12,552
Original equipment manufacturers   4,205  3,568  8,326  5,931
Wire redrawers   1,173  598  2,432  1,421
Conversion services  996  781  2,010  1,192
Scrap sales and other  42  551  156  758
Total net sales   $ 63,318  $ 51,291  $ 123,129  $ 85,970
         
Tons Shipped   12,591  11,795  25,604  20,250
         
BUSINESS SEGMENT RESULTS
         
Universal Stainless & Alloy Products Segment 
         
  For the Quarter Ended For the Six-Months Ended
  June 30, June 30,
  2011 2010 2011 2010
Net Sales        
Stainless steel   $ 28,657  $ 26,701  $ 59,234  $ 43,957
Tool steel   7,092  8,716  12,137  14,644
High-strength low alloy steel   688  935  1,154  1,384
High-temperature alloy steel   569  560  1,427  1,153
Conversion services  772  556  1,562  843
Scrap sales and other  21  578  129  713
   37,799  38,046  75,643  62,694
Intersegment   22,652  11,660  39,958  18,255
         
Total net sales   60,451  49,706  115,601  80,949
Material cost of sales   31,987  23,732  61,073  37,889
Operation cost of sales   19,709  16,937  38,300  30,311
Selling and administrative expenses   2,309  2,251  4,868  4,029
         
Operating income   $ 6,446  $ 6,786  $ 11,360  $ 8,720
         
Dunkirk Specialty Steel Segment 
         
  For the Quarter Ended For the Six-Months Ended
  June 30, June 30,
  2011 2010 2011 2010
Net Sales        
Stainless steel   $ 19,596  $ 10,014  $ 35,817  $ 16,807
Tool steel   386  147  832  394
High-strength low alloy steel   4,083  2,050  8,331  3,613
High-temperature alloy steel   1,209  836  2,031  2,068
Conversion services   224  225  448  349
Scrap sales and other  21  (27)  27  45
   25,519  13,245  47,486  23,276
Intersegment   78  46  92  77
         
Total net sales   25,597  13,291  47,578  23,353
Material cost of sales   15,673  7,232  29,017  12,818
Operation cost of sales   5,561  3,741  10,602  7,010
Selling and administrative expenses   1,388  1,040  2,659  1,922
         
Operating income   $ 2,975  $ 1,278  $ 5,300  $ 1,603
     
 CONDENSED CONSOLIDATED BALANCE SHEETS
     
  June 30, December 31,
  2011 2010
Assets    
     
Cash and cash equivalents   $ 28,034  $ 34,400
Accounts receivable, net  32,966  29,273
Inventory, net   83,118  69,710
Other current assets   7,571  5,661
     
Total current assets   151,689  139,044
Property, plant and equipment, net   73,275  71,581
Other assets   1,457  1,499
     
Total assets   $ 226,421  $ 212,124
     
Liabilities and Stockholders' Equity    
     
Accounts payable   $ 23,014  $ 20,022
Accrued employment costs   4,870  5,488
Current portion of long-term debt   2,694  2,833
Accrued income tax   616  47
Other current liabilities   990  558
     
Total current liabilities   32,184  28,948
Long-term debt   6,713  7,990
Deferred taxes   16,387  15,276
Other long-term liabilities   246  287
     
Total liabilities   55,530  52,501
Stockholders' equity   170,891  159,623
     
Total liabilities and stockholders' equity   $ 226,421  $ 212,124
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
     
  For the Six-Months Ended
  June 30,
  2011 2010
   
Cash flows from operating activities:    
Net income   $ 9,973  $ 5,582
Adjustments to reconcile to net income to net cash used in operating activities:     
Depreciation and amortization   2,931  2,666
Deferred income tax   (211)  171
Stock-based compensation expense, net   745  561
Changes in assets and liabilities:     
Accounts receivable, net   (3,693)  (13,365)
Inventory, net   (13,408)  (14,326)
Trade accounts payable   2,992  6,624
Accrued employment costs   (618)  3,363
Income taxes   743  5,211
Other, net   (252)  (92)
     
Net cash used in operating activities   (798)  (3,605)
     
Cash flow from investing activities:    
Capital expenditures   (4,616)  (3,421)
Proceeds from sale of fixed assets   --   17
     
Net cash used in investing activities   (4,616)  (3,404)
     
Cash flows from financing activities:    
Long-term debt repayments   (1,416)  (808)
Proceeds from the issuance of common stock   404  70
State grant funding the purchase of new equipment   --   500
Tax benefit from stock-based payment arrangements   60  8
     
Net cash used in financing activities   (952)  (230)
     
Net decrease in cash and cash equivalents   (6,366)  (7,239)
Cash and cash equivalents at beginning of period   34,400  41,615
     
Cash and cash equivalents at end of period   $ 28,034  $ 34,376
CONTACT: Dennis Oates Chairman, President and CEO (412) 257-7609 Douglas McSorley VP Finance, CFO and Treasurer (412) 257-7606 June Filingeri President Comm-Partners LLC (203) 972-0186

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