Universal Stainless & Alloy Products, Inc.

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Universal Stainless & Alloy Products, Inc.

600 Mayer Street
Bridgeville, Pennsylvania 15017
U.S.A.
Telephone: (412) 257-7600
Fax: (412) 257-7640
Web site: http://www.univstainless.com

Public Company
Incorporated: 1994
Employees: 463
Sales: $120.64 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: USAP
NAIC: 331111 Iron and Steel Mills

Universal Stainless & Alloy Products, Inc. is a producer of semifinished and finished specialty steel products. Stainless steel products account for about 80 percent of sales. The company's facilities in Bridgeville and Titusville, Pennsylvania, make up its Universal Stainless & Alloy Products segment. Dunkirk Specialty Steel in New York forms another segment.

Origins

Clarence "Mac" McAninch and Daniel DeCola formed Universal Stainless & Alloy Products, Inc. to acquire the assets of an Armco steel mill in Bridgeville, Pennsylvania, in 1994. (Originally incorporated in Pennsylvania in January of that year, it was converted to a Delaware corporation a few months later.) The pair had been managers at the Armco plant; McAninch, formerly national sales manager, served as the new company's president and DeCola was vice-president of operations.

The history of the Bridgeville plant reflected the ups and downs of the steel industry. In the early 1980s, the Bridgeville facility, known as Universal-Cyclops, had employed more than 500 people; it was subject to intermittent shutdowns, however, as cheap imports flooded the specialty steel market.

Cyclops unsuccessfully tried to sell the unit at least three times from 1985 to 1989. By this time, Cytemp had 1,200 employees at three plants in Bridgeville, Titusville, and Pittsburgh, Pennsylvania, and posted revenues of $168 million.

Cyclops split the Cytemp operation into two parts in 1990; the Bridgeville operation was renamed Bridgeville Stainless & Alloy Products, while Titusville kept the Cytemp name. Titusville had about 700 employees producing high-temperature bars and billets. The Bridgeville plant, with 270 employees, focused on commodity stainless steel bars. Cyclops refocused the Bridgeville plant on semifinished ingots, billets, and blooms while shifting the stainless bars to Titusville.

A plan for Armco Inc. of Parsippany, New Jersey, to buy Cyclops for $156 million collapsed in the spring of 1991. There was difficulty obtaining financing in a sluggish specialty steel market. The deal was not entirely dead, however, and the companies would be combined in April 1992. (Armco also acquired the Cytemp Specialty Steel operation in Titusville.)

In the meantime, in January 1992, Cyclops announced that it was closing Bridgeville Stainless & Alloy Products after having failed to lift income or forge a new agreement with the United Steelworkers union (USW). According to American Metal Market, its capacity was 100,000 tons a year.

After the merger, Armco Inc.'s Baltimore Specialty Steels was combined with Bridgeville Stainless & Alloy Products in a new division, Armco Stainless & Alloy Products. The Baltimore unit, which had 735 employees, made stainless steel bars, wire, and rods for sale to steel distributors and machinery manufacturers.

Formation of Universal in 1994

The Bridgeville plant was virtually shut down in late 1993 during a restructuring of Armco. In August 1994 it was bought for $3.7 million by former managers, who had formed a company called Universal Stainless & Alloy Products, Inc. The new owners had a four-year agreement with the labor union, which allowed for lower wages and more flexible work rules while including employees in a profit-sharing plan.

According to the Pittsburgh Post-Gazette, the reopening of the Bridgeville operation was part of a renewed interest in steelmaking as the industry experienced its biggest demand since the 1970s. Universal capitalized on that interest in a successful initial public offering on the NASDAQ in December 1994. About 1.6 million shares were sold at $8 each; within a month they hit $10. Universal sold another two million shares at $9 each in a secondary offering in November 1995. Much of the $14 million raised was earmarked for new equipment.

Universal reported a loss of $2.5 million on sales of $7.4 million for 1994. Aside from the usual start-up costs, earnings were hit by a five-week shutdown of its rolling mill because of an electrical fault. Fortunately, the company was able to hold on to customers during the crisis and sign on new ones afterward. The company ended the year with a backlog worth $10 million.

By this time, Universal was employing about 90 workers. The plant continued to produce semifinished ingots, billets, and blooms and tool steel plate. Steam and gas turbine manufacturers were a major market. "We're going to carve out niche markets," McAninch told American Metal Market. "We're not going to be all things to all people."

Acquiring Titusville in 1995

In 1995, Universal acquired the precision rolled products and remelting operations of Armco's Cytemp Specialty Steel facility in Titusville for $950,000. This business primarily machined parts for the aerospace industry, but also supplied the power generation market. The company also was spending $3 million to upgrade Bridgeville. Equipment included a 50-ton electric-arc furnace, a decarburization vessel, remelt furnaces, and a rolling mill.

Power generation, heavy equipment, and aerospace were Universal's three main markets after the Titusville buy. Stainless steel accounted for the majority of production, though Universal also made tool steel. Revenues were up to $47 million in 1995, with stainless steel accounting for $38 million of sales.

Sales were up to $81 million by 1997, producing net earnings of $7 million. The Bridgeville plant was ISO 9002 certified in 1998 and installed a new $11 million round bar finishing facility. By this time, the company had 290 employees at its two plants. Sales slipped to $72.6 million in 1998 and $66.7 million in 1999 under pressure from imports. The power generation and aerospace industries were experiencing hard times in the wake of the Asian financial crisis.

With natural gas costs escalating, in October 2000 Universal began implementing a surcharge in October 2000. This was initially rejected by the marketplace, according to American Metal Market, but quadrupling energy costs had other specialty steel producers studying similar initiatives. A few years later, producers would add surcharges to cover price increases for iron, chrome, titanium, and other materials.

Acquiring Dunkirk in 2002

Universal acquired a third location in February 2002, buying the Empire Specialty Steel plant in Dunkirk, New York, from the state's Job Development Authority for $4 million. Empire had been formed from AL Tech Specialty Steel, which Universal had considered buying for $38 million before it went bankrupt in 1999. At its mid-1990s peak, the site had produced revenues of $100 million a year. Empire shut the site down in mid-2001. The Dunkirk site dated back to the Atlas Crucible Steel Co., formed in 1907, which was later part of the Allegheny Ludlum Steel Corp. Universal CEO Mac McAninch had reportedly helped launch AL Tech in 1976. It was acquired by Korea's Sammi Steel Co. Ltd. in 1989.

The Dunkirk plant added finished specialty steel rod and wire products to Universal's offerings. Dunkirk mainly served the service center market. Universal was initially investing $6 million in improvements there. Unfortunately, a sluggish economy did not help restore its profitability. Losses there helped lower Universal's overall profits 72 percent to $2 million in 2002.

Universal lost $1.4 million in 2003. Sales were flat at $69 million. The company attributed the results to a poor economy, weak aerospace and power generation business, and price cutting by struggling competitors. The new Dunkirk unit was especially hard hit.

2004 Recovery

Universal benefited from a recovery in the United States in 2004. A weaker dollar helped fight imports, while consolidation among domestic specialty steel producers raised prices. China's expanding economy produced demand for both steel and raw materials. Sales rose enormously in 2004, reaching $120.6 million, with net income of $7.1 million. The company boasted a record backlog of $72 million at the end of the year.

Company Perspectives:

The Company's mission is to be a leading, low-cost domestic provider of premium quality specialty steel products for our chosen markets.

Our mission is accompanied by two essential elements: 1. Work closely with our customers to understand and meet their needs through strategic investments. 2. Maintain a unique alliance with employees and suppliers to enhance productivity.

Key Dates:

1994:: Universal Stainless & Alloy Products begins operations at a Bridgeville, Pennsylvania plant.
1995:: The Titusville plant is acquired.
1996:: Capital improvement is begun by rebuilding the Bridgeville melt shop's 50-ton electric arc furnace.
1998:: Bridgeville enters the finished product market with the addition of a round bar finishing facility.
2000:: The company enters the plate product markets after acquiring a plate saw.
2002:: Dunkirk Specialty Steel is acquired, greatly expanding offerings in finished specialty steel.
2004:: Universal posts record revenues and backlog.

The recovery in the power generation and aerospace markets continued into 2005, and Universal obtained additional financ-ing to go on an expansion path. The company had to contend with a strike at its Titusville plant, however, after its USW contract expired there in September 2005.