[GRAPHIC OMITTED][GRAPHIC OMITTED]
CONTACTS: Richard M. Ubinger June Filingeri
Vice President of Finance, President
Chief Financial Officer and Treasurer Comm-Partners LLC
(412) 257-7606 (203) 972-0186
FOR IMMEDIATE RELEASE
- ---------------------
UNIVERSAL STAINLESS REPORTS THIRD QUARTER 2007 RESULTS
- DILUTED EPS IS $0.81 ON SALES OF $62 MILLION -
BRIDGEVILLE, PA, OCTOBER 23, 2007 - UNIVERSAL STAINLESS & ALLOY
PRODUCTS, INC. (NASDAQ: USAP) reported today that sales for the third quarter of
2007 rose 13% to $62.0 million compared with $55.1 million in the third quarter
of 2006. Net income for the 2007 third quarter was $5.5 million, or $0.81 per
diluted share, compared with $5.7 million, or $0.86 per diluted share in the
third quarter of 2006.
The 2007 third quarter results included a charge of $1.4 million,
equivalent to $0.14 per diluted share, for an increase to the Company's LCM
(Lower of Cost or Market) resrve mainly due to a continued decline in nickel
prices in the quarter. This was offset by an estimated FIFO (First-In First-Out
inventory accounting method) benefit of $1.5 million, equivalent to $0.15 per
diluted share, at the Dunkirk segment. The estimated FIFO gain in the third
quarter of 2006 was $0.5 million, equivalent to $0.05 per diluted share. The
Company noted that it has adjusted its 2007 estimated annual income tax rate to
34.0% from 35.0% based on the federal and state income tax returns filed in
September 2007. The cumulative effect of the estimated change in the annual
income tax rate was equivalent to $0.04 per diluted share in the 2007 third
quarter. The impact of this change in comparison to the 2006 third quarter was
equivalent to $0.06 per diluted share. Net income for the 2006 third quarter has
been adjusted for the retrospective application of an accounting pronouncement
as detailed in the financial tables.
Sales for the third quarter of 2007 exceeded the Company's forecasted
range of $52 to $57 million and diluted EPS was within the expected range of
$0.77 to $0.82.
For the first nine months of 2007, sales rose 22% to $180.3 million and
net income increased 27% to $18.1 million, or $2.67 per diluted share, compared
to the same period of 2006.
USAP REPORTS RESULTS FOR 2007 THIRD QUARTER - PAGE 2 -
Chairman and CEO Mac McAninch commented: "We are pleased with our
performance in the third quarter, which included year-over-year sales growth to
each of our end markets, with the exception of petrochemical, where sales rose
sequentially. We are benefiting from the ongoing strength of our markets, the
capital investments we have continued to make, and our expanded focus on
operational improvement and customer satisfaction."
Mr. McAninch continued: "Our progress in the third quarter was achieved
despite industry crosscurrents created by the turbulence in the price of nickel
and mixed economic indicators. These conditions have led to restrained demand
from service centers. Our fourth quarter forecast reflects these conditions, as
well as the normal conservative order patterns at year-end."
Mr. McAninch concluded: "As we look to 2008, we remain as positive as
ever about the prospects within each of our end markets. We expect aerospace and
power generation demand to remain very strong for the next several years. The
high price of oil would appear to bode well for petrochemical demand and the
heavy equipment market should continue to benefit from global growth. We plan to
make further capital investments that will enable us to capitalize on our market
opportunities, better serve our customers and drive our growth to new levels."
SEGMENT REVIEW
- --------------
In the third quarter of 2007, the UNIVERSAL STAINLESS & ALLOY PRODUCTS
SEGMENT had sales of $55.9 million and operating income of $4.2 million,
yielding an operating margin of 8%. This included a charge of $772,000 for the
aforementioned LCM reserve attributable to the segment. In the third quarter of
2006, sales were $47.2 million and operating income was $4.1 million, or 9% of
sales. In the second quarter of 2007, sales were $55.1 million and operating
income was $5.8 million, or 11% of sales. This included $1.3 million of costs
related to a legal settlement and a portion of an inventory adjustment mainly
due to increased LCM reserves resulting from a sharp decline in nickel prices at
the end of the second quarter.
The 19% increase in sales from the 2006 third quarter reflected a 30%
increase in sales to forgers, a 25% increase in sales of tool steel plate to
service centers, and an 82% increase in sales of special shapes to OEMs. It also
included a 30% increase in shipments to the Dunkirk operation. Results were
aided by the addition of a seventh vacuum-arc remelt (VAR) furnace, which became
operational in January of 2007, and by surcharges because of higher nickel
prices at the beginning of the quarter. Changes in the price of nickel affected
operating margin comparisons with both the third quarter of 2006 and the second
quarter of 2007. There was also a shift in product mix compared with the second
quarter of 2007, with sales of reroll products up 18%, while sales of bar
products to service centers were down 27%.
USAP REPORTS RESULTS FOR 2007 THIRD QUARTER - PAGE 3 -
The DUNKIRK SPECIALTY STEEL SEGMENT reported sales of $21.3 million and
operating income of $3.0 million for the third quarter of 2007, resulting in an
operating margin of 14%. The operating income included the LCM charge
attributable to the segment totaling $635,000, which was more than offset by the
estimated $1.5 million FIFO benefit from the timing of surcharges and the
changing price of nickel. In the third quarter of 2006, sales were $19.8 million
and operating income was $3.8 million, or 19% of sales, and included an
estimated FIFO benefit of $0.5 million. In the second quarter of 2007, sales
were also $21.3 million, while operating income was $3.7 million, or 17% of
sales, and included $492,000 of costs related to the second quarter inventory
adjustment attributable to the segment offset by an estimated $1.2 million FIFO
benefit.
Dunkirk's 7% increase in sales over the 2006 third quarter included a
27% increase in sales to service centers mainly of bar products, which more than
offset lower sales of rod/wire products to redrawers
THE COMPANY NOTED THAT IT IS CURRENTLY NEGOTIATING A NEW COLLECTIVE
BARGAINING AGREEMENT THAT COVERS THE HOURLY EMPLOYEES AT ITS DUNKIRK FACILITY.
THE CURRENT AGREEMENT EXPIRES ON OCTOBER 31, 2007.
BUSINESS OUTLOOK
- ----------------
The following statements are based on the Company's current expectations. These
statements are forward-looking, and actual results may differ materially.
The Company estimates that fourth quarter 2007 sales will range from
$45 to $50 million and that diluted EPS will range from $0.60 to $0.65. This
compares with sales of $55.8 million and adjusted diluted EPS of $0.94, in the
fourth quarter of 2006.
The following factors were considered in developing these estimates:
o The Company's total backlog at September 30, 2007 was approximately $88
million compared to $103 million at June 30, 2007, mainly reflecting the
reduced order levels from service centers and the effect of lower nickel
costs on sales prices. These factors also led to lower inventory levels in
the third quarter of 2007, which had the effect of increasing cash flow
from operations to a record $15.4 million and free cash flow (cash from
operations minus capital expenditures) to $11.8 million, equivalent to
$1.75 per diluted share.
o The EPS forecast for the fourth quarter of 2007 does not assume any FIFO
benefit due to the decline in the market value of nickel. The FIFO benefit
in the fourth quarter of 2006 was approximately $1.1 million, equivalent to
$0.11 per diluted share.
o Sales from the Dunkirk Specialty Steel segment are expected to approximate
$19 million in the fourth quarter of 2007.
USAP REPORTS RESULTS FOR 2007 THIRD QUARTER - PAGE 4 -
WEBCAST
- -------
A simultaneous Webcast of the Company's conference call discussing the
third quarter of 2007 and the fourth quarter outlook, 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. A telephone
replay of the conference call will be available beginning at 12:00 noon
(Eastern) today and continuing through October 30th. It can be accessed by
dialing 706-645-9291, passcode 19618885. This is a toll call.
ABOUT UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
- ------------------------------------------------
Universal Stainless & Alloy Products, Inc., headquartered in
Bridgeville, Pa., manufactures and markets a broad line of semi-finished and
finished specialty steels, including stainless steel, tool steel and certain
other alloyed steels. The Company's products are sold to rerollers, forgers,
service centers, original equipment manufacturers and wire redrawers. 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, RISKS
ASSOCIATED WITH THE RECEIPT, PRICING AND TIMING OF FUTURE CUSTOMER ORDERS, RISKS
ASSOCIATED WITH SIGNIFICANT FLUCTUATIONS THAT MAY OCCUR IN RAW MATERIAL AND
ENERGY PRICES, RISKS ASSOCIATED WITH THE MANUFACTURING PROCESS, LABOR AND
PRODUCTION YIELDS, RISKS RELATED TO PROPERTY, PLANT AND EQUIPMENT, AND RISKS
RELATED TO THE ULTIMATE OUTCOME OF THE COMPANY'S CURRENT AND FUTURE LITIGATION
AND REGULATORY MATTERS. 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.
- FINANCIAL TABLES FOLLOW -
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share information)
(Unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
NET SALES
Stainless steel $ 45,510 $ 41,726 $ 130,208 $ 110,159
Tool steel 7,281 5,408 20,822 18,645
High-strength low alloy steel 6,006 4,529 19,812 10,322
High-temperature alloy steel 2,637 2,932 7,737 7,045
Conversion services 446 461 1,427 1,694
Other 128 54 297 201
--------- --------- ---------- ---------
Total net sales 62,008 55,110 180,303 148,066
Cost of products sold 50,875 42,910 143,337 116,721
Selling and administrative expenses 2,990 3,038 8,951 8,173
--------- --------- --------- ---------
Operating income 8,143 9,162 28,015 23,172
Interest expense (181) (275) (603) (810)
Other income 26 2 36 6
---------- --------- ---------- ---------
Income before taxes 7,988 8,889 27,448 22,368
Income tax provision 2,521 3,200 9,332 8,052
---------- --------- --------- ---------
Net income $ 5,467 $ 5,689 $ 18,116 $ 14,316
========= ========= ========= =========
Earnings per share - Basic $ 0.82 $ 0.88 $ 2.73 $ 2.23
========= ========= ========= =========
Earnings per share - Diluted $ 0.81 $ 0.86 $ 2.67 2.17
========= ========= ========= $ =========
Weighted average shares of
Common Stock outstanding
Basic 6,656,753 6,443,570 6,640,238 6,429,089
Diluted 6,783,147 6,615,719 6,772,963 6,597,185
- ---------------------------------------------------------------------------------------------------------
NOTE: 2006 results have been adjusted to reflect the retrospective application
of the January 1, 2007 change in accounting for major maintenance expenses from
the accrue-in-advance method to the deferral method in accordance with the FASB
Staff Position entitled "Accounting for Planned Major Maintenance Activities,"
issued in September 2006. The effect of the change in accounting is summarized
below:
For the Quarter Ended For the Nine-Months Ended
September 30, 2006 September 30, 2006
As Reported As Adjusted As Reported As Adjusted
----------- ----------- ----------- -----------
Operating income:
Universal Stainless & Alloy
Products Segment $ 4,047 $ 4,097 $ 14,840 $ 15,029
Dunkirk Specialty Steel Segment 3,811 3,763 7,535 7,549
Intersegment elimination 1,302 1,302 594 594
---------- --------- --------- ----------
$ 9,160 $ 9,162 $ 22,969 $ 23,172
========== ========= ========= ==========
Net income $ 5,688 $ 5,689 $ 14,186 $ 14,316
========== ========= ========= ==========
Diluted earnings per share $ 0.86 $ 0.86 $ 2.15 $ 2.17
========== ========= ========= ==========
BUSINESS SEGMENT RESULTS
UNIVERSAL STAINLESS & ALLOY PRODUCTS SEGMENT
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
NET SALES
Stainless steel $ 31,211 $ 28,342 $ 87,011 $ 74,353
Tool steel 6,748 4,852 19,018 17,466
High-strength low alloy steel 2,560 2,107 10,382 5,036
High-temperature alloy steel 1,207 931 3,353 2,690
Conversion services 305 321 957 1,243
Other 107 39 229 151
--------- -------- --------- ----------
42,138 36,592 120,950 100,939
Intersegment 13,797 10,599 38,244 31,089
--------- -------- --------- ----------
Total net sales 55,935 47,191 159,194 132,028
Material cost of sales 32,170 24,055 83,085 61,809
Operation cost of sales 17,506 16,915 52,556 49,511
Selling and administrative expenses 2,022 2,124 6,311 5,679
--------- -------- --------- ----------
Operating income $ 4,237 $ 4,097 $ 17,242 $ 15,029
========= ======== ========= ==========
DUNKIRK SPECIALTY STEEL SEGMENT
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
NET SALES
Stainless steel $ 14,299 $ 13,384 $ 43,197 $ 35,806
Tool steel 533 556 1,804 1,179
High-strength low alloy steel 3,446 2,422 9,430 5,286
High-temperature alloy steel 1,430 2,001 4,384 4,355
Conversion services 141 140 470 451
Other 21 15 68 50
--------- -------- --------- ----------
19,870 18,518 59,353 47,127
Intersegment 1,398 1,317 3,676 2,874
--------- -------- --------- ----------
Total net sales 21,268 19,835 63,029 50,001
Material cost of sales 13,130 10,847 36,374 27,756
Operation cost of sales 4,145 4,311 13,451 12,202
Selling and administrative expenses 968 914 2,640 2,494
--------- -------- --------- ----------
Operating income $ 3,025 $ 3,763 $ 10,564 $ 7,549
========= ======== ========= ==========
MARKET SEGMENT INFORMATION
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2007 2006 2007 2006
---- ---- ---- ----
NET SALES
Service centers $ 31,451 $ 26,394 $ 93,154 $ 75,750
Forgers 13,852 10,614 40,170 25,035
Rerollers 10,199 9,856 26,049 25,080
Original equipment manufacturers 4,452 4,421 13,869 13,976
Wire redrawers 1,424 3,310 5,337 6,330
Conversion services 446 461 1,427 1,694
Other 184 54 297 201
--------- -------- ---------- ----------
Total net sales $ 62,008 $ 55,110 $ 180,303 $ 148,066
========= ======== ========== ==========
Tons shipped 11,372 13,636 33,856 38,421
========= ======== ========== ==========
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2007 2006
---- ----
ASSETS
Cash $ 8,130 $ 2,909
Accounts receivable, net 39,285 33,308
Inventory 62,949 66,019
Deferred taxes 3,004 1,544
Other current assets 1,928 1,606
-------- ----------
Total current assets 115,296 105,386
Property, plant & equipment, net 52,888 49,251
Other assets 629 584
-------- ----------
Total assets $ 168,813 $ 155,221
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable $ 13,675 $ 13,123
Outstanding checks in excess of bank balance 3,791 3,427
Accrued employment costs 5,893 4,121
Current portion of long-term debt 2,380 2,364
Other current liabilities 1,479 1,902
-------- ----------
Total current liabilities 27,218 24,937
Bank revolver - 8,392
Long-term debt 7,049 8,836
Deferred taxes 9,493 8,402
-------- ----------
Total liabilities 43,760 50,567
Stockholders' equity 125,053 104,654
---------- ----------
Total liabilities and stockholders' equity $ 168,813 $ 155,221
============ ==========
CONSOLIDATED STATEMENT OF CASH FLOW DATA
For the Nine-month Period Ended September 30,
2007 2006
---- ----
Cash flows provided by operating activities:
Net income $ 18,116 $ 14,316
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 2,764 2,460
Deferred tax decrease (448) (806)
Stock based compensation expense 332 193
Excess tax benefits from share-based
payment arrangements (976) (179)
Changes in assets and liabilities:
Accounts receivable, net (5,977) (9,821)
Inventory 3,070 (12,057)
Trade accounts payable 552 5,766
Deferred revenue 207 2,498
Accrued employment costs 1,772 1,961
Other, net 86 1,177
--------- -------------
Cash flow provided by operating activities 19,498 5,508
--------- -------------
Cash flow used in investing activities:
Capital expenditures (6,429) (5,587)
--------- -------------
Cash flow used in investing activities (6,429) (5,587)
--------- -------------
Cash flows used in financing activities:
Revolving credit net repayments (8,392) 1,036
Long-term debt repayments (1,771) (914)
Net change in outstanding checks in excess
of bank balance 364 (554)
Proceeds from issuance of common stock 975 326
Excess tax benefits from share-based payment
arrangements 976 179
--------- ------------
Cash flow (used in) provided by financing activities (7,848) 73
--------- ------------
Net cash flow $ 5,221 $ (6)
========= =============