Universal Stainless & Alloy Products, Inc. reported net income of $2.7 million on sales of $33.3 million for the third quarter of 2004.

Third Quarter Results—Net income of $2.7 million ($0.43 per diluted share) compares to net loss of $121,000 ($0.02 per diluted share) in the third quarter of 2003. Results includes other income of $565,000 ($0.06 per diluted share) related to delayed receipt of the remaining 2003 import duties awarded the company under the "Continued Dumping and Subsidy Act of 2000," which resulted from a favorable ruling on a lawsuit challenging the distribution method of import duties.

Sales of $33.3 million compare to sales of $18.6 million in the third quarter of 2003. Sales were in line with the company's forecast and EPS was ahead of the projected range of $0.30 to $0.35, before including the other income from import duties.

Comments—Commenting on the results, President and CEO Mac McAninch stated: "I am pleased with our performance in all of our markets and by the confidence our customers have demonstrated in us. In a period of very high market demand, we have worked diligently to respond to our customers' needs by investing rapidly to increase throughput and by maintaining a fair and transparent pricing policy in the face of volatile, rising costs."

Mr. McAninch continued: "Our third quarter sales rose 79% from last year, which was a difficult period for the economy and our industry. More importantly, end market sales improved 15% over stronger 2004 second quarter levels, with sales of aerospace, power generation, petrochemical and tool steel products up 17%, 2%, 11% and 14%, respectively."

Mr. McAninch added: "We continued to improve our profitability in the third quarter by focusing on higher value-added products and by taking necessary pricing action for cost recovery. I am especially pleased with the enthusiasm and dedication of our employees at Dunkirk Specialty Steel. They have done an excellent job of penetrating attractive niche markets and improving their product mix. Their improved operating results begin to show the facility's true potential to the Company. I also want to acknowledge the efforts of our employees at Bridgeville and Titusville, who increased shipments by 17% from the prior quarter. As our backlog continues to rise, we must continue to increase our productivity and remain focused on quality improvement and cost reduction initiatives."

Segment Review—The Universal Stainless & Alloy Products segment had operating income of $2.9 million on sales of $31.2 million, which compares with operating income of $554,000 on sales of $16.2 million in the third quarter of 2003 and operating income of $1.9 million on sales of $25.1 million in the second quarter of 2004.

The strong growth reflected increased sales to all customer categories, including sales of reroll product to Dunkirk, in the year-over-year period and sequentially. Higher shipments, improved mix and price recovery initiatives led to greater profitability.

The Dunkirk Specialty Steel segment reported operating income of $1.2 million on record sales of $9.5 million. This compares with an operating loss of $732,000 on sales of $5.2 million in the third quarter of 2003 and operating income of $651,000 on sales of $8.0 million in the prior quarter.

Dunkirk's top line growth mainly reflected improved product mix and increased sales to service centers, while its total sales volume allowed further reductions in the manufacturing cost of products sold, leading to the continued improvement in its profitability.

Business Outlook—The company estimates that fourth quarter 2004 sales will range from $32 to $37 million and that diluted EPS will range from $0.32 to $0.37. In the fourth quarter of 2003, sales were $18.8 million and the company incurred a net loss per diluted share of $0.04. The 2004 fourth quarter EPS estimate does not include any monies that may be received by the company related to the Continued Dumping and Subsidy Act of 2000 for the current year.

The following factors were considered in developing fourth quarter estimates:

• Total backlog at September 30, 2004 approximated $60 million compared to $49 million at June 30, 2004, reflecting continued strength in all of the company's markets.
• Capital improvements implemented in the second and third quarters, including the addition of a reheat furnace to increase throughput at the Bridgeville blooming mill, should fully benefit the fourth quarter.
• Sales from the Dunkirk Specialty Steel segment are expected to approximate the 2004 third quarter sales of $9.5 million.
• Additional sales are dependent upon the level of inventory management initiatives implemented by the service center industry near the end of the year.
• Raw material costs are expected to remain volatile for the balance of the year. Electricity costs will increase by $200,000 per month in the fourth quarter due to a recent Public Utility Commission ruling that has reduced the number of off-peak power hours available to conduct its melting operations at the Bridgeville facility. The company has retained a consultant to recommend energy-saving initiatives and is currently negotiating its 2005 energy contract.

Mr. McAninch concluded: "Our company and our industry have realized substantial improvement this year. Based on our own assessment of the marketplace and what we are currently hearing from our customers, we expect continued strength in our business at least through the first half of 2005."

Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products, Inc. 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 original equipment manufacturers, service centers, forgers, rerollers and wire redrawers.