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Universal Stainless Reports Record Sales and Earnings for Third Quarter 2006EPS Reaches $0.86 on $55 Million in SalesBRIDGEVILLE, Pa., Oct. 19, 2006 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that net income for the third quarter of 2006 rose 73% to a record $5.7 million, or $0.86 per diluted share, on a 28% increase in sales, which reached a record $55.1 million. This compares with net income of $3.3 million, or $0.51 per diluted share, and sales of $43.1 million reported in the third quarter of 2005. Third quarter 2006 results exceeded the Company's forecast of diluted EPS of $0.65 to $0.70 and sales of $45 to $50 million. Net income for the nine-month period ended September 30, 2006 rose 50% to a record $14.2 million, or $2.15 per diluted share, on a 16% increase in sales, which reached a record $148.1 million. In the prior year period net income was $9.5 million, or $1.47 per diluted share, and sales were $128.0 million. President and CEO Mac McAninch commented: "Continued robust aerospace demand, coupled with strong petrochemical and power generation markets, enabled us to achieve record results for the third quarter of 2006. Sales were further accelerated by the rapid increase in the cost of nickel, a major component of stainless steel, which increased the prices of our products due to the effect of the surcharge mechanism. Our Dunkirk operation also benefited from continued workforce additions, the timing of feedstock procurement and effective cost management. As a result, Dunkirk's sales reached $20 million and its operating margin rose to a record 19% of sales." Mr. McAninch continued: "Our investment in a sixth vacuum-arc remelt (VAR) furnace and the addition of milling machines and a plate flattener in Bridgeville enabled us to take advantage of our market opportunity and work down some of our substantial backlog. We completed installation of a seventh VAR furnace ahead of schedule this summer and expect to see a full-quarter benefit in the first quarter of 2007." Mr. McAninch concluded: "We remain optimistic about the balance of the year even though we expect to see the normal seasonal patterns come into play in December and have developed our forecast accordingly. We see favorable conditions in our end markets continuing into 2007 and beyond." Segment Review In the third quarter of 2006, the Universal Stainless & Alloy Products segment had record sales of $47.2 million and operating income of $4.0 million, yielding an operating margin of 9%. This compares with third quarter 2005 sales of $40.0 million and operating income of $4.0 million, or 10% of sales. In the second quarter of 2006, sales were $45.7 million and operating income was $5.8 million, or 13% of sales. The reduction in operating margin in the 2006 third quarter is primarily due to higher material costs incurred in comparison to prior quarters. The 18% increase in sales from the 2005 third quarter reflects the contribution of the new vacuum-arc remelt furnace installed in December 2005 and additional milling machines and a plate flattener added in the 2006 first quarter. It also was due to higher product prices and a favorable product mix, including growth in shipments to forgers and of bar and plate products to service centers and OEMs. The 3% sales increase over the 2006 second quarter mainly reflected increased shipments of semi-finished product to rerollers and forgers and of bar products to service centers offset by lower shipments of tool steel plate to service centers. The Dunkirk Specialty Steel segment reported record sales for the 2006 third quarter of $19.8 million and record operating income of $3.8 million, resulting in an operating margin of 19%. This compares with sales of $14.0 million and operating income of $1.8 million, or 13% of sales, in the third quarter of 2005. In the second quarter of 2006 sales were $16.2 million and operating income of $2.3 million, resulting in an operating margin of 14%. Dunkirk's sales increased 42% over the 2005 third quarter and 23% over the 2006 second quarter. Operating income increased 117% from the prior year third quarter and rose 69% from the 2006 second quarter. The growth in sales and profitability was due to the previously mentioned factors, including the effect of the surcharge mechanism, workforce additions that helped increase throughput and effective cost management. In addition to increased sales to service centers and OEMs in the 2006 third quarter, Dunkirk's sales to redrawers rose substantially from the previous quarter due to a large shipment of rod product requiring special chemistry. 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 2006 sales will range from $45 to $50 million and that diluted EPS will range from $0.70 to $0.75. This compares with sales of $42.0 million and diluted EPS of $0.55 in the fourth quarter of 2005. The following factors were considered in developing these estimates:
-- The Company's total backlog at September 30, 2006 remained at high
levels, approximating $124 million compared to $128 million at
June 30, 2006.
-- Despite continued strong end market demand, the Company expects
normal year-end plant closings and inventory adjustments by its
customers as well as trucking constraints to impact its sales
company-wide. In line with this, sales from the Dunkirk Specialty
Steel segment are expected to approximate $17 million in the
fourth quarter of 2006.
Webcast A simultaneous Webcast of the Company's conference call discussing the third quarter of 2006 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 26th. It can be accessed by dialing 706-645-9291, passcode 7722080. 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. 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 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.
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,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $ 41,726 $ 35,573 $ 110,159 $ 103,397
Tool steel 5,408 4,805 18,645 15,181
High-strength low
alloy steel 4,529 1,506 10,322 4,270
High-temperature
alloy steel 2,932 587 7,045 2,323
Conversion services 461 569 1,694 2,533
Other 54 57 201 275
---------- ---------- ---------- ----------
Total net sales 55,110 43,097 148,066 127,979
Cost of products
sold 42,912 35,692 116,924 106,299
Selling and
administrative
expenses 3,038 2,043 8,173 6,335
---------- ---------- ---------- ----------
Operating income 9,160 5,362 22,969 15,345
Interest expense (275) (223) (810) (595)
Other income 2 -- 6 63
---------- ---------- ---------- ----------
Income before
taxes 8,887 5,139 22,165 14,813
Income tax
provision 3,199 1,850 7,979 5,333
---------- ---------- ---------- ----------
Net income $ 5,688 $ 3,289 $ 14,186 $ 9,480
========== ========== ========== ==========
Earnings per share
- Basic $ 0.88 $ 0.52 $ 2.21 $ 1.49
========== ========== ========== ==========
Earnings per share
- Diluted $ 0.86 $ 0.51 $ 2.15 $ 1.47
========== ========== ========== ==========
Weighted average
shares of
Common Stock
outstanding
Basic 6,443,570 6,383,464 6,429,089 6,365,947
Diluted 6,615,784 6,490,056 6,596,787 6,469,953
MARKET SEGMENT INFORMATION
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Service centers $ 26,394 $ 18,039 $ 75,750 $ 53,396
Rerollers 9,856 9,762 25,080 33,040
Forgers 10,614 8,572 25,035 22,742
Original equipment
manufacturers 4,421 3,148 13,976 8,070
Wire redrawers 3,310 2,949 6,330 7,934
Conversion services 461 569 1,694 2,533
Other 54 58 201 264
---------- ---------- ---------- ----------
Total net sales $ 55,110 $ 43,097 $ 148,066 $ 127,979
========== ========== ========== ==========
Tons shipped 13,636 11,952 38,421 40,565
========== ========== ========== ==========
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $ 28,342 $ 23,551 $ 74,353 $ 68,864
Tool steel 4,852 4,569 17,466 14,723
High-strength low
alloy steel 2,107 574 5,036 1,887
High-temperature alloy
steel 931 507 2,690 2,235
Conversion services 321 466 1,243 2,122
Other 39 57 151 217
-------- -------- -------- --------
36,592 29,724 100,939 90,048
Intersegment 10,599 10,248 31,089 25,506
-------- -------- -------- --------
Total net sales 47,191 39,972 132,028 115,554
Material cost of sales 24,055 20,876 61,809 59,156
Operation cost of
sales 16,965 13,651 49,700 41,734
Selling and
administrative
expenses 2,124 1,428 5,679 4,324
-------- -------- -------- --------
Operating income $ 4,047 $ 4,017 $ 14,840 $ 10,340
======== ======== ======== ========
Dunkirk Specialty Steel Segment
For the Quarter Ended For the Nine-Months Ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $ 13,384 $ 12,022 $ 35,806 $ 34,533
Tool steel 556 236 1,179 458
High-strength low
alloy steel 2,422 932 5,286 2,383
High-temperature alloy
steel 2,001 80 4,355 88
Conversion services 140 103 451 411
Other 15 -- 50 58
-------- -------- -------- --------
18,518 13,373 47,127 37,931
Intersegment 1,317 617 2,874 2,098
-------- -------- -------- --------
Total net sales 19,835 13,990 50,001 40,029
Material cost of sales 10,847 8,190 27,756 21,746
Operation cost of
sales 4,263 3,428 12,216 10,817
Selling and
administrative
expenses 914 615 2,494 2,011
-------- -------- -------- --------
Operating income $ 3,811 $ 1,757 $ 7,535 $ 5,455
======== ======== ======== ========
CONSOLIDATED BALANCE SHEET
September 30, December 31,
2006 2005
---- ----
Assets
Cash $ 614 $ 620
Accounts receivable, net 37,784 27,963
Inventory 63,455 51,398
Deferred taxes 1,835 1,084
Other current assets 1,525 1,706
-------- --------
Total current assets 105,213 82,771
Property, plant & equipment, net 49,381 45,761
Other assets 500 495
-------- --------
Total assets $155,094 $129,027
======== ========
Liabilities and Stockholders' Equity
Trade accounts payable $ 18,345 $ 12,579
Accrued employment costs 4,919 2,958
Deferred revenue 2,882 384
Outstanding checks in excess of bank
balance 2,547 3,101
Current portion of long-term debt 2,414 1,555
Other current liabilities 2,037 530
-------- --------
Total current liabilities 33,144 21,107
Bank revolver 7,153 6,117
Long-term debt 9,427 11,200
Deferred taxes 9,486 9,600
-------- --------
Total liabilities 59,210 48,024
Stockholders' equity 95,884 81,003
-------- --------
Total liabilities and stockholders'
equity $155,094 $129,027
======== ========
CONSOLIDATED STATEMENT OF CASH FLOW DATA
For the Nine-Month Period Ended September 30,
2006 2005
---- ----
Cash flows provided by operating activities:
Net income $ 14,186 $ 9,480
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 2,460 2,301
Loss on retirement of fixed assets -- 705
Deferred tax (decrease) increase (879) 193
Stock based compensation expense 369 --
Tax benefit from exercise of stock options -- 173
Excess tax benefits from share-based payment
arrangements (179) --
Changes in assets and liabilities:
Accounts receivable, net (9,821) (4,530)
Inventory (12,057) (12,889)
Trade accounts payable 5,766 (32)
Deferred revenue 2,498 310
Accrued employment costs 1,961 1,466
Other, net 1,204 1,483
-------- --------
Cash flow provided by operating activities 5,508 (1,340)
-------- --------
Cash flow used in investing activities:
Capital expenditures (5,587) (5,233)
-------- --------
Cash flow used in investing activities (5,587) (5,233)
-------- --------
Cash flows provided by financing activities:
Revolving credit net borrowings 1,036 (197)
Proceeds from long-term debt -- 8,050
Deferred financing costs -- (48)
Long-term debt repayments (914) (755)
Net change in outstanding checks in excess of
bank balance (554) 248
Proceeds from issuance of common stock 326 554
Excess tax benefits from share-based payment
arrangements 179 --
-------- --------
Cash flow provided by financing activities
73 7,852
-------- --------
Net cash flow $ (6) $ 1,279
======== ========
CONTACT: Universal Stainless & Alloy Products, Inc.
Richard M. Ubinger, Vice President of Finance,
Chief Financial Officer and Treasurer
(412) 257-7606
Comm-Partners LLC
June Filingeri, President
(203) 972-0186
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