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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended March 31, 2011

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 000-25032





UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|DELAWARE                                                       |  | 25-1724540                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer 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)





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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definitions of large accelerated filer and accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

As of April 30, 2011, there were 7,104,314 shares of the Registrants Common Stock issued and outstanding.









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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

Managements Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q
contain forward-looking statements that reflect the current views of Universal Stainless & Alloy Products, Inc. (the Company) with respect to future events and financial performance. Statements looking forward in time, including
but not limited to statements regarding future growth, cost savings, expanded production capacity, broader product lines, greater capacity to meet customer quality reliability, price and delivery needs, enhanced competitive posture, effect of new
accounting pronouncements and no material financial impact from litigation or contingencies are included in this Quarterly Report on Form 10-Q pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

The Companys actual results may be affected by a wide range of factors including future compliance with Section 404 of the
Sarbanes-Oxley Act of 2002; the concentrated nature of the Companys customer base to date and the Companys dependence on its significant customers and concentrated customer base; the receipt, pricing and timing of future customer orders;
changes in product mix; the historically cyclical aerospace market; the limited number of raw material and energy suppliers and significant fluctuations that may occur in raw material and energy prices; global economic and market factors; the
ability to attract and retain skilled personnel; the Companys reliance on the continuing operation of critical manufacturing equipment; risks associated with labor matters; the Companys ongoing requirement for continued compliance with
safety and environmental regulations; the ultimate outcome of the Companys current and future litigation matters; and the impact of various economic, credit and market risk uncertainties. Many of these factors are not within the Companys
control and involve known and unknown risks and uncertainties that may cause the Companys actual results in future periods to be materially different from any future performance suggested herein. Any unfavorable change in the foregoing or
other factors could have a material adverse effect on the Companys business, financial condition, results of operations, and cash flows. Further, the Company operates in an industry sector where securities values may be volatile and may be
influenced by economic and other factors beyond the Companys control.



|               |  |                                                                                       |  |          |    | 
|-------------- |  | ------------------------------------------------------------------------------------- |  | -------- | -- | 
|               |  | DESCRIPTION                                                                           |  | PAGE NO. |   
|PART I.        |  | FINANCIAL INFORMATION                                                                 |  |          |    | 
|               |  |                                                                                      
|Item 1.        |  | Financial Statements (unaudited)                                                      |  |          |    | 
|               |  |                                                                                      
|               |  | Consolidated Condensed Statements of Operations                                       |  |          | 3  | 
|               |  |                                                                                      
|               |  | Consolidated Condensed Statements of Comprehensive Income                             |  |          | 3  | 
|               |  |                                                                                      
|               |  | Consolidated Condensed Balance Sheets                                                 |  |          | 4  | 
|               |  |                                                                                      
|               |  | Consolidated Condensed Statements of Cash Flow                                        |  |          | 5  | 
|               |  |                                                                                      
|               |  | Notes to the Unaudited Consolidated Condensed Financial Statements                    |  |          | 6  | 
|               |  |                                                                                      
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  |          | 10 | 
|               |  |                                                                                      
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |          | 14 | 
|               |  |                                                                                      
|Item 4.        |  | Controls and Procedures                                                               |  |          | 14 | 
|               |  |                                                                                      
|PART II.       |  | OTHER INFORMATION                                                                     |  |          |    | 
|               |  |                                                                                      
|Item 1.        |  | Legal Proceedings                                                                     |  |          | 14 | 
|               |  |                                                                                      
|Item 1A.       |  | Risk Factors                                                                          |  |          | 14 | 
|               |  |                                                                                      
|Item 2.        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  |          | 14 | 
|               |  |                                                                                      
|Item 3.        |  | Defaults Upon Senior Securities                                                       |  |          | 14 | 
|               |  |                                                                                      
|Item 4.        |  | (Reserved)                                                                            |  |          | 15 | 
|               |  |                                                                                      
|Item 5.        |  | Other Information                                                                     |  |          | 15 | 
|               |  |                                                                                      
|Item 6.        |  | Exhibits                                                                              |  |          | 15 | 
|               |  |                                                                                      
|SIGNATURES     |  |                                                                                       |  |          | 15 | 
|               |  |                                                                                      
|CERTIFICATIONS |  |                                                                                       |  |          |    | 



2



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|Part I. | FINANCIAL INFORMATION
|------- | ---------------------



|Item 1. | FINANCIAL STATEMENTS
|------- | --------------------

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Information)

(Unaudited)



|                                                    |  |                                          |           |   |      |   |           |  
|--------------------------------------------------- |  | ---------------------------------------- | --------- | - | ---- | - | --------- | -
|                                                    |  | For theThree-month period endedMarch 31, |          
|                                                    |  | 2011                                     |           |   | 2010 |  
|Net sales                                           |  | $                                        | 59,811    |   |      | $ | 34,679    |  
|Cost of products sold                               |  |                                          | 49,013    |   |      |   | 29,760    |  
|Selling and administrative expenses                 |  |                                          | 3,830     |   |      |   | 2,660     |  
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Operating income                                    |  |                                          | 6,968     |   |      |   | 2,259     |  
|Interest expense                                    |  |                                          | (125      | ) |      |   | (96       | )
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Income before income tax provision                  |  |                                          | 6,843     |   |      |   | 2,163     |  
|Income tax provision                                |  |                                          | 2,395     |   |      |   | 736       |  
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Net income                                          |  | $                                        | 4,448     |   |      | $ | 1,427     |  
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Earnings per common share  Basic                   |  | $                                        | 0.65      |   |      | $ | 0.21      |  
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Earnings per common share  Diluted                 |  | $                                        | 0.64      |   |      | $ | 0.21      |  
|                                                    |  |                                          |           |   |      |   |           |  
|                                                    |  |                                         
|Weighted-average shares of Common Stock outstanding |  |                                          |           |   |      |   |           |  
|Basic                                               |  |                                          | 6,813,020 |   |      |   | 6,773,337 |  
|Diluted                                             |  |                                          | 6,952,162 |   |      |   | 6,840,783 |  

The accompanying notes are an
integral part of these consolidated condensed financial statements.

UNIVERSAL
STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)



|                            |  |                             |       |   |      |   |       |  
|--------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | -
|                            |  | Three Months EndedMarch 31, |      
|                            |  | 2011                        |       |   | 2010 |  
|Net income                  |  | $                           | 4,448 |   |      | $ | 1,427 |  
|Net change in fair value of |  |                             |       |   |      |   |       |  
|Interest rate swap          |  |                             | 52    |   |      |   | (79   | )
|Nickel hedge contracts      |  |                             |      |   |      |   | (40   | )
|Tax effect                  |  |                             | (19   | ) |      |   | 45    |  
|                            |  |                             |       |   |      |   |       |  
|Comprehensive income        |  | $                           | 4,481 |   |      | $ | 1,353 |  
|                            |  |                             |       |   |      |   |       |  

The accompanying notes are an integral part of these consolidated condensed financial statements.



3



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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Information)



|                                                                                                                 |  |               |         |   |                                   |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | --------------------------------- | - | ------- | -
|                                                                                                                 |  | March 31,2011 |         |   | December 31,2010                  |  
|                                                                                                                 |  | (Unaudited)   |         |   | (Derived from
audited
statements) |  
|                                                                                                                 |  |              
|ASSETS                                                                                                           |  |               |         |   |                                   |   |         |  
|Current assets                                                                                                   |  |               |         |   |                                   |   |         |  
|Cash and cash equivalents                                                                                        |  | $             | 30,535  |   |                                   | $ | 34,944  |  
|Accounts receivable (less allowance for doubtful accounts of $2,101 and $2,134 respectively)                     |  |               | 35,856  |   |                                   |   | 29,273  |  
|Inventory, net                                                                                                   |  |               | 80,010  |   |                                   |   | 69,710  |  
|Other current assets                                                                                             |  |               | 7,198   |   |                                   |   | 5,661   |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total current assets                                                                                             |  |               | 153,599 |   |                                   |   | 139,588 |  
|Property, plant and equipment, net                                                                               |  |               | 72,291  |   |                                   |   | 71,581  |  
|Other assets                                                                                                     |  |               | 1,464   |   |                                   |   | 1,499   |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total assets                                                                                                     |  | $             | 227,354 |   |                                   | $ | 212,668 |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |               |         |   |                                   |   |         |  
|Current liabilities                                                                                              |  |               |         |   |                                   |   |         |  
|Trade accounts payable                                                                                           |  | $             | 28,640  |   |                                   | $ | 20,022  |  
|Outstanding checks in excess of bank balance                                                                     |  |               | 754     |   |                                   |   | 544     |  
|Accrued employment costs                                                                                         |  |               | 3,916   |   |                                   |   | 5,488   |  
|Current portion of long-term debt                                                                                |  |               | 2,794   |   |                                   |   | 2,833   |  
|Accrued income tax                                                                                               |  |               | 2,537   |   |                                   |   | 47      |  
|Other current liabilities                                                                                        |  |               | 713     |   |                                   |   | 558     |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total current liabilities                                                                                        |  |               | 39,354  |   |                                   |   | 29,492  |  
|Long-term debt                                                                                                   |  |               | 7,320   |   |                                   |   | 7,990   |  
|Deferred taxes                                                                                                   |  |               | 15,770  |   |                                   |   | 15,276  |  
|Other liabilities                                                                                                |  |               | 235     |   |                                   |   | 287     |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total liabilities                                                                                                |  |               | 62,679  |   |                                   |   | 53,045  |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Commitments and contingencies                                                                                    |  |               |        |   |                                   |   |        |  
|                                                                                                                 |  |              
|Stockholders equity                                                                                             |  |               |         |   |                                   |   |         |  
|Senior Preferred Stock, par value $0.001 per share; 1,980,000 shares authorized; 0 shares issued and outstanding |  |               |        |   |                                   |   |        |  
|Common Stock, par value $0.001 per share; 10,000,000 shares authorized; 7,104,314 and 7,094,314 shares issued    |  |               | 7       |   |                                   |   | 7       |  
|Additional paid-in capital                                                                                       |  |               | 41,912  |   |                                   |   | 41,341  |  
|Retained earnings                                                                                                |  |               | 124,824 |   |                                   |   | 120,376 |  
|Treasury Stock at cost; 282,850 common shares held                                                               |  |               | (1,919  | ) |                                   |   | (1,919  | )
|Accumulated other comprehensive loss                                                                             |  |               | (149    | ) |                                   |   | (182    | )
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total stockholders equity                                                                                       |  |               | 164,675 |   |                                   |   | 159,623 |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  
|                                                                                                                 |  |              
|Total liabilities and stockholders equity                                                                       |  | $             | 227,354 |   |                                   | $ | 212,668 |  
|                                                                                                                 |  |               |         |   |                                   |   |         |  

The accompanying notes are an integral part of these consolidated condensed financial statements.



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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW

(Dollars in Thousands)

(Unaudited)



|                                                                   |  |                                          |         |   |      |   |         |  
|------------------------------------------------------------------ |  | ---------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                   |  | For theThree-month period endedMarch 31, |        
|                                                                   |  | 2011                                     |         |   | 2010 |  
|Cash flows from operating activities:                              |  |                                          |         |   |      |   |         |  
|Net income                                                         |  | $                                        | 4,448   |   |      | $ | 1,427   |  
|Adjustments to reconcile to net cash used in operating activities: |  |                                          |         |   |      |   |         |  
|Depreciation and amortization                                      |  |                                          | 1,461   |   |      |   | 1,329   |  
|Loss on retirement of property, plant and equipment                |  |                                          |        |   |      |   | 17      |  
|Deferred income tax                                                |  |                                          | (512    | ) |      |   | 31      |  
|Stock-based compensation expense                                   |  |                                          | 400     |   |      |   | 286     |  
|Tax benefit from share-based payment arrangements                  |  |                                          | (72     | ) |      |   | (8      | )
|Changes in assets and liabilities:                                 |  |                                          |         |   |      |   |         |  
|Accounts receivable, net                                           |  |                                          | (6,583  | ) |      |   | (6,598  | )
|Inventory, net                                                     |  |                                          | (10,300 | ) |      |   | (12,877 | )
|Trade accounts payable                                             |  |                                          | 8,618   |   |      |   | 11,123  |  
|Net change in outstanding checks in excess of bank balance         |  |                                          | 210     |   |      |   | (600    | )
|Accrued employment costs                                           |  |                                          | (1,572  | ) |      |   | 1,204   |  
|Accrued income tax                                                 |  |                                          | 2,664   |   |      |   | 695     |  
|Other, net                                                         |  |                                          | (466    | ) |      |   | 614     |  
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Net cash used in operating activities                              |  |                                          | (1,704  | ) |      |   | (3,357  | )
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Cash flows from investing activities:                              |  |                                          |         |   |      |   |         |  
|Proceeds from sale of fixed assets                                 |  |                                          |        |   |      |   | 17      |  
|Capital expenditures                                               |  |                                          | (2,167  | ) |      |   | (1,090  | )
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Net cash used in investing activities                              |  |                                          | (2,167  | ) |      |   | (1,073  | )
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Cash flows from financing activities:                              |  |                                          |         |   |      |   |         |  
|Long-term debt repayments                                          |  |                                          | (709    | ) |      |   | (103    | )
|Proceeds from issuance of common stock                             |  |                                          | 99      |   |      |   | 10      |  
|Tax benefit from share-based payment arrangements                  |  |                                          | 72      |   |      |   | 8       |  
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Net cash used in financing activities                              |  |                                          | (538    | ) |      |   | (85     | )
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Net decrease in cash and cash equivalents                          |  |                                          | (4,409  | ) |      |   | (4,515  | )
|Cash and cash equivalents at beginning of period                   |  |                                          | 34,944  |   |      |   | 42,349  |  
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Cash and cash equivalents at end of period                         |  | $                                        | 30,535  |   |      | $ | 37,834  |  
|                                                                   |  |                                          |         |   |      |   |         |  
|                                                                   |  |                                         
|Supplemental disclosure of cash flow information:                  |  |                                          |         |   |      |   |         |  
|Interest paid, net of amount capitalized                           |  | $                                        | 120     |   |      | $ | 92      |  
|Income taxes paid, net of refunds received                         |  | $                                        | 170     |   |      | $ |        |  

The accompanying notes are an
integral part of these consolidated condensed financial statements.



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UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1  Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of operations for the three-month periods ended March 31, 2011 and 2010, balance sheets as of March 31, 2011 and
December 31, 2010, and statements of cash flows for the three-month periods ended March 31, 2011 and 2010, have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, these statements should be read in conjunction with the audited financial
statements, and notes thereto, as of and for the year ended December 31, 2010 included in the Companys Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited, consolidated condensed financial statements
contain all adjustments, all of which were of a normal, recurring nature, necessary to present fairly, in all material respects, the consolidated financial position at March 31, 2011 and December 31, 2010 and the consolidated results of
operations and of cash flows for the three-month periods ended March 31, 2011 and 2010, and are not necessarily indicative of the results to be expected for the full year.

Certain prior year amounts have been reclassified to conform to the 2011 presentation.

Note 2  Common Stock

The
reconciliation of the weighted-average number of shares of Common Stock outstanding utilized for the earnings per common share computations is as follows:



|                                                                           |  |                                          |           |  |      |  |           | 
|-------------------------------------------------------------------------- |  | ---------------------------------------- | --------- |  | ---- |  | --------- | 
|                                                                           |  | For theThree-month period endedMarch 31, |          
|                                                                           |  | 2011                                     |           |  | 2010 | 
|Weighted-average number of shares of Common Stock outstanding              |  |                                          | 6,813,020 |  |      |  | 6,773,337 | 
|Effect of dilutive securities                                              |  |                                          | 139,142   |  |      |  | 67,446    | 
|                                                                           |  |                                          |           |  |      |  |           | 
|                                                                           |  |                                         
|Weighted-average number of shares of Common Stock outstanding, as adjusted |  |                                          | 6,952,162 |  |      |  | 6,840,783 | 
|                                                                           |  |                                          |           |  |      |  |           | 

Note 3  Inventory, net

The major classes of inventory are as follows:



|                                          |  |               |        |   |                  |   |        |  
|----------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|(in thousands)                            |  | March 31,2011 |        |   | December 31,2010 |  
|Raw materials                             |  | $             | 8,433  |   |                  | $ | 7,141  |  
|Semi-finished and finished steel products |  |               | 67,806 |   |                  |   | 58,899 |  
|Inventory reserves                        |  |               | (849   | ) |                  |   | (986   | )
|Operating materials                       |  |               | 4,620  |   |                  |   | 4,656  |  
|                                          |  |               |        |   |                  |   |        |  
|                                          |  |              
|Total inventory, net                      |  | $             | 80,010 |   |                  | $ | 69,710 |  
|                                          |  |               |        |   |                  |   |        |  



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Note 4  Property, Plant and Equipment, net

Property, plant and equipment consists of the following:



|                                   |  |               |         |   |                  |   |         |  
|---------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|(in thousands)                     |  | March 31,2011 |         |   | December 31,2010 |  
|Land and land improvements         |  | $             | 2,791   |   |                  | $ | 2,772   |  
|Buildings                          |  |               | 16,390  |   |                  |   | 16,313  |  
|Machinery and equipment            |  |               | 91,459  |   |                  |   | 90,909  |  
|                                   |  |               |         |   |                  |   |         |  
|                                   |  |              
|                                   |  |               | 110,640 |   |                  |   | 109,994 |  
|Accumulated depreciation           |  |               | (44,476 | ) |                  |   | (43,019 | )
|Construction in progress           |  |               | 6,127   |   |                  |   | 4,606   |  
|                                   |  |               |         |   |                  |   |         |  
|                                   |  |              
|Property, plant and equipment, net |  | $             | 72,291  |   |                  | $ | 71,581  |  
|                                   |  |               |         |   |                  |   |         |  

Note 5  Long-Term Debt

The Company has an unsecured credit agreement with PNC Bank which provides for a $12.0 million term loan (Term Loan) scheduled to mature on February 28, 2014 and a $15.0 million revolving
credit facility with a term expiring on June 30, 2012. The Term Loan had outstanding balances of $9.6 million and $10.2 million at March 31, 2011 and December 31, 2010, respectively. There was no balance outstanding under the
revolving credit facility at March 31, 2011 or December 31, 2010. Interest on both facilities is based on short-term market rates, which may be adjusted, based upon the Company maintaining certain financial ratios. PNC Bank also charges a
commitment fee payable on the unused portion of the revolving credit facility of 0.25%, provided certain financial ratios are maintained. The Company is required to be in compliance with three financial covenants: a minimum leverage ratio, a minimum
debt service ratio and a minimum tangible net worth. The Company was in compliance with all such covenants at March 31, 2011.

The
Company has maintained two separate loan agreements with the Commonwealth of Pennsylvanias Department of Commerce, aggregating to $600,000. A $200,000 15-year loan bore interest at 5% per annum and matured in April 2011, and a $400,000
20-year loan bears interest at 6% per annum with the term ending in 2016. In February 2002, Dunkirk Specialty Steel issued two ten-year, 5% interest-bearing notes payable to the New York Job Development Authority for the combined amount of $3.0
million. Aggregate government debt outstanding at March 31, 2011 was $514,000 and at December 31, 2010 was $623,000.

Note 6
 Derivatives and Hedging Activities

To manage interest rate risk, the Company has entered into an interest rate swap that
effectively converts the floating-rate Term Loan into a fixed-rate debt instrument. Interest rate swap agreements that minimize the impact of interest rate changes on the Companys floating-rate debt agreements are designated and accounted for
as cash flow hedges. The effective portion of the change in fair value of the interest rate swap is recorded in accumulated other comprehensive loss (within stockholders equity). The Company utilizes the interest rate swap to maintain a
fixed-rate of 4.515% on the Term Loan until its maturity on February 28, 2014. The notional amount of the interest rate swap decreases ratably over its term, as does the Term Loan, and was $9.6 million at March 31, 2011.

In July 2009, the Company entered into nickel futures contracts to minimize the price change impact of anticipated purchases of nickel over the life of a
customer short-term supply agreement which is designated as and accounted for as a cash flow hedge. The effective portion of the change in the fair value of the nickel hedge agreements is recorded in accumulated other comprehensive loss. The
contracts expired in 2010.

The location and amounts recorded in the Condensed Consolidated Balance Sheets for the derivative instruments are
as follows:



|                                                          |  |               |      |   |                  |   |      |  
|--------------------------------------------------------- |  | ------------- | ---- | - | ---------------- | - | ---- | -
|(dollars in thousands)                                    |  | March 31,2011 |      |   | December 31,2010 |  
|Other assets, deferred tax                                |  | $             | 86   |   |                  | $ | 105  |  
|Other liabilities                                         |  |               | (235 | ) |                  |   | (287 | )
|                                                          |  |               |      |   |                  |   |      |  
|Stockholders equity, accumulated other comprehensive loss |  | $             | (149 | ) |                  | $ | (182 | )
|                                                          |  |               |      |   |                  |   |      |  



7



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##### Table of Contents

Note 7  Fair Value Measurements

The Company adopted Interim Disclosures about Fair Value of Financial Instruments issued by the FASB. This topic defines fair value, establishes a framework for measuring fair value and
expands disclosure requirements about fair value measurements. It also defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by the standard contains three levels as follows:

Level 1  Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement
date.

Level 2  Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted
prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using
pricing models for which the assumptions utilize managements estimates of market participant assumptions.

The fair value hierarchy
requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level
input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or
liability. The interest rate swap is recorded at fair value based on Level 2 quoted LIBOR swap rates adjusted for credit and non-performance risk. The nickel futures contracts are recorded at fair value based on Level 2 quoted futures rates.

Financial instruments include cash, accounts receivable, other current assets, accounts payable, short-term debt, other current liabilities
and long-term debt. The carrying amounts of these financial instruments approximated fair value at March 31, 2011 and December 31, 2010. The fair value of the Term Loan approximates the carrying amount as the interest rate is based upon
one-month floating LIBOR rates.

Note 8  Commitments and Contingencies

From time to time, various lawsuits and claims have been or may be asserted against the Company relating to the conduct of our business, including routine
litigation relating to commercial and employment matters. The ultimate cost and outcome of any litigation or claim cannot be predicted with certainty. Management believes, based on information presently available, that the likelihood that the
ultimate outcome of any such pending matter will have a material adverse effect on its financial condition, or liquidity or a material impact on our results of operations is remote, although the resolution of one or more of these matters may have a
material adverse effect on its results of operations for the period in which the resolution occurs.

At March 31, 2011, the Company
maintains reserves that it believes are adequate for outstanding product claims and legal actions.

Note 9  Income Taxes

The tax rate used for interim periods is the estimated annual effective tax rate, based on the current estimate of full year results,
except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

The effective income tax rate
in the three-month period ended March 31, 2011 was 35% as compared to 34% for the three-month period ended March 31, 2010. The effective income tax rate reflects federal and state taxable income and benefits from the domestic manufacturing
deduction.



8



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##### Table of Contents

Note 10  Business Segments

The Company is comprised of two business segments: Universal Stainless & Alloy Products, which consists of the Bridgeville and Titusville facilities, and Dunkirk Specialty Steel, the
Companys wholly-owned subsidiary located in Dunkirk, New York. The Universal Stainless & Alloy Products manufacturing process involves melting, remelting, treating and hot and cold rolling of semi-finished and finished specialty
steels. Dunkirk Specialty Steels manufacturing process involves hot rolling, treating and finishing of specialty steel bar, rod and wire products. The segment data are as follows:



|                                                              |  |                                          |         |   |                  |   |         |  
|------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                              |  | For theThree-month periodended March 31, |        
|(dollars in thousands)                                        |  | 2011                                     |         |   | 2010             |  
|Net sales:                                                    |  |                                          |         |   |                  |   |         |  
|Universal Stainless & Alloy Products                          |  | $                                        | 55,150  |   |                  | $ | 31,243  |  
|Dunkirk Specialty Steel                                       |  |                                          | 21,981  |   |                  |   | 10,062  |  
|Intersegment                                                  |  |                                          | (17,320 | ) |                  |   | (6,626  | )
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|Consolidated net sales                                        |  | $                                        | 59,811  |   |                  | $ | 34,679  |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|Operating income:                                             |  |                                          |         |   |                  |   |         |  
|Universal Stainless & Alloy Products                          |  | $                                        | 4,914   |   |                  | $ | 1,934   |  
|Dunkirk Specialty Steel                                       |  |                                          | 2,325   |   |                  |   | 325     |  
|Intersegment                                                  |  |                                          | (271    | ) |                  |   |        |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|Consolidated operating income                                 |  | $                                        | 6,968   |   |                  | $ | 2,259   |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|Interest expense and other financing costs:                   |  |                                          |         |   |                  |   |         |  
|Universal Stainless & Alloy Products                          |  | $                                        | 118     |   |                  | $ | 85      |  
|Dunkirk Specialty Steel                                       |  |                                          | 7       |   |                  |   | 11      |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|Total interest expense and other financing costs              |  | $                                        | 125     |   |                  | $ | 96      |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|(dollars in thousands)                                        |  | March 31,2011                            |         |   | December 31,2010 |  
|Total assets:                                                 |  |                                          |         |   |                  |   |         |  
|Universal Stainless & Alloy Products                          |  | $                                        | 139,880 |   |                  | $ | 128,174 |  
|Dunkirk Specialty Steel                                       |  |                                          | 48,734  |   |                  |   | 42,199  |  
|Corporate (including cash of $30.5 million and $34.9 million) |  |                                          | 38,740  |   |                  |   | 42,295  |  
|                                                              |  |                                          |         |   |                  |   |         |  
|                                                              |  |                                         
|                                                              |  | $                                        | 227,354 |   |                  | $ | 212,668 |  
|                                                              |  |                                          |         |   |                  |   |         |  



9



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Results of Operations

An analysis of the Companys operations for the
three-month periods ended March 31, 2011 and 2010 is as follows:



|                                    |  |                                          |        |  |      |   |        | 
|----------------------------------- |  | ---------------------------------------- | ------ |  | ---- | - | ------ | 
|                                    |  | For
theThree-month period endedMarch 31, |       
|(dollars in thousands)              |  | 2011                                     |        |  | 2010 |  
|Net sales:                          |  |                                          |        |  |      |   |        | 
|Stainless steel                     |  | $                                        | 46,798 |  |      | $ | 24,049 | 
|Tool steel                          |  |                                          | 5,491  |  |      |   | 6,175  | 
|High-strength low alloy steel       |  |                                          | 4,714  |  |      |   | 2,012  | 
|High-temperature alloy steel        |  |                                          | 1,680  |  |      |   | 1,892  | 
|Conversion services and other       |  |                                          | 1,128  |  |      |   | 551    | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Total net sales                     |  |                                          | 59,811 |  |      |   | 34,679 | 
|Cost of products sold               |  |                                          | 49,013 |  |      |   | 29,760 | 
|Selling and administrative expenses |  |                                          | 3,830  |  |      |   | 2,660  | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Operating income                    |  | $                                        | 6,968  |  |      | $ | 2,259  | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Tons shipped                        |  |                                          | 13,013 |  |      |   | 8,456  | 
|                                    |  |                                          |        |  |      |   |        | 

Market Segment Information



|                                 |  |                                          |        |  |      |   |        | 
|-------------------------------- |  | ---------------------------------------- | ------ |  | ---- | - | ------ | 
|                                 |  | For theThree-month period endedMarch 31, |       
|(dollars in thousands)           |  | 2011                                     |        |  | 2010 |  
|Net sales:                       |  |                                          |        |  |      |   |        | 
|Service centers                  |  | $                                        | 28,628 |  |      | $ | 17,231 | 
|Forgers                          |  |                                          | 11,870 |  |      |   | 9,984  | 
|Rerollers                        |  |                                          | 12,805 |  |      |   | 3,660  | 
|Original equipment manufacturers |  |                                          | 4,121  |  |      |   | 2,430  | 
|Wire redrawers                   |  |                                          | 1,259  |  |      |   | 823    | 
|Conversion services and other    |  |                                          | 1,128  |  |      |   | 551    | 
|                                 |  |                                          |        |  |      |   |        | 
|                                 |  |                                         
|Total net sales                  |  | $                                        | 59,811 |  |      | $ | 34,679 | 
|                                 |  |                                          |        |  |      |   |        | 

Three-month period ended March 31, 2011 as compared to the same period in 2010

Net sales for the three-month period ended March 31, 2011 increased $25.1 million, or 72%, as compared to the similar period in 2010. The increase
reflects a 54% increase in consolidated shipments, pricing increases and a change in product mix. Increases in shipments of aerospace products, conversion services, power generation and petrochemical products of 117%, 96%, 59% and 52%, respectively,
were partially offset by decreases in service center plate products of 13%.

Cost of products sold, as a percentage of net sales, was 81.9%
and 85.8% for the three-month periods ended March 31, 2011 and 2010, respectively. The decrease is primarily due to lower operation costs per sales dollar due to increasing production volumes incurred during the 2011 period, partially offset by
higher raw material costs in relation to sales prices.

Selling and administrative expenses increased by $1.2 million in the three-month
period ended March 31, 2011 as compared to the similar period in 2010. The increased cost relates to $419,000 of business development expense in 2011, a $344,000 increase in labor expenses primarily for new employees and their related
relocation expenses, and increased incentive compensation of $187,000.



10



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##### Table of Contents

The effective income tax rate in the three-month period ended March 31, 2011 was 35.0% as compared to
34.0% for the three-month period ended March 31, 2010. The effective income tax rate in each period reflects federal and state taxable income and benefits from the domestic manufacturing deduction.

Business Segment Results

An
analysis of the net sales and operating income for the reportable segments for the three-month periods ended March 31, 2011 and 2010 is as follows:

Universal Stainless & Alloy Products Segment



|                                    |  |                                          |        |  |      |   |        | 
|----------------------------------- |  | ---------------------------------------- | ------ |  | ---- | - | ------ | 
|                                    |  | For theThree-month period endedMarch 31, |       
|(dollars in thousands)              |  | 2011                                     |        |  | 2010 |  
|Net sales:                          |  |                                          |        |  |      |   |        | 
|Stainless steel                     |  | $                                        | 30,577 |  |      | $ | 17,256 | 
|Tool steel                          |  |                                          | 5,045  |  |      |   | 5,928  | 
|High-strength low alloy steel       |  |                                          | 466    |  |      |   | 449    | 
|High-temperature alloy steel        |  |                                          | 858    |  |      |   | 591    | 
|Conversion services and other       |  |                                          | 898    |  |      |   | 424    | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|                                    |  |                                          | 37,844 |  |      |   | 24,648 | 
|Intersegment                        |  |                                          | 17,306 |  |      |   | 6,595  | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Total net sales                     |  |                                          | 55,150 |  |      |   | 31,243 | 
|Material cost of sales              |  |                                          | 29,086 |  |      |   | 14,156 | 
|Operation cost of sales             |  |                                          | 18,591 |  |      |   | 13,374 | 
|Selling and administrative expenses |  |                                          | 2,559  |  |      |   | 1,779  | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Operating income                    |  | $                                        | 4,914  |  |      | $ | 1,934  | 
|                                    |  |                                          |        |  |      |   |        | 

Net sales for the three-month period ended March 31, 2011 for this segment, which consists of the Bridgeville and
Titusville facilities, increased $23.9 million, or 76.5%, as compared to the similar period in 2010. The increase reflects a 65% increase in shipments, pricing increases and a change in product mix. Increases in shipments of aerospace products,
conversion services, petrochemical and power generation products of 139%, 129%, 73% and 66%, respectively, were partially offset by decreases in service center plate products of 12%.

Operating income for the three-month period ended March 31, 2011 was $3.0 million greater in comparison to the three-month period ended March 31, 2010. The increase is primarily due to a
decrease in operation costs per sales dollar from 42.8% in 2010 to 33.7% in 2011 due to increasing production volumes incurred during the 2011 period, partially offset by higher raw material costs in relation to sales. The material costs, as a
percentage of sales increased from 45.3% in 2010 to 52.7% of sales in 2011.



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##### Table of Contents

Dunkirk Specialty Steel Segment



|                                    |  |                                          |        |  |      |   |        | 
|----------------------------------- |  | ---------------------------------------- | ------ |  | ---- | - | ------ | 
|                                    |  | For theThree-month period endedMarch 31, |       
|(dollars in thousands)              |  | 2011                                     |        |  | 2010 |  
|Net sales:                          |  |                                          |        |  |      |   |        | 
|Stainless steel                     |  | $                                        | 16,221 |  |      | $ | 6,793  | 
|Tool steel                          |  |                                          | 446    |  |      |   | 247    | 
|High-strength low alloy steel       |  |                                          | 4,248  |  |      |   | 1,563  | 
|High-temperature alloy steel        |  |                                          | 822    |  |      |   | 1,301  | 
|Conversion services and other       |  |                                          | 230    |  |      |   | 127    | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|                                    |  |                                          | 21,967 |  |      |   | 10,031 | 
|Intersegment                        |  |                                          | 14     |  |      |   | 31     | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Total net sales                     |  |                                          | 21,981 |  |      |   | 10,062 | 
|Material cost of sales              |  |                                          | 13,344 |  |      |   | 5,586  | 
|Operation cost of sales             |  |                                          | 5,041  |  |      |   | 3,269  | 
|Selling and administrative expenses |  |                                          | 1,271  |  |      |   | 882    | 
|                                    |  |                                          |        |  |      |   |        | 
|                                    |  |                                         
|Operating income                    |  | $                                        | 2,325  |  |      | $ | 325    | 
|                                    |  |                                          |        |  |      |   |        | 

Net sales for the three-month period ended March 31, 2011 increased $11.9 million, or 118%, as compared to the similar
period in 2010. The increase reflects a 96.0% increase in shipments, pricing increases and a change in product mix. Shipments increased in all categories in comparison to the same period in 2011 with the largest increases being a 142% increase in
aerospace and a 114% increase in petrochemical.

Operating income for the three-month period ended March 31, 2011 was $2.0 million
greater in comparison to the three-month period ended March 31, 2010. The increase is primarily due to a decrease in operation costs per sales dollar from 32.5% in 2010 to 22.9% in 2011 due to increasing production volumes incurred during the
2011 period; partially offset by higher raw material costs in relation to sales. The material cost of sales increased from 55.5% in 2010 to 60.7% of sales in 2011.

Liquidity and Capital Resources

The Company has financed its operating activities
through cash on hand at the beginning of the period. At March 31, 2011, working capital approximated $114.2 million as compared to $110.1 million at December 31, 2010. The increase is primarily attributable to an $8.3 million increase in
managed working capital, defined as accounts receivable and inventory less accounts payable, which was partially offset by increases in accrued employment costs and income taxes as a result of the increase in production and sales during the quarter.
Accounts receivable increased $6.6 million as a result of increased sales for the three-month period ended March 31, 2011 in comparison to the three-month period ended December 31, 2010. The $10.3 million increase in inventory is primarily
due to a 15% increase in the volume of work-in-process inventory in response to the rise in the Companys backlog, and higher material purchase prices. The backlog increased from $69 million at December 31, 2010 to $92 million at
March 31, 2011, an increase of 33%. Accounts payable increased $8.6 million, or 43%, related to the increase in production levels.

Cash
received from sales of $53.3 million and $28.6 million represent the primary source of cash from operations for the three-month periods ended March 31, 2011 and 2010, respectively. The primary uses of cash follow:



|                       |  |                                          |        |  |      |   |        | 
|---------------------- |  | ---------------------------------------- | ------ |  | ---- | - | ------ | 
|                       |  | For theThree-month period endedMarch 31, |       
|(dollars in thousands) |  | 2011                                     |        |  | 2010 |  
|Raw material purchases |  | $                                        | 28,834 |  |      | $ | 13,487 | 
|Employment costs       |  |                                          | 13,317 |  |      |   | 6,719  | 
|Utilities              |  |                                          | 4,080  |  |      |   | 3,367  | 
|Other                  |  |                                          | 8,746  |  |      |   | 8,410  | 
|                       |  |                                          |        |  |      |   |        | 
|Total uses of cash     |  | $                                        | 54,977 |  |      | $ | 31,983 | 
|                       |  |                                          |        |  |      |   |        | 



12



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##### Table of Contents

Cash used for raw material purchases and operation costs increased in 2011 in comparison to 2010 primarily
due to having a higher backlog of orders at the beginning of 2011 of $69 million compared with $36 million at the beginning of 2010, which led to the significant increase in the quantity of purchased materials and operation costs required to meet
the 72% increase in sales. Increases in the price of nickel and chrome also contributed the increased costs in 2011 compared to the same quarter in 2010. The Company continuously monitors market price fluctuations of its key raw materials. The
following table reflects the average market values per pound for selected months during the last 16-month period.



|             |  |           |       |  |              |   |       |           |  |   |              |  |  |   |       | 
|------------ |  | --------- | ----- |  | ------------ | - | ----- | --------- |  | - | ------------ |  |  | - | ----- | 
|             |  | March2011 |       |  | December2010 |   |       | March2010 |  |   | December2009 | 
|Nickel       |  | $         | 12.16 |  |              | $ | 10.94 |           |  | $ | 10.19        |  |  | $ | 7.74  | 
|Chrome       |  | $         | 1.34  |  |              | $ | 1.31  |           |  | $ | 1.29         |  |  | $ | 0.89  | 
|Molybdenum   |  | $         | 17.20 |  |              | $ | 16.17 |           |  | $ | 17.20        |  |  | $ | 11.47 | 
|Carbon Scrap |  | $         | 0.20  |  |              | $ | 0.19  |           |  | $ | 0.21         |  |  | $ | 0.15  | 

The market values for these raw
materials continue to fluctuate based on supply and demand, market disruptions, and other factors. The Company maintains sales price surcharge mechanisms, priced at time of shipment, to mitigate the risk of raw material cost fluctuations. There can
be no assurance that these sales price adjustments will completely offset the Companys raw material and energy costs.

Increased
employment costs are primarily due to the aforementioned higher production volumes and increased payout under the Companys incentive plans. Other uses of cash, the majority of which was cash for production supplies and maintenance, selling and
administrative expenses, insurance, outside conversion services, and freight, increased slightly.

The Company had capital expenditures for
the first quarter 2011 of $2.2 million, compared with $1.1 million for the same period in 2010. $261,000 of the 2011 expenditures and $629,000 of the 2010 expenditures relate to the Bridgeville melt shop upgrade.

The Company has an unsecured credit agreement with PNC Bank which provides for a $12.0 million Term Loan scheduled to mature on February 28, 2014
and a $15.0 million revolving credit facility with the term expiring June 30, 2012. The Company expects to meet substantially all of its short-term liquidity requirements resulting from operations and current capital investment plans with
internally generated funds and borrowings under the revolving credit facility, if necessary. At March 31, 2011, the Company had $30.5 million in cash and its entire $15.0 million revolving line of credit with PNC Bank available for borrowings.
The ratio of current assets to current liabilities decreased to 3.9:1 at March 31, 2011 from 4.7:1 at December 31, 2010. The debt to total capitalization ratio decreased from 6.3% at December 31, 2010 to 5.8% at March 31, 2011
principally due to the increase in Stockholders Equity. The Company is in compliance with its covenants as of March 31, 2011.

The
Company also executed an interest rate swap with PNC Bank, with a notional amount of $12.0 million, to convert the LIBOR floating rate under the Term Loan to a fixed interest rate for the life of the loan. Under the agreement, the Companys
interest rate is currently fixed at 4.515%. The notional amount of the interest rate swap decreases ratably over its term, as does the Term Loan, and was $9.6 million at March 31, 2011. The Company recorded a liability of $235,000, equal to the
fair market value of the swap agreement at March 31, 2011. This fair market value, net of tax, is reported as accumulated other comprehensive loss within stockholders equity.

The Company does not maintain off-balance sheet arrangements, nor does it participate in non-exchange traded contracts requiring fair value accounting treatment or material related party transaction
arrangements.

Critical Accounting Policies

Revenue recognition is the most critical accounting policy of the Company. Revenue from the sale of products is recognized when both risk of loss and title have transferred to the customer, which in most
cases coincides with shipment of the related products, and collection is reasonably assured. The Company manufactures specialty steel product to customer purchase order specifications and in recognition of requirements for product acceptance.
Material certification forms are executed, indicating compliance with the customer purchase orders, before the specialty steel products are packed and shipped to the customer.

Revenue from conversion services is recognized when the performance of the service is complete. Invoiced shipping and handling costs are also accounted for as revenue. Customer claims, which are not
material, are accounted for primarily as a reduction to gross sales after the matter has been researched and an acceptable resolution has been reached.

In addition, management constantly monitors the ability to collect its unpaid sales invoices and the valuation of its receivables. The allowance for doubtful accounts includes specific reserves for the
value of outstanding invoices issued to customers currently operating under the protection of the federal bankruptcy law and other amounts that are deemed potentially not collectible with a reserve equal to 15% of 90-day or older balances. However,
the total allowance will generally not be less than 1% of total accounts receivable.



13



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##### Table of Contents

The cost of inventory is principally determined by the weighted average cost method for material costs and
operation costs. An inventory reserve is provided for material on hand for which management believes cost exceeds net realizable value and for material on hand for more than one year not assigned to a specific customer order.

Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected future cash flows is less than book value. Based on
managements assessment of the carrying values of long-lived assets, no impairment reserve had been deemed necessary as of March 31, 2011 or December 31, 2010. Retirements and disposals are removed from cost and accumulated
depreciation accounts, with the gain or loss reflected in operating income.

In addition, management assesses the need to record a valuation
allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company believes it will generate sufficient income in addition to taxable income generated from the reversal of its temporary differences to
utilize the deferred tax assets recorded at March 31, 2011.

The Companys current risk management strategies include the use
of derivative instruments to minimize the risk of significant changes to interest rates used in long-term agreements. In 2009, the Company entered into an interest rate swap that effectively converts the floating-rate Term Loan into a fixed-rate
debt instrument. Also, in 2009, the Company entered into nickel futures contracts, the last of which matured March 31, 2010, to minimize the price change impact of anticipated purchases of nickel over the life of a customer short-term supply
agreement. The interest rate swap and nickel futures contracts qualify as cash flow hedges and have been marked-to-market at each reporting period date with unrealized gains and losses included in accumulated other comprehensive loss to the extent
effective, and reclassified to interest expense or cost of sales in the period during which the hedged transaction affects earnings.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

The Company has reviewed its market risk and believes there are no significant changes from that disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2010,
except as provided in this Form 10-Q in Managements Discussion and Analysis of Financial Condition and Results of Operations.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

The
Companys management, including the Companys Chairman, President and Chief Executive Officer and its Vice President of Finance, Chief Financial Officer and Treasurer, performed an evaluation of the effectiveness of the Companys
disclosure controls and procedures. Based on that evaluation, the Companys Chairman, President and Chief Executive Officer and its Vice President of Finance, Chief Financial Officer and Treasurer concluded that, as of the end of the fiscal
period covered by this quarterly report, the Companys disclosure controls and procedures are effective. During the fiscal quarter ended March 31, 2011 there were no changes in the Companys internal control over financial reporting
which have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



|Part II. | OTHER INFORMATION
|-------- | -----------------



|Item 1. | LEGAL PROCEEDINGS
|------- | -----------------

There
are no material changes from the legal proceedings disclosed in Item 3. of the Companys Annual Report on Form 10-K for the year ended December 31, 2010.



|Item 1A. | RISK FACTORS
|-------- | ------------

There are
no material changes from the risk factors disclosed in Item 1A. of the Companys Annual Report on Form 10-K for the year ended December 31, 2010.



|Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|Item 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



14



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##### Table of Contents

|Item 4. | (RESERVED)
|------- | ----------



|Item 5. | OTHER INFORMATION
|------- | -----------------

None.



|Item 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | Exhibits                                                                                                                                                                                               
|     | 
|31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d- 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)                              
|     | 
|31.2 |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith)                           
|     | 
|32.1 |  | Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

May 10, 2011



|                                                |  |  |  |                                             
|----------------------------------------------- |  |  |  | --------------------------------------------
|/s/ Dennis M. Oates                             |  |  |  | /s/ Douglas M. McSorley                     
|Dennis M. Oates                                 |  |  |  | Douglas M. McSorley                         
|Chairman, President and Chief Executive Officer |  |  |  | Vice President of Finance,                  
|(Principal Executive Officer)                   |  |  |  | Chief Financial Officer and Treasurer       
|                                                |  |  |  | (Principal Financial and Accounting Officer)



15