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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______ to ______
Commission File Number 0-25032
------------------------------
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1724540
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
600 Mayer Street
Bridgeville, PA 15017
(Address of principal executive offices, including zip code)
(412) 257-7600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 20, 2002, based on the closing price of $10.97 per share on
that date, was $43,281,345. For the purposes of this disclosure only, the
registrant has assumed that its directors, executive officers, and beneficial
owners of 5% or more of the registrant's Common Stock are the affiliates of the
registrant.
As of March 20, 2002, there were 6,077,272 shares of the Registrant's Common
Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held May 21, 2002, are incorporated into Part III
of this Form 10-K.
TABLE OF CONTENTS
PART I
Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 9
Item 3. Legal Proceedings........................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......................................... 11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.................... 12
Item 6. Selected Financial Data..................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................ 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risks................................. 13
Item 8. Financial Statements and Supplementary Data................................................. 13
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure................................................................. 13
PART III
Item 10. Directors and Executive Officers of the Company............................................. 14
Item 11. Executive Compensation...................................................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 14
Item 13. Certain Relationships and Related Transactions.............................................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 15
PART I
ITEM 1. BUSINESS
General
Universal Stainless & Alloy Products, Inc. (the "Company"), which was
incorporated in 1994, manufactures and markets semi-finished and finished
specialty steel products, including stainless steel, tool steel and certain
other alloyed steels. The Company's manufacturing process involves melting,
remelting, treating and hot and cold rolling of semi-finished and finished
specialty steels. The Company's products are sold to rerollers, forgers, service
centers and original equipment manufacturers. The Company's customers further
process its products for use primarily in the power generation, aerospace,
petrochemical and heavy equipment manufacturing industries. The Company also
performs conversion services on materials supplied by customers that lack
certain of the Company's production facilities or that are subject to their own
capacity constraints.
The Company's products are manufactured in a wide variety of grades, widths and
gauges in response to customer specifications. At its Bridgeville facility, the
Company produces its specialty steel products in the form of long products
(ingots, blooms, billets and bars) and flat rolled products (slabs and plates).
The semi-finished long products are primarily used by customers to produce
finished bar, rod and wire products, and the semi-finished flat rolled products
are used by customers to produce fine-gauge plate, sheet and strip products. The
finished bar products manufactured by the Company are primarily used by service
center customers for distribution to a variety of customers. The Company also
produces customized shapes primarily for original equipment manufacturers that
are cold rolled from purchased coiled strip, flat bar or extruded bar at its
Precision Rolled Products department ("PRP"), located at its Titusville
facility.
Recent Developments
On February 14, 2002, the Company, through its wholly owned subsidiary, Dunkirk
Specialty Steel, LLC ("Dunkirk Specialty Steel"), acquired from the New York Job
Development Authority certain assets formerly owned by Empire Specialty Steel,
Inc. at its idled production facility located in Dunkirk, New York (the
"Dunkirk facility"). The Company believes that the Dunkirk facility will be
fully operational in the second quarter of its 2002 fiscal year, and it intends
to produce finished bar, rod and wire specialty steel products offerings to
existing customers within its markets and enter into new market niches.
Industry Overview
The specialty steel industry is a relatively small but distinct segment of the
overall steel industry. Specialty steels include stainless steels, high speed
and tool steels, electrical steels, high temperature alloys, magnetic alloys and
electronic alloys. Specialty steels are made with a high alloy content, which
enables their use in environments that demand exceptional hardness, toughness,
strength and resistance to heat, corrosion or abrasion, or combinations thereof.
Specialty steels generally must conform to more demanding customer
specifications for consistency, straightness and surface finish than carbon
steels.
The Company primarily manufactures its products within the following specialty
steel 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 unique qualities of high-strength, good wear characteristics,
natural attractiveness, ease of maintenance and resistance to rust, corrosion
and heat. Stainless steel is used, among other applications, in the automotive,
aerospace and power generation industries, as well as in the manufacture of food
handling, health and medical, chemical processing and pollution control
equipment. The large number of
1
applications for stainless steel has resulted in the development of a greater
variety of stainless steel metallurgical grades than carbon steel.
Tool Steel. Tool steels contain elements of manganese, silicon, chrome and
molybdenum to produce specific hardness characteristics that enable them 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-Strength Low Alloy Steel. High-strength low alloy steel is a relative term
that refers to those steels that maintain alloying elements that range in
versatility. The alloy element of nickel, chrome and molybdenum in such steels
typically exceed 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.
High-Temperature Alloy Steel. These steels are designed to meet critical
requirements of heat resistance and structural integrity. They generally have a
very high nickel content relative to other types of specialty steels. High-
temperature alloy steels are manufactured for use generally in the aerospace
industry.
Net sales by principal product line were as follows:
For the years ended December 31, 2001 2000 1999
---- ---- ----
Dollars in thousands
Stainless steel $76,908 $62,346 $55,255
Tool steel 4,503 6,960 6,055
High-strength low alloy steel 3,379 2,161 1,327
High-temperature alloy steel 2,471 1,754 2,124
Conversion service 3,054 2,309 1,807
Other 343 355 95
- ------------------------------------------------------------------------------------------------------------
Net sales on shipments 90,658 75,885 66,663
Effect of accounting change -- 12,462
- ------------------------------------------------------------------------------------------------------------
Total net sales $90,658 $88,347 $66,663
============================================================================================================
During 2000, the Company adopted the provisions of the Securities and Exchange
Commission's ("the SEC") Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements." The application of the SEC's guidance to the language
contained in the Company's Standard Terms and Conditions of Sale existing at the
time of adoption required the Company to defer revenue until cash was collected,
even though risk of loss passed to the buyer at the time of shipment. This had
the effect of deferring certain sale transactions previously recognized in 1999
into 2000. During the fourth quarter of 2000, the Company modified its Standard
Terms and Conditions of Sale to more closely reflect the substance of its sale
transactions, which resulted in revenue being recorded at the time of shipment
rather than when cash was received. As a result, revenue and cost information in
2000 include amounts related to shipments made during the year as well as
amounts deferred from 1999.
Raw Materials
Scrap Metal
The Company's major raw material is ferrous and non-ferrous scrap metal, which
is generated principally from industrial sources and is purchased in the open
market through a number of scrap brokers and dealers. The long-term demand for
domestically-generated scrap metal by the domestic and foreign specialty steel
industry is expected to remain strong. Higher demand may put increased pressure
on the domestic supply of scrap and lead to inflated prices. The high quality of
the Company's products requires close inspection and selection of scrap types
and sources. The Company believes that adequate supplies of scrap metal will
continue to be available in sufficient quantities for the foreseeable future.
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Alloys
The Company purchases various materials for use as alloy additions during the
melting process. Many alloys are bought from domestic agents and originate from
South Africa, Canada, South America, and Russia. Political disruptions in
countries such as these can interfere with the deliveries, potentially lead to
higher prices, and could adversely affect the Company's financial results.
PRP Starting Materials
PRP's principal starting materials consist of metallic flat bar, extruded "near
shaped" bar and coiled strip, which the Company cold rolls to customer
specifications to produce special shapes. The Company generally purchases those
starting materials from steel strip coil suppliers, extruders, flat rolled
producers and service centers. The Company believes that adequate supplies of
starting material for PRP will continue to be available in sufficient quantities
for the foreseeable future.
The cost of raw material is more than one-third of the Company's total cost of
products sold. Raw material prices vary based on numerous factors, including
quality, and are subject to frequent market fluctuations and future prices
cannot be predicted with any degree of certainty. Therefore, the Company does
not maintain any long-term written agreements with any of its raw material
suppliers. The Company has established arrangements with certain raw material
suppliers that permit the Company to purchase certain raw materials at set
prices for 30 days. These arrangements may protect the Company against
short-term price increases in raw materials after it has agreed to manufacture
products for its customers at specified prices, which reflect those set raw
material prices. The Company has implemented sales price surcharges to help
offset the impact of raw material price fluctuations.
Energy Agreements
The production of specialty steel requires the ready availability of substantial
amounts of electricity, natural gas and certain industrial and refining gases.
Electricity and natural gas is consumed within each of the Company's operations
and the industrial and refining gases, including oxygen, nitrogen and argon, are
primarily consumed within the melting operations.
At the Bridgeville Facility, the Company purchases electricity from Duquesne
Light Company ("DLC") pursuant to a five-year supply agreement entered into in
August 1999. Under that agreement, the Company has been granted significant
reductions in DLC's posted base demand rates, particularly if, as the Company
plans, it conducts its principal melting operations in off-peak hours, which for
purposes of the DLC agreement are between 6 p.m. and 12 p.m. (18 hours) daily
and up to 24 hours a day on weekends.
Air Products and Chemicals, Inc. supplies all the Company's liquid gas for
industrial requirements for its Melt operations pursuant to a four-year
agreement entered into in August 1999, which contains one-year renewal options.
The Company purchases it's local natural gas delivery service from Columbia Gas
on a three-year agreement entered into in April 2000. The natural gas
requirements are purchased from various marketers, but primarily from Ashland
Energy.
At the Titusville Facility, the Company purchases electricity from GPU Energy
pursuant to a two-year supply agreement entered into in May 2000, with one-year
renewal options. Belden & Blake Corporation supplies all the Company's natural
gas requirements at that location pursuant to a supply agreement entered into in
May 2001, for the period July,1 2001 through June 30, 2002, which is eligible
for renewal thereafter.
At the Dunkirk facility, the Company purchases electricity from the New York
State Power Authority pursuant to an Expansion Power supply agreement which is
contingent on certain employment levels. Under the agreement, the Company has
been granted significant reductions in the New York State Power Authority's
posted base demand rates.
While the Company believes that its energy agreements allow it to compete
effectively within the specialty steel industry, the potential of curtailments
exists as a result of decreased supplies during periods of increased demand for
electricity and natural gas. These interruptions not only can adversely affect
the operating performance of the
3
Company, but also can lead to increased costs for energy. The Company imposed a
natural gas surcharge mechanism that it has utilized during periods of inflated
rates for natural gas due to supply shortages.
Customers
The Company's principal customers are rerollers, forgers, service centers and
original equipment manufacturers, which primarily include the power generation
and aerospace industries. The Company maintains a supply contract agreement with
Talley Metals Technology, Inc., a subsidiary of Carpenter Technology
Corporation, which is currently effective through December 2002. Under terms of
the agreement, the Company will supply Talley Metals with an average of 1,250
tons of stainless reroll billet products per month. For the year ended December
31, 2001, Talley Metals and its affiliates accounted for 32% of the Company's
net sales on shipments. General Electric Company and its affiliates accounted
for 12% of the Company's net sales on shipments. No other customer accounted for
more than 10% of the Company's net sales on shipments for the year ended
December 31, 2001.
The Company's five largest customers in the aggregate accounted for
approximately 56% of net sales on shipments. A principal element of the
Company's business strategy is to seek new customers so that over time it will
reduce its dependence on one or a small number of customers. The Company's
customer base increased from 250 at December 31, 2000 to 288 at December 31,
2001.
The Company's products are marketed directly to its customers by Company
personnel, including the Company's President and Chief Executive Officer, its
PRP General Manager, four full-time sales persons and two independent sales
representatives. In view of the relatively small number of prospective
customers, the strong business relationships maintained with its existing
customers and the thorough product knowledge possessed by those management and
marketing persons, the Company believes its sales force is adequate for its
current and immediately foreseeable needs.
Backlog
The Company primarily manufactures products to meet specific customer orders,
generally fulfilling orders in eight weeks or less for its semi-finished
products and in 16 weeks or less for its finished products. The Company's
backlog of orders on hand as of December 31, 2001, was approximately $19.1
million as compared to $21.4 million at the same time in 2000. The mix of orders
booked for delivery in the 2002 first quarter by market segment in comparison to
the year-ago period reflects reduced demand for reroller and forging products,
partially offset by increased demand for service center products. Customer
orders are generally subject to cancellation with the payment of a penalty
charge prior to delivery. The Company's backlog may not be indicative of actual
sales and therefore should not be used as a measure of future revenue.
Competition
The Company believes it is one of approximately 18 domestic manufacturers that
produce specialty steel and one of approximately five domestic specialty steel
manufacturers that produce special shapes. Of that number of firms that produce
specialty steel, the Company believes five companies currently compete within
the Company's selected markets, although other specialty steel mills have the
capability of producing, and hence competing with, some of or all the Company's
specialty steel products.
Major domestic competitors of the Company in the specialty steel market include
fully integrated specialty steel producers such as Allegheny Technologies, Inc.;
Carpenter Technology Corporation; Fort Wayne Specialty Alloys, a division of
Slater Steel, Inc.; and The Timken Company. Additionally, there are several
smaller electric arc furnace melt shops that also produce specialty steel. While
these facilities generally produce only stainless steel ingots, they can also
compete with the Company by utilizing outside conversion services. The major
competitors of the Company in the special shapes market served by PRP include
Rathbone Precision Metals, Inc., a subsidiary of Carpenter Technology
Corporation; Precision Shapes, Inc.; and J.T. Slocomb Company.
4
Competition in the Company's markets is based upon product quality, delivery
capability, customer service and price. Maintaining high standards of product
quality while keeping production costs at competitive levels is essential to the
Company's ability to compete in its markets. The ability of a manufacturer to
respond quickly to customer orders is currently, and is expected to remain,
important in the specialty steel market. The Company believes its universal
rolling mill provides it with a competitive advantage as the only domestic mill
that can produce both long product and flat rolled product. The Company believes
it has the ability to fill customers' orders in a shorter lead time for delivery
than a fully-integrated specialty steel mill currently can achieve, which
provides it with another competitive advantage. The short lead-time may also
enable the Company to avoid maintaining a high level of inventory of raw
materials, thereby reducing the Company's cost of production.
The domestic specialty steel industry is frequently affected by general economic
conditions. Further, the Company also faces competition from producers of
certain materials, particularly aluminum, composites and plastics. In addition,
many of the finished products sold by the Company's customers are in direct
competition with finished products manufactured by foreign sources, which may
affect the demand for those customers' products. Any competitive factors that
adversely affects the market for finished products manufactured by the Company's
customers could indirectly adversely affect the demand for the Company's
specialty steel products. See "Risk Factors - Competition".
Employee Relations
The Company considers the maintenance of good relations with its employees to be
important to the successful conduct of its business. The Company has
profit-sharing plans for certain salaried employees and all of its United Steel
Workers of America (USWA) employees and has equity ownership programs for all of
its eligible employees, in an effort to forge an alliance between its employee's
interests and those of the Company's stockholders. At December 31, 2001, the
Company had 250 employees at its Bridgeville facility and 54 employees at its
Titusville facility, of whom 198 and 47 were USWA members, respectively.
In August 1997, the Company and the USWA completed negotiation of a new
five-year comprehensive collective bargaining agreement (the "Bridgeville CBA")
that recognizes the USWA as the exclusive representative for the Company's
hourly Bridgeville employees with respect to the terms and conditions of their
employment. The basic structure of the Bridgeville CBA is similar to the
original four-year agreement, which contained certain wage, benefit, and work
rule terms, which permitted the Company to be competitive in the domestic
specialty steel industry.
In February 2000, the Company and the USWA completed negotiation of a new
sixty-seven (67) month comprehensive collective bargaining agreement (the
"Titusville CBA"). The Titusville CBA is similar to the original five-year
agreement.
In October 2001, the Company and the USWA entered into a 6 year comprehensive
collective bargaining agreement that is similar to the collective bargaining
agreement (the "Dunkirk CBA") at Bridgeville and Titusville. The Company
anticipates that it will have approximately 100 employees at the Dunkirk
facility upon the commencement of all operations, approximately three-fourths of
whom are USWA members.
The Company has profit-sharing plans that cover certain salaried employees and
all hourly employees. The profit-sharing plans provide for the sharing of
pre-tax profits in excess of specified amounts. The Company maintains separate
401(k) retirement plans for its hourly and salary employees. Pursuant to each
plan, participants may elect to make pre-tax contributions to the plan, subject
to certain limitations imposed under the Internal Revenue Code of 1986, as
amended (the "Code"). Company matching contributions are not permitted under the
plans. In addition, the Company is required to make periodic contributions to
the plans based on service. The Company also provides life insurance and health
coverage for its hourly and salary employees.
Armco Agreement
Armco, which merged with and into AK Steel in 1999 ("Armco"), the former owner
of certain assets of the Company, retained responsibility for any employee
benefit obligations existing prior to August 15, 1994 with respect to persons
previously employed at the Bridgeville facility. In addition, Armco agreed to
retain responsibility for
5
liabilities asserted against it under environmental laws with respect to
environmental conditions existing at the Bridgeville facility prior to
commencement of the Bridgeville Lease on August 15, 1994, and to indemnify the
Company up to $6.0 million in the aggregate over 10 years. Such indemnification
expires on August 15, 2004.
In connection with the Company's June 2, 1995 agreement with Armco to purchase
certain assets and a parcel of real property located at Titusville, Armco agreed
to indemnify the Company up to $3.0 million in the aggregate for liabilities
under environmental laws arising out of conditions on or under the Titusville
property existing prior to June 2, 1995. Armco's obligation to indemnify the
Company for any liabilities arising out of environmental conditions existing
off-site as of June 2, 1995, is not subject to the $3.0 million limitation.
Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan (the "Plan"), the Company is
authorized to issue up to 90,000 shares of Common Stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms of
the Plan, employees can choose as of January 1 and July 1 of each year to have
up to 10% of their total earnings withheld to purchase up to 100 shares of the
Company's Common Stock each six-month period. The purchase price of the stock is
85% of the lower of its beginning-of-the-period or end-of-the-period market
prices. At December 31, 2001, the Company has issued 45,539 shares of Common
Stock since the plan's inception.
Safety
The Company has established and seeks to maintain appropriate safety standards
and policies for its employees. To encourage plant safety, the USWA Agreements
provide that employees will be entitled to receive 50% of the savings, if any,
of reduced workers' compensation premiums obtained due to reductions in the
state experience modifier issued to the Company.
Executive Officers
The following table sets forth, as of December 31, 2001, certain information
with respect to the executive officers of the Company:
NAME (AGE) EXECUTIVE OFFICER SINCE POSITION
Clarence M. McAninch (66) 1994 President and Chief Executive Officer
Paul McGrath (50) 1996 Vice President of Operations,
General Counsel and Secretary
Richard M. Ubinger (42) 1994 Vice President of Finance, Chief Financial
Officer and Treasurer
Clarence M. McAninch, 66, has been President and Chief Executive Officer and a
Director of the Company since July 1994. Mr. McAninch served as Vice President,
Sales and Marketing, of the Stainless and Alloy Products Division of Armco from
1992 to 1994.
Paul A. McGrath, 50, has been Vice President of Operations of the Company since
March 2001, General Counsel and Director of Employee Relations since January
1995 and was appointed Secretary in May 1996. Prior thereto, he was employed by
Westinghouse Electric Corporation for approximately 24 years in various
management positions.
Richard M. Ubinger, 42, has been Vice President of Finance of the Company since
March 2001, Chief Financial Officer and Principal Accounting Officer of the
Company since August 1994 and was appointed Assistant Secretary in November 1995
and Treasurer in May 1996. From 1981 to 1994, Mr. Ubinger was employed by Price
Waterhouse LLP (currently known as PricewaterhouseCoopers LLP) in its audit
department, and he served in the capacity of Senior Manager for Price Waterhouse
LLP from 1990 to 1994. Mr. Ubinger is a Certified Public Accountant.
Patents and Trademarks
6
The Company does not consider its business to be materially dependent on patent
or trademark protection, and believes it owns or maintains effective licenses
covering all the intellectual property used in its business. The Company seeks
to protect its proprietary information by use of confidentiality and
non-competition agreements with certain employees.
Risk Factors
The Company's business and results of operations are subject to a wide range of
substantial business and economic factors including, but not limited to the
factors discussed below, many of which are not within the Company's control.
Start-up of Dunkirk Specialty Steel, LLC Facility
On February 14, 2002, the Company acquired certain assets of the idled Dunkirk,
New York production facility of Empire Specialty Steel, Inc. Delays in the
commencement of the operations due to unexpected equipment start-up issues or
the inability to receive a sufficient volume of customer orders could have a
material adverse effect upon the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Subsequent Event."
Significant Customer and Concentrated Customer Base
For the year ended December 31, 2001, Talley Metals Technology, Inc., a
subsidiary of Carpenter Technology Corporation, and its affiliates accounted for
approximately 32% of the Company's net sales on shipments, while the General
Electric Company and its affiliates accounted for 12% of the Company's net sales
on shipments. The Company's five largest customers in the aggregate accounted
for approximately 56% of net sales on shipments. An adverse change in, or
termination of, the Company's relationship with one or more of its major
customers or one or more of its market segments could have a material adverse
effect upon the Company. In addition, a number of the Company's customers are
also competitors of the Company. See "Business--Customers" and
"Business--Competition."
Reliance on Critical Manufacturing Equipment
The Company's manufacturing processes are dependent upon certain critical pieces
of specialty steel making equipment, such as the Company's electric arc-furnace
and universal rolling mill. In the event a critical piece of equipment should
become inoperative as a result of unexpected equipment failure, there can be no
assurance that the Company's operations would not be substantially curtailed
which may have a negative effect on the Company's financial results. See
"Properties."
Competition
The Company competes with domestic and foreign sources of specialty steel
products. In addition, many of the finished products sold by the Company's
customers are in direct competition with finished products manufactured by
foreign sources, which may affect the demand for those customers' products. Any
competitive factors that adversely affects the market for finished products
manufactured by the Company's customers could indirectly adversely affect the
demand for the Company's semi-finished products. Additionally, the Company's
products compete with products fashioned from alternative materials such as
aluminum, composites and plastics, the production of which includes domestic and
foreign enterprises. Competition in the Company's field is intense and is
expected to continue to be so in the foreseeable future. There can be no
assurance that the Company will be able to compete successfully in the future.
See "Business--Competition."
Environmental Issues
The Company is subject to demanding federal, state and local environmental laws
and regulations ("Environmental Laws") governing, among other things, air
emissions, waste water discharge and solid and hazardous waste disposal. The
Company leases or owns certain real property and operates equipment previously
owned and used in the manufacture of steel products by Armco. In connection with
the acquisition of the Bridgeville facility assets, Armco agreed to retain
responsibility for certain environmental liabilities and agreed to indemnify the
Company for environmental liabilities existing prior to August 15, 1994. Because
the indemnification is the Company's primary remedy against Armco for a given
environmental liability, the Company will be materially dependent upon that
indemnity should any environmental liability arise. There can be no assurance
that the indemnities from Armco will
7
fully cover any or all environmental liabilities, and there can be no assurance
that the Company will have the financial resources to discharge the liabilities
if legally compelled to do so.
The Armco indemnities do not cover any liability incurred with respect to
violations of Environmental Laws enacted after August 15, 1994, with respect to
the Bridgeville facility, or after June 2, 1995, with respect to the Titusville
facility. There is no assurance that the Company will not incur any such
liability.
The Company entered into an order with the New York State Department of
Environmental Conservation ("NY DEC") that precludes NY DEC from bringing any
action against the Company, and releases the Company from any and all claims and
liabilities arising from or related to the existing environmental conditions at
the Dunkirk facility. There can be no assurance that any other party will not
assert any claims with respect to environmental conditions at the Dunkirk
facility, or that the Company will have the financial resources to discharge any
liabilities if legally compelled to do so.
Environmental laws and regulations have changed rapidly in recent years, and the
Company may be subject to increasingly stringent environmental standards in the
future. See "Properties--Environmental Compliance."
Supply of Raw Materials and Cost of Raw Materials
The Company relies on a limited number of suppliers, some of which are foreign
owned, for its raw material needs which currently account for more than
one-third of the Company's total cost of products sold. Raw material prices are
affected by cyclical, seasonal and other market factors. In addition, the supply
of premium grades of scrap metal used by the Company is more limited than the
supply of lower grades of scrap metal. Further, nickel and chrome, key
ingredients in certain alloys produced by the Company and significant cost
components, are available substantially only from foreign sources, some of which
are located in countries that may be subject to unstable political and economic
conditions. Those conditions might disrupt supplies or affect the prices of the
raw materials used by the Company. The Company does not maintain long-term
supply agreements with any of its independent suppliers. If its supply of raw
materials were interrupted, the Company might not be able to obtain sufficient
quantities of raw materials, or obtain sufficient quantities of such materials
at satisfactory prices, which, in either case, could adversely affect the
Company's results of operations. In addition, significant increases in the price
of the Company's principal raw materials could adversely affect the Company's
financial results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Raw Materials."
Reliance on Energy Agreements
The manufacturing of specialty steels is an energy intensive industry. While the
Company believes that its energy agreements allow it to compete effectively
within the specialty steel industry, the Company is subjected to curtailments as
a result of decreased supplies and increased demand for electricity and natural
gas. These interruptions not only can adversely affect the operating performance
of the Company, but also can lead to increased costs for energy. See "Business -
Energy Agreements."
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ITEM 2. PROPERTIES
The Company leases its Bridgeville facility from Armco (the "Bridgeville
Lease"). The Bridgeville Lease is for 10 years commencing on August 15, 1994,
which includes the payment by the Company of real and personal property taxes,
water and sewage charges, special assessment and insurance premiums associated
therewith. The Bridgeville Lease also provides for three five-year options to
renew on the same terms at the sole discretion of the Company. In addition, the
Bridgeville Lease provides the Company with an option to purchase substantially
all of the leased premises for $1 any time during the term of the Bridgeville
Lease prior to August 15, 2015. The building that houses the electro-slag
remelting equipment, which is nearby, but not contiguously located, to the other
facilities, is included in the ten-year initial lease term only. The Company
anticipates relocating the equipment it owns in that facility in closer
proximity to the melt shop complex in an existing building prior to the
expiration of that initial ten-year term.
The Bridgeville Lease is assignable with the written consent of Armco, which
consent cannot be unreasonably withheld. The Company is responsible for
compliance with all environmental laws related to the property subsequent to
August 15, 1994, subject to liabilities Armco retained and indemnification
obligations under the asset agreement related to the Bridgeville facility (the
"Asset Agreement").
The Bridgeville facility consists of approximately 600,000 square feet of floor
space on approximately 50 acres. The Bridgeville facility contains melting,
electro-slag remelting, conditioning, rolling, annealing and various other
processing equipment. Substantially all products shipped from the Bridgeville
facility are processed through its melt shop and universal rolling mill
operations. In early 1999, the Company successfully completed the round-bar
finishing facility at the Bridgeville location. The facility includes
heat-treating and processing equipment that enables the Company to produce
completely finished 1.75-inch to 6-inch round bar products.
The Company owns its Titusville facility, which consists of approximately 10
acres and includes seven separate buildings, including two principal buildings
of approximately 265,000 square feet in total area. The Titusville facility
contains vacuum-arc remelting and various rolling and finishing equipment.
The Company owns its Dunkirk facility, which consists of approximately 800,000
square feet of floor space on approximately 79 acres. The Company expects to
incur approximately $6.0 million during its 2002 fiscal year with respect to the
investment in and upgrading of technologies and other capital improvements
relating to the start-up of operations at the Dunkirk facility.
Specialty steel production is a capital-intensive industry. The Company believes
that its facilities and equipment are suitable for its present needs. The
Company believes, however, that it will continue to require capital from time to
time to add new equipment and to repair or replace existing equipment to remain
competitive and to enable it to manufacture quality products and provide
delivery and other support service assurances to its customers.
Environmental Compliance
The Company is subject to Environmental Laws, including those governing
discharges of pollutants into the air and water, and the generation, handling
and disposal of hazardous and non-hazardous substances. The Company may be
liable for the remediation of contamination associated with generation, handling
and disposal activities. The Company is subject periodically to environmental
compliance reviews by various regulatory offices. The Company monitors its
compliance with Environmental Laws applicable to it and, accordingly, believes
that it is currently in compliance with all laws and regulations in all material
respects. Environmental costs could be incurred which may be significant,
related to environmental compliance at any time or from time to time in the
future.
Bridgeville Facility
The Company has not incurred to date and does not anticipate incurring any
significant remediation costs from environmental conditions at the Bridgeville
facility. The Company does not expect that any remediation that may be required
at the Bridgeville facility will have a material adverse effect on the Company's
results of operations, liquidity or financial condition. The Company operates
production and processing equipment, which it owns, on real property that is
leased from Armco. Armco remains contractually obligated for environmental
matters, including compliance with laws governing the removal of hazardous
materials and the elimination of hazardous conditions, which stem from any
operations or activities at the leased Bridgeville facility prior to August 15,
1994. In addition, Armco has agreed to indemnify the Company against any
liability arising from any of those matters with respect to the Bridgeville
facility to the extent of $6.0 million in the aggregate until 2004. Armco has
further agreed (subject to the indemnity limits) to pay up to up to $1.0 million
for certain non-recoverable operating costs should the Company's business be
interrupted as a result of Environmental Law violations that stem from
occurrences prior to August 15, 1994. Except as required by law or for the
protection of public health or the safety of its employees, the Company is
contractually prohibited from taking voluntary or discretionary action to
accelerate or delay the timing, or increase the cost of, Armco's environmental
obligations with respect to the Bridgeville facility.
Titusville Facility
9
The Company operates its production and processing equipment that was acquired
from Armco on real property the Company owns. Armco has agreed to indemnify the
Company to the extent of $3.0 million in the aggregate against liability for
environmental matters that pertain to environmental conditions existing on or
under the Titusville facility prior to June 2, 1995. In addition, Armco has
agreed to indemnify the Company for any liabilities arising out of environmental
conditions existing offsite as of June 2, 1995, and that indemnification is not
subject to the $3.0 million limitation. In connection with the acquisition of
the Titusville facility, the Company conducted a Phase I and Phase II
environmental study (the "Study") of the parcel of real estate acquired. The
Company believes the amount and terms of Armco's indemnity are sufficient to
protect the Company against environmental liabilities arising at the Titusville
facility from environmental conditions existing as of June 2, 1995. The Study
noted that as is typical of the Titusville, Pennsylvania area generally, there
is regional soil and groundwater hydrocarbon contamination present at above
applicable cleanup standards, reflecting the fact that this area contains
natural petroleum deposits and that petroleum-refining operations had been
conducted nearby. To date, no environmental governmental authority has contacted
the Company concerning this matter. The Company believes it unlikely that it or
Armco will be required to provide cleanup at the Titusville facility for the
local hydrocarbon contamination. If the Company accelerates the timing or
increases the cost of any environmental obligation retained by Armco, except as
required by law or for the protection of public health or for the safety of its
employees, the Company shall bear such accelerated or increased cost. Any
accelerated or increased cost of an environmental obligation retained by Armco
resulting from the Company seeking financing or from the sale of less than a
controlling interest in the voting stock of the Company shall be borne equally
by Armco and the Company.
The Company's primary remedies for reimbursement from Armco for losses stemming
from pre-closing environmental conditions at each of the Bridgeville facility
and the Titusville facility are the indemnities agreed to with respect to each
of the facilities. The Company believes the amount and terms of the Armco
indemnities are sufficient to protect the Company against environmental
liabilities arising from environmental conditions prior to August 15, 1994, with
respect to the Bridgeville facility, and prior to June 2, 1995, with respect to
the Titusville facility. There can be no assurance, however, that those
indemnities will fully cover all environmental liabilities incurred by the
Company and there can be no assurance that the Company will have the financial
resources to discharge those liabilities if legally compelled to do so.
Dunkirk Facility
In connection with the acquisition of the Dunkirk facility, Dunkirk Specialty
Steel and New York Job Development Authority entered into an order with the New
York State Department of Environmental Conservation ("NY DEC") with regard to
existing environmental conditions at the Dunkirk facility. Pursuant to the terms
of the order, Dunkirk Specialty Steel agreed, among other things, to pay an
aggregate sum of $200,000 in consideration from NY DEC's forbearance from
bringing any action or proceeding against Dunkirk Specialty Steel and its
affiliates relating to existing contamination at the site.
See "Risk Factors--Environmental Issues."
10
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the Company's best
knowledge, threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
At December 31, 2001, a total of 6,347,172 shares of the Company's Common Stock,
par value $.001 per share, were issued and held by approximately xxx holders of
record. 269,900 shares of the issued Common Stock of the Company were held in
treasury at December 31, 2001.
Certain holders of Common Stock and the Company are party to a stockholder
agreement. That agreement maintains in effect certain registration rights
granted to non-management stockholders, which provides to them two demand
registration rights exercisable at any time upon written request for the
registration of Restricted Shares of Common Stock having an aggregate net
offering price of at least $5,000,000 (the "Registrable Securities").
Price Range of Common Stock
The information called for by this item is set forth on page 31 of the Annual
Report to Stockholders for the year ended December 31, 2001, which is
incorporated herein.
Preferred Stock
The Company's Certificate of Incorporation provides that the Company may, by
vote of its Board of Directors, issue the Preferred Stock in one or more series.
The Preferred Stock may have rights, preferences, privileges and restrictions
thereon, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others.
The Company has no outstanding Preferred Stock and has no plans to issue any of
the authorized Preferred Stock.
Dividends
The Company has never paid a cash dividend on its Common Stock and currently has
no plans to pay dividends in the foreseeable future. Restrictions contained in
the Company's Credit Agreement with PNC currently prohibit the payment of cash
dividends on Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item is set forth on page 32 of the Annual
Report to Stockholders for the year ended December 31, 2001, which is
incorporated herein.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item is set forth on pages 13 through 17 of
the Annual Report to Stockholders for the year ended December 31, 2001, which
are incorporated herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Prices for the Company's raw materials and natural gas requirements are subject
to frequent market fluctuations. The Company does not maintain long-term supply,
fixed cost agreements for its major raw material and natural gas requirements.
Price increases are normally offset by selling price increases and surcharges.
The Company is exposed to market risk from changes in interest rates related to
its long-term debt. At December 31, 2001, the Company's total long-term debt,
including the current portion was $8,322,000. Of that amount, $1,822,000 has
fixed rates and $6,500,000 bears a variable rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is set forth on pages 18 through 30 of
the Annual Report to Stockholders for the year ended December 31, 2001, which
are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in connection
with the Company's Annual Meeting of Stockholders to be held on May 21, 2002,
under the heading "Proposal No. 1--Election of Directors," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management," which information is
incorporated by reference. With the exception of the information specifically
incorporated herein by reference, the Company's Proxy Statement is not to be
deemed filed as part of this report for the purposes of this Item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1) Consolidated Financial Statements:
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP, appearing on pages 18 through 30 of the
accompanying Annual Report, are incorporated in this Form 10-K Annual
Report.
2) Consolidated Financial Statement Schedules:
The following financial statement schedule is included herewith on page 20
and made a part hereof; Schedule II (Valuation and Qualifying Accounts).
3) Exhibits:
EXHIBIT
- -------
NUMBER DESCRIPTION
- ------- -----------
2.1 Certificate of Merger, dated July 29, 1994, between Universal Stainless
& Alloy Products, Inc., a Pennsylvania corporation, and the Company
(incorporated herein by reference to Exhibit 2.1 to Registration No.
33-85310).
2.2 Agreement and Plan of Merger, dated July 28, 1994, among Universal
Stainless & Alloy Products, Inc., a Pennsylvania corporation, and the
Company (incorporated herein by reference to Exhibit 2.2 to
Registration No. 33-85310).
3.1 Amended and Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1 to Registration No. 33-85310).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2
to Registration No. 33-85310).
4.1 Specimen Copy of Stock Certificate for shares of Common Stock
(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).
10.1 Stockholders Agreement, dated as of August 1, 1994, by and among the
Company and its existing stockholders (incorporated herein by reference
to Exhibit 10.1 to Registration No. 33-85310).
10.2 Asset Purchase Agreement, dated August 15, 1994, by and between the
Company and Armco Inc., as amended by letter agreement, dated October
5, 1994, by and between the Company and Armco, Inc. (incorporated
herein by reference to Exhibit 10.2 to Registration No. 33-85310).
15
EXHIBIT
- -------
NUMBER DESCRIPTION
- ------- -----------
10.3 Lease Agreement, dated August 15, 1994, by and between Armco Inc. and
the Company (incorporated herein by reference to Exhibit 10.3 to
Registration No. 33-85310).
10.4 Security Agreement, dated August 15, 1994, by and between the Company
and Armco Inc (incorporated herein by reference to Exhibit 10.4 to
Registration No. 33-85310).
10.5 Asset and Real Property Purchase Agreement, dated as of June 2, 1995,
by and between Armco Inc. and the Company (incorporated herein by
reference to Exhibit 2.3 to Registration No. 33-97896).
10.6 Employment Agreement, dated November 20, 1998 by and between the
Company and Clarence M. McAninch (incorporated herein by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.7 Employment Agreement dated January 1, 1998 between the Company and Paul
McGrath (incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
10.8 Employment Agreement dated January 1, 1998 between the Company and
Richard M. Ubinger (incorporated herein by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
10.9 1994 Stock Incentive Plan (incorporated herein by reference to Exhibit
10.10 to Registration No. 33-85310).
10.10 Second Amended and Restated Credit Agreement, dated as of January 30,
1998, between the Company and PNC Bank, National Association, with
Exhibits and Schedules (incorporated herein by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.11 Security Agreement and Collateral Assignment, dated as of January 30,
1998, by and between the Company and PNC Bank, National Association
(incorporated herein by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.12 Note, dated as of January 30, 1998, by and between the Company and PNC
Bank, National Association (incorporated herein by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.13 Landlord's Waiver, dated as of January 30, 1998, by Armco Inc
(incorporated herein by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.14 Open-End Leasehold Mortgage, Collateral Assignment and Security
Agreement dated as of January 30, 1998, by the Company in favor of PNC
Bank, National Association (incorporated herein by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 First Amendment to Second Amended and Restated Credit Agreement, dated
as of December 31, 1998, between the Company and PNC Bank, National
Association (incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
16
EXHIBIT
- -------
NUMBER DESCRIPTION
- ------- -----------
10.16 Second Amendment to Second Amended and Restated Credit Agreement, dated
as of May 25, 2000, between the Company and PNC Bank, National
Association (incorporated herein by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2000).
10.17 Third Amendment to the Second Amended and Restated Credit Agreement,
dated as of June 29, 2001, between the Company and PNC Bank, National
Association (filed herewith).
10.18 Loan Agreement, dated October 3, 1995, by and between the Company and
Commonwealth of Pennsylvania (incorporated herein by reference to
Exhibit 10.20 to Registration No. 33-97896).
10.19 Note, dated October 3, 1995, for the principal sum of $500,000, by the
Company, in favor of the Commonwealth of Pennsylvania (incorporated
herein by reference to Exhibit 10.21 to Registration No. 33-97896).
10.20 Security Agreement, dated October 3, 1995, by and between the Company
and the Commonwealth of Pennsylvania (incorporated herein by reference
to Exhibit 10.22 to Registration No. 33-97896).
10.21 Supply Contract Agreement, dated as of July 1, 2001, between the
Company and Talley Metals Technology, Inc. a subsidiary of Carpenter
Technology Corporation (filed herewith).
10.22 Personal Property Asset Purchase Agreement, dated as of February 8,
2002, between the Company and New York Job Development Authority (filed
herewith).
10.23 Real Property Asset Purchase Agreement, dated as of February 8, 2002,
between the Company and New York Job Development Authority (filed
herewith).
10.24 Promissory Note, dated as of February 13, 2002, between the Company and
New York Job Development Authority (filed herewith).
10.25 Promissory Note, dated as of February 14, 2002, between the Company and
New York Job Development Authority (filed herewith).
13.01 Selected pages of the Company's 2001 Annual Report to Stockholders
(filed herewith).
23.01 Consent of PricewaterhouseCoopers LLP (filed herewith).
24.01 Powers of Attorney (included on the signature page herein).
(b) The following reports on Form 8-K were filed during the fourth quarter
of 2001:
None.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 22,
2002.
Universal Stainless & Alloy Products, Inc.
By: /s/ C.M. McAninch
----------------------------------------
Clarence M. McAninch
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 Clarence M. McAninch and Paul A. McGrath, and each of them acting
alone, his true and lawful attorney-in-fact, with full power of substitution,
for him in any and all capacities, to execute and cause to be filed with the
Securities Exchange Commission 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 and 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/ C.M. McAninch President, Chief Executive Officer March 22, 2002
- ---------------------------------------- And Director (Principal Executive Officer)
Clarence M. McAninch
/s/ Richard M. Ubinger Vice President of Finance, Chief Financial Officer March 22, 2002
- ---------------------------------------- (Principal Financial and Accounting Officer)
Richard M. Ubinger
/s/ Douglas M. Dunn Director March 22, 2002
- ----------------------------------------
Douglas M. Dunn
/s/ George F. Keane Director March 22, 2002
- ----------------------------------------
George F. Keane
/s/ Udi Toledano Director March 22, 2002
- ----------------------------------------
Udi Toledano
/s/ D. Leonard Wise Director March 22, 2002
- ----------------------------------------
D. Leonard Wise
18
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Universal Stainless & Alloy Products, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 18, 2002, except for Note 12, which is as of February 8, 2002
appearing in the 2001 Annual Report to Stockholders of Universal Stainless &
Alloy Products, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
January 18, 2002
19
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 2000 and 2001
(Dollars in thousands)
Balance at Charged to
Beginning costs and Balance at
of Year Expenses Deductions End of Year
---------- ---------- ---------- -----------
Inventory reserve:
Year ended December 31, 1999 $235 $789 ($863) $161
Year ended December 31, 2000 161 514 (206) 469
Year ended December 31, 2001 469 332 (321) 480
Allowance for doubtful accounts:
Year ended December 31, 1999 $358 $ 60 $-- $418
Year ended December 31, 2000 418 151 (377) 192
Year ended December 31, 2001 192 336 (94) 434
20