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Universal Stainless Reports
4th Quarter Results

Jan. 21, 2004 — Universal Stainless & Alloy Products, Inc. reported a net loss of $273,000 on sales of $18.8 million for the fourth quarter of 2003, and a net loss of $1.4 million on sales of $69.0 million for the full fiscal year.

Fourth Quarter Results — The net loss, $273,000 ($0.04 per diluted share), compares to a net loss of $82,000 ($0.01 per diluted share) reported in the comparable period of 2002. Sales of $18.8 million compare to sales of $15.9 million in the year-ago fourth quarter. Fourth quarter 2002 results had included other income of $310,000 ($0.03 per diluted share) due to the receipt of import duties in accordance with the "Continued Dumping and Subsidy Act of 2000."

Universal noted that it has not recorded 2003 import duties of approximately $600,000 ($0.06 per diluted share) because the payment has been delayed pending the outcome of a hearing before the U.S. Court of Appeals for the Federal Circuit in a lawsuit challenging the distribution method of the import duties. The company will not record the uncollected portion of the award as income unless the Court renders a favorable decision. As a result of not receiving expected tariff funds, the company reduced its effective income tax rate for 2003 from 52.2% to 46.3%. The revised income tax rate reduced the company's tax benefit recognized in 2003 by $157,000 ($0.02 per diluted share).

Full-Year Results — The net loss of $1.4 million ($0.23 per diluted share) compares with net income of $2.1 million ($0.34 per diluted share) in 2002, and sales, $69.0 million, compares with sales of $70.9 million in 2002. The company generated free cash flow of $2.6 million in 2003 and ended the year with a solid balance sheet, including a debt-to-capitalization ratio of 11.3% and a book value of $9.44 per share.

Commenting on the results, President and CEO Mac McAninch stated: "Our fourth quarter sales matched those of the third quarter and represented an 18% increase from the fourth quarter of 2002. Consistent with our earlier forecast, stronger sales of non-commodity re-roll products more than offset seasonally lower sales to forgers, service centers and OEMs compared to the 2003 third quarter, although sales to those customers increased over the prior year period. We also saw substantial sales growth in all of our niche markets in the fourth quarter compared to the same quarter last year, with aerospace up 68%, power generation up 25%, petrochemical up 76% and tool steel up 15%. Sales price increases realized during the quarter did not fully offset rising raw material costs."

Segment Review — In the fourth quarter of 2003, the Universal Stainless & Alloy Products segment had sales of $16.5 million and operating income of $226,000. This compares with sales of $16.4 million and operating income of $353,000 in the same period of 2002. Despite a more favorable product mix in the most recent quarter, the segment's operating income was reduced by higher raw material costs.

The Dunkirk Specialty Steel segment reported sales of $4.5 million and an operating loss of $428,000. This compares with sales of $4.1 million and an operating loss of $817,000 in the same period of 2002. The 2002 fourth quarter results were impacted by the shipment of products that incurred high costs during the segment's start-up period and the establishment of an inventory reserve arising from higher start-up manufacturing costs included in the year-end inventory.

Business Outlook — Universal estimates that first quarter 2004 sales will range from $20 to $24 million and that diluted EPS will range from a net loss of $0.02 to net income of $0.03. In the first quarter of 2003, sales were $14.7 million and the company incurred a net loss per diluted share of $0.09.

The following factors were considered in developing these estimates:

• The company's total backlog at December 31, 2003 approximated $21 million compared to $18 million at September 30, 2003.
• Shipments to forgers and service centers are expected to increase. In addition, the company anticipates that the sales price increases and surcharges will be in line with raw material cost fluctuations.
• Sales from the Dunkirk Specialty Steel segment are expected to approximate a segment-record $6 million in the 2004 first quarter, based on its December 31, 2003 backlog of $5.7 million. With the substantial rise in raw material costs experienced during the fourth quarter of 2003, the company does not expect the Dunkirk Specialty Steel segment to reach profitability in the 2004 first quarter.

Mr. McAninch continued, "We begin 2004 with the strongest backlog we have had in 18 months. We have increased our share of the aerospace market. The power generation market is benefiting from increased international demand and a strong repair business, and we expect more growth in the U.S. petrochemical market."

Mr. McAninch concluded: "We believe Dunkirk will be profitable in 2004, with economic recovery and better positioning against imports due to the weak dollar and high transportation costs. We have also added a new Vice President of Sales and Marketing who will focus on helping Dunkirk increase its sales, based on his experience in both domestic and international markets. We have a strong team in place and we will remain disciplined in our strategy and focused on our customers' needs."

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 original equipment manufacturers, service centers, forgers, rerollers and wire redrawers.

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