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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, 1997

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 ((s)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 24, 1998, based on the closing price of these shares of $14

on that date, was $47,387,354. 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 24, 1998, there were 6,304,156 shares of the Registrant's Common

Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to Stockholders for the year ended

December 31, 1997, and definitive Proxy Statement for the Annual Meeting of

Stockholders scheduled to be held May 20, 1998, are incorporated by reference

into Parts II and III of this Form 10-K.
TABLE OF CONTENTS




PART I



Item 1. Business.................................................................. 1



Item 2. Properties................................................................ 8



Item 3. Legal Proceedings......................................................... 10



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.. 11



Item 6. Selected Financial Data................................................... 11



Item 7. Management's Discussion and Analysis of Financial Condition and Results

of Operations........................................................... 12



Item 7A. Quantitative and Qualitative Disclosures About Market Risks............... 12



Item 8. Financial Statements and Supplementary Data............................... 12



Item 9. Changes in and Disagreements With Accountants on Accounting and

Financial Disclosure.................................................... 12


PART III


Item 10. Directors and Executive Officers of the Registrant........................ 12



Item 11. Executive Compensation.................................................... 12



Item 12. Security Ownership of Certain Beneficial Owners and Management............ 13



Item 13. Certain Relationships and Related Transactions............................ 13


PART IV


Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 14
PART I
ITEM 1. BUSINESS
General
Universal Stainless & Alloy Products, Inc. ("the Company"), manufactures and

markets semi-finished and finished specialty steel products, including stainless

steel, tool steel and certain other alloyed steels. The Company's products are

sold to rerollers, forgers, service centers and original equipment

manufacturers. The Company's products are further processed by its customers

for use primarily in the heavy equipment manufacturing, power generation and

aerospace industries. The Company also provides 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. The Company is capable of

producing specialty steel products that include both long products (ingots,

blooms, billets and bars), which are primarily used by customers to produce bar,

rod and wire, and flat rolled products (slabs and plates), which are used by

customers to produce fine-gauge plate, sheet and strip products. The Company

also produces customized shapes that are cold rolled from purchased coiled

strip, flat bar or extruded bar.
The Company was incorporated in 1994 for the principal purpose of acquiring

substantially all of the idled equipment and related assets (the "Assets")

located at the Bridgeville, Pennsylvania production facility (the "Bridgeville

Facility") of Armco, Inc. ("Armco"). In June 1995, the Company acquired the

precision rolled products business (the "PRP Business") and five vacuum-arc

remelting furnaces and certain ancillary equipment (the "VAR Assets") from the

Cytemp division of Armco, located in Titusville, Pennsylvania (the "Titusville

Facility").
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 stainless steel, tool steel and certain other

alloyed steels:
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 resistance to rust, corrosion and heat, high

strength, good wear characteristics, natural attractiveness and ease of

maintenance. Stainless steel is used, among other applications, in the

automotive, aircraft and aerospace industries and in the manufacture of food

handling, chemical processing, pollution control and medical and health

equipment. The large number of 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. These

hardness characteristics are brought out by heating and cooling at precise rates

in the annealing process. Tool steels are utilized in the manufacture of

metals, plastics, pharmaceuticals, electronics, optics and paper and aluminum

extrusions.
1
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 such steels as nickel, chrome and molybdenum

typically exceed the alloy element of carbon steel but not that of high

temperature alloy steel.
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:


Year ended December 31, 1997 1996 1995

---- ---- ----
Stainless steel $60,700,000 $46,903,000 $38,292,000

Tool steel 10,467,000 8,019,000 4,080,000

Conversion services 4,834,000 3,804,000 3,272,000

Other 5,300,000 1,532,000 1,348,000

----------- ----------- -----------

$81,301,000 $60,258,000 $46,922,000

----------- ----------- -----------


Raw Materials
Scrap Metal
The Company's major raw material is ferrous scrap metal, which is generated

principally from industrial, automotive, demolition and railroad sources and is

purchased in the open market through a number of scrap brokers and dealers or by

direct purchase. The Company purchases approximately 80% of its scrap metal

from three principal domestic suppliers. The long-term demand for scrap metal

and its importance to the domestic specialty steel industry may be expected to

increase as steelmakers continue to expand scrap metal-based electric furnace

capacity with additions to or replacements of existing integrated specialty

steel manufacturing facilities that use iron ore, coke and limestone as their

raw materials. The high quality of the Company's products requires use of

premium grades of scrap metal, the supply of which is more limited. The Company

has not experienced difficulty to date in purchasing adequate scrap metal for

its production processes. The Company believes that adequate supplies of scrap

metal will continue to be available in sufficient quantities for the foreseeable

future.

Alloys
The Company purchases various materials for use as alloy additions, some of

which come from Canada (principally nickel) and other foreign countries.

Certain of those alloys (principally chrome) are supplied by South African

manufacturers and any political disruptions in that country could interfere with

the delivery of those materials.

PRP Business
The PRP Business' principal starting materials consist of metallic flat bar,

extruded "near shaped" bar and coiled strip, which the Company cold rolls to

customer specification 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 the PRP Business will continue to be available

in sufficient quantities for the foreseeable future.
The cost of raw material is more than 50% 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
2
raw materials at set prices for up to 30 days, which 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.

Energy Agreements
The production of steel requires the ready availability of substantial amounts

of energy. Electricity is the major energy source consumed in the Company's

operations. The Company believes that its energy arrangements allow it to

compete effectively within its industry. The Company also uses natural gas in

certain of its furnaces, and certain industrial and refining gases, including

oxygen, nitrogen and argon, in connection with its melting operations. A

curtailment or interruption in energy supplies could adversely affect the

performance of the Company, as could an increase in energy-related costs.
At the Bridgeville Facility, the Company purchases electricity from Duquesne

Light Company ("DLC") pursuant to a five-year supply agreement entered into in

July 1994, with one-year renewal options. 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 10 a.m. (16 hours) daily and up to 24 hours a day on

weekends. The Company purchases natural gas from Columbia Energy Services

Corporation pursuant to a supply agreement which expires July 1999.
At the Titusville Facility, the Company purchases electricity from Pennsylvania

Electric Company pursuant to a one-year supply agreement entered into in

September 1997, with one-year renewal options. Belden and Blake Corporation

supplies all the Company's natural gas requirements at that location pursuant to

a one-year supply agreement entered into in June 1997, which is eligible for
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