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Universal Stainless Reports Third Quarter 2012 Results

Universal Stainless & Alloy Products, Inc. Logo

- Sales are $62.3 Million; EPS is $0.45

- Quarter-end Backlog Totals $68.3 Million

BRIDGEVILLE, Pa., Oct. 24, 2012 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the third quarter of 2012 were $62.3 million, which was 7% below the third quarter of 2011. The Company previously reported that lower order entry would impact 2012 third quarter sales.

Operating income for the third quarter of 2012 was $5.5 million, or 8.8% of sales, including $0.6 million of ramp-up expense for the Company's North Jackson operation due primarily to a production outage necessary to make modifications to its vacuum induction melting furnace ("VIM"). This compares with operating income of $7.2 million, or 10.7% of sales in the third quarter of 2011, which included $1.7 million of expense for the acquisition and start-up of North Jackson acquired by the Company in August 2011. Excluding the effect of North Jackson in both periods, operating income was 10.1% of sales in the third quarter of 2012 and 13.2% of sales in the third quarter of 2011.

Net income for the third quarter of 2012 was $3.3 million, or $0.45 per diluted share, including $0.06 per diluted share of North Jackson ramp-up expense. In the third quarter of 2011, net income was $3.9 million, or $0.55 per diluted share, including $0.14 per diluted share of after-tax acquisition and start-up expense related to North Jackson.

For the first nine months of 2012, sales increased 8% to $204.8 million from the same period of 2011. Net income for the first nine months of 2012 was $14.1 million, or $1.93 per diluted share, compared with $13.9 million, or $1.97 per diluted share, reported for the prior year period. Net income for the first nine months of 2012 included after-tax operating expense for the North Jackson ramp-up of $0.07 per diluted share compared to $0.22 per diluted share of North Jackson-related expense in the first nine months of 2011.

For the third quarter of 2012, the Company had positive cash flow from operations of $12.4 million despite continued investment in the ramp-up of North Jackson, including $3.5 million of increased inventory to support VIM product and equipment development. Capital expenditures were $10.7 million in the third quarter of 2012, including $6.8 million for the North Jackson operation. At September 30, 2012, the Company had total debt of $113.4 million, or 36.6% of total capitalization.

Shipment volume for the third quarter of 2012 decreased 9% from the third quarter of 2011. This reflected a 13% increase in tons shipped to the aerospace market, offset by decreases of 16%, 30% and 7% in shipments to the petrochemical, power generation and service center plate markets, respectively.

Chairman, President and CEO Dennis Oates commented: "Our third quarter results were in line with continued inventory adjustment by service centers, our largest customer category. While we are encouraged by the continued expansion of our aerospace-related business fueled by the North Jackson investment, other industries have been moving cautiously through the second half of the year because of global economic conditions and uncertainty. This is evidenced in our sales as well as in our lower order entry and backlog. Declining nickel prices and shorter lead times also had a depressing effect on customer purchasing patterns.

"The reduction in our shipment volume in the third quarter continued to restrain our consolidated operating margin. So did our ongoing investment in the ramp-up of our North Jackson facility, where we are only in the early stages of realizing its full benefits. Most recently, the two newly installed vacuum-arc remelt furnaces were commissioned. As a result, we have increased our internal VAR capacity to 11 furnaces and by 60% this year in support of our aerospace customers.

"Both the current usage or 'chew-up' rate of specialty metals and the growth prospects for our end markets remain strong. Therefore, channel demand is expected to return to more normal levels as we move through 2013. During the course of 2013, we also expect to complete the ramp-up of North Jackson as well as achieve many of the product certifications and approvals from customers that we have been working towards. The certifications and approvals will position us to capture more market opportunity in new higher-margin product categories while improving our operating profitability – in line with our strategic plan."

Segment Review

For the third quarter of 2012, the Universal Stainless & Alloy Products segment, which includes the North Jackson operation, had sales of $54.2 million and operating income of $2.0 million, yielding an operating margin of 3.7% of sales. In the third quarter of 2011, sales were $60.6 million and operating income was $4.8 million, or 7.9% of sales, including start-up and acquisition-related costs for North Jackson.

Segment sales decreased 10% from the third quarter of 2011 on 3% lower tons shipped mainly due to decreased shipments to service centers as well as to forgers and rerollers of products mainly destined for service centers.

Sales for the Dunkirk Specialty Steel segment were $24.8 million for the third quarter of 2012 and operating income was $2.3 million, yielding an operating margin of 9.4% of sales. This compares with sales in the third quarter of 2011 of $25.3 million and operating income of $2.5 million, or 9.9% of sales.

Dunkirk's sales decreased 2% from the third quarter of 2011 on a 4% decrease in tons shipped. Tons shipped to service centers were up 2% from the third quarter of 2011.

Webcast

The Company has scheduled a conference call for today, October 24, at 10:00 a.m. (Eastern) to discuss third quarter results. A simultaneous webcast will be available on the Company's website at www.univstainless.com, and thereafter archived on the website through the end of the fourth quarter of 2012.

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.

- TABLES FOLLOW -

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 Nine-Months Ended
September 30, September 30,
2012 2011 2012 2011
Net Sales
Stainless steel $ 49,371 $ 54,746 $ 161,783 $ 149,797
Tool steel 4,768 5,407 15,638 18,376
High-strength low alloy steel 4,880 4,440 16,959 13,925
High-temperature alloy steel 1,930 1,579 6,099 5,037
Conversion services 967 935 3,831 2,945
Scrap sales and other 383 192 469 348
Total net sales 62,299 67,299 204,779 190,428
Cost of products sold 52,140 54,725 168,775 154,884
Selling and administrative expenses 4,685 5,343 13,531 12,870
Operating income 5,474 7,231 22,473 22,674
Interest expense (602) (609) (1,924) (852)
Other income 28 45 89 188
Income before income taxes 4,900 6,667 20,638 22,010
Income tax provision 1,631 2,774 6,578 8,144
Net income $ 3,269 $ 3,893 $ 14,060 $ 13,866
Earnings per common share – Basic $ 0.48 $ 0.57 $ 2.05 $ 2.03
Earnings per common share – Diluted * $ 0.45 $ 0.55 $ 1.93 $ 1.97
Weighted average shares of Common
Stock outstanding
Basic 6,877,915 6,831,048 6,863,564 6,821,944
Diluted 7,433,922 7,202,386 7,446,836 7,050,781
MARKET SEGMENT INFORMATION
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2012 2011 2012 2011
Net Sales
Service centers $ 37,570 $ 35,067 $ 121,030 $ 98,000
Forgers 8,056 12,997 30,924 36,792
Rerollers 10,429 12,506 31,851 35,983
Original equipment manufacturers 4,148 4,518 12,693 12,844
Wire redrawers 746 1,084 3,981 3,516
Conversion services 967 935 3,831 2,945
Scrap sales and other 383 192 469 348
Total net sales $ 62,299 $ 67,299 $ 204,779 $ 190,428
Tons Shipped 11,614 12,813 38,925 38,345
Consolidated results include the results of the North Jackson operation, which was acquired on August 18, 2011.
* Diluted earnings per common share have been adjusted for interest expense on convertible notes, subsequent to the August 18, 2011 acquisition of the North Jackson operation.
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2012 2011 2012 2011
Net Sales
Stainless steel $ 31,077 $ 34,803 $ 99,865 $ 94,037
Tool steel 3,703 5,047 13,560 17,184
High-strength low alloy steel 1,106 662 5,093 1,816
High-temperature alloy steel 637 623 2,125 2,050
Conversion services 866 641 3,476 2,203
Scrap sales and other 267 230 365 359
37,656 42,006 124,484 117,649
Intersegment 16,556 18,554 51,803 58,512
Total net sales 54,212 60,560 176,287 176,161
Material cost of sales 27,548 31,265 87,527 92,338
Operation cost of sales 21,651 20,511 67,847 58,811
Selling and administrative expenses 2,996 4,004 8,648 8,872
Operating income $ 2,017 $ 4,780 $ 12,265 $ 16,140
The Universal Stainless & Alloy Products segment includes the results of the North Jackson operation from the August 18, 2011 acquisition date.
Dunkirk Specialty Steel Segment
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2012 2011 2012 2011
Net Sales
Stainless steel $ 18,294 $ 19,943 $ 61,918 $ 55,760
Tool steel 1,065 360 2,078 1,192
High-strength low alloy steel 3,774 3,778 11,866 12,109
High-temperature alloy steel 1,293 956 3,974 2,987
Conversion services 101 294 355 742
Scrap sales and other 116 (38) 104 (11)
24,643 25,293 80,295 72,779
Intersegment 135 34 314 126
Total net sales 24,778 25,327 80,609 72,905
Material cost of sales 14,269 15,847 47,130 44,864
Operation cost of sales 6,499 5,628 20,195 16,230
Selling and administrative expenses 1,689 1,339 4,883 3,998
Operating income $ 2,321 $ 2,513 $ 8,401 $ 7,813
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2012 2011
Assets
Cash $ 250 $ 274
Accounts receivable, net 34,655 34,554
Inventory, net 101,580 85,088
Deferred income taxes 19,622 28,438
Refundable income taxes 1,443 4,844
Other current assets 2,368 2,198
Total current assets 159,918 155,396
Property, plant and equipment, net 205,005 183,148
Goodwill 20,268 20,479
Other long-term assets 2,563 2,649
Total assets $ 387,754 $ 361,672
Liabilities and Stockholders' Equity
Accounts payable $ 18,473 $ 29,912
Accrued employment costs 6,063 7,547
Current portion of long-term debt 750 3,000
Other current liabilities 1,367 966
Total current liabilities 26,653 41,425
Long-term debt 112,691 91,650
Deferred income taxes 51,711 48,291
Other long-term liabilities 172 --
Total liabilities 191,227 181,366
Stockholders' equity 196,527 180,306
Total liabilities and stockholders' equity $ 387,754 $ 361,672
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Nine-Months Ended
September 30,
2012 2011
Operating activities:
Net income $ 14,060 $ 13,866
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 9,312 4,801
Loss on retirement of property, plant and equipment -- (20)
Deferred income taxes 12,236 13,536
Share-based compensation expense, net 979 1,154
Changes in assets and liabilities:
Accounts receivable, net (101) (10,262)
Inventory, net (16,492) (9,563)
Accounts payable (14,661) (6,657)
Accrued employment costs (1,484) 1,806
Income taxes 3,676 (10,244)
Other, net 571 (286)
Net cash provided by (used in) operating activities 8,096 (1,869)
Investing activities:
Capital expenditures, net of amount included in accounts payable (27,517) (4,855)
Business acquisition, net of convertible notes assumed -- (91,298)
Proceeds from sale of fixed assets -- 20
Net cash used in investing activities (27,517) (96,133)
Financing activities:
Borrowings under revolving credit facility 100,752 44,200
Payments on revolving credit facility (61,961) (8,600)
Payment on term loan facility (20,000) --
Borrowings under term loan facility -- 40,000
Debt repayments -- (10,823)
Proceeds from the issuance of Common Stock 960 415
Payment of deferred financing costs (348) (1,370)
Purchase of Treasury Stock (234) --
Tax benefit from share-based payment arrangements 228 75
Net cash provided by financing activities 19,397 63,897
Net decrease in cash (24) (34,105)
Cash at beginning of period 274 34,400
Cash at end of period $ 250 $ 295
Supplemental Non-Cash Investing and Financing Activities:
Capital expenditures included in accounts payable $ 3,222 $ 2,998
Convertible notes issued as acquisition consideration $ -- $ 20,000
Consolidated results include the results of the North Jackson operation, which was acquired on August 18, 2011.
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

Source:Universal Stainless & Alloy Products, Inc.