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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~October 18, 2018,~~July 22, 2019, there were ~~8,724,990~~8,787,837 shares of the Registrant’s common stock outstanding.

	Three months ended					Nine months ended			Three months ended					Six months ended
	September 30,					September 30,			June 30,					June 30,
	2018		2017			2018		2017	2019		2018			2019		2018

Net sales	$	69,056	$	50,887	$	198,864	$	152,369	$	70,997	$	66,071	$	131,268	$	129,808
Cost of products sold		58,631		45,423		167,472		135,494		61,891		54,376		114,792		108,841

Gross margin		10,425		5,464		31,392		16,875		9,106		11,695		16,476		20,967
Selling, general and administrative expenses		5,131		4,448		16,187		13,676		5,604		5,849		10,570		11,056

Operating income (loss)		5,294		1,016		15,205		3,199
Operating income										3,502		5,846		5,906		9,911
Interest expense and other financing costs		966		1,122		3,440		3,209		1,022		1,268		1,935		2,474
Other (income) expense, net		(48)		(23)		(690)		(43)
Other expense (income), net										10		(599)		31		(642)

Income (loss) before income taxes		4,376		(83)		12,455		33
Provision (benefit) for income taxes		460		176		2,376		283
Income before income taxes										2,470		5,177		3,940		8,079
Provision for income taxes										384		1,139		632		1,916

Net income (loss)	$	3,916	$	(259)	$	10,079	$	(250)
Net income									$	2,086	$	4,038	$	3,308	$	6,163

Net income (loss) per common share - Basic	$	0.45	$	(0.04)	$	1.27	$	(0.03)
Net income per common share - Basic									$	0.24	$	0.52	$	0.38	$	0.82

Net income (loss) per common share - Diluted	$	0.44	$	(0.04)	$	1.23	$	(0.03)
Net income per common share - Diluted									$	0.24	$	0.50	$	0.37	$	0.79

Weighted average shares of common stock outstanding
Basic		8,699,953		7,228,277		7,931,783		7,221,426		8,773,263		7,817,628		8,769,242		7,541,332
Diluted		8,952,749		7,228,277		8,166,759		7,221,426		8,847,827		8,076,108		8,860,143		7,784,403

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

Three months ended

Nine months ended

September 30,

September 30,

2018

2017

2018

2017

Net income (loss)

$

3,916

$

(259
)

$

10,079

$

(250
)

Other comprehensive income (loss), net of tax

Unrealized income (loss) on foreign currency contracts

5

(46
)

113

(99
)

Comprehensive income (loss)

$

3,921

$

(305
)

10,192

(349
)

	Three months ended					Six months ended
	June 30,					June 30,
	2019		2018			2019				2018

Net income	$	2,086	$	4,038	$		3,308		$		6,163
Other comprehensive income (loss), net of tax
Adoption of ASU 2018-02		-		-			(21	)			-
Unrealized gain on foreign currency contracts		154		166			87				108
Comprehensive income	$	2,240	$	4,204	$		3,374		$		6,271

	September 30,		December 31,
	2018		2017
			(Derived from		June 30,		December 31,
			audited		2019		2018
	(Unaudited)		statements)		(Unaudited)
ASSETS
Current assets:
Cash	$	33	$	207	$	228	$	3,696
Accounts receivable (less allowance for doubtful accounts of $295 and $456, respectively)		44,185		24,990
Accounts receivable (less allowance for doubtful accounts of $295)						41,017		32,618
Inventory, net		122,839		116,663		140,103		134,738
Other current assets		3,068		4,404		5,351		3,756

Total current assets		170,125		146,264		186,699		174,808

Property, plant and equipment, net		174,446		174,444		175,938		177,844
Other long-term assets		6,681		523		1,406		668

Total assets	$	351,252	$	321,231	$	364,043	$	353,320

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	30,129	$	34,898	$	33,293	$	44,379
Accrued employment costs		6,595		4,075		4,712		7,939
Current portion of long-term debt		3,896		4,707		3,924		3,907
Other current liabilities		1,171		1,268		927		2,929

Total current liabilities		41,791		44,948		42,856		59,154

Long-term debt, net		58,563		75,006		64,237		42,839
Deferred income taxes		11,964		9,605		12,112		11,481
Other long-term liabilities, net		2,840		4		3,326		2,835

Total liabilities		115,158		129,563		122,531		116,309

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; 20,000,000 shares authorized; 9,017,845 and 7,550,642 shares issued, respectively		9		8
Common stock, par value $0.001 per share; 20,000,000 shares authorized; 9,082,116 and 9,045,345 shares issued, respectively						9		9
Additional paid-in capital		92,747		58,514		94,227		93,100
Other comprehensive income (loss)		20		(93)
Other comprehensive income						67		1
Retained earnings		145,608		135,529		149,520		146,191
Treasury stock, at cost; 292,855 common shares held		(2,290)		(2,290)
Treasury stock, at cost; 294,279 and 292,855 common shares held, respectively						(2,311)		(2,290)

Total stockholders’ equity		236,094		191,668		241,512		237,011

Total liabilities and stockholders’ equity	$	351,252	$	321,231	$	364,043	$	353,320

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

	Nine months ended							Six months ended
	September 30,							June 30,
	2018			2017				2019			2018

Operating Activities:
Net income (loss)	$	10,079		$	(250	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income								$	3,308		$	6,163
Adjustments to reconcile net income to net cash (used in) provided by operating activities:							Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		14,460			14,032				9,422			9,613
Deferred income tax		2,327			318				608			1,885
Share-based compensation expense		1,046			1,367				768			678
Changes in assets and liabilities:
Accounts receivable, net		(19,195	)		(7,122	)			(8,399	)		(10,822	)
Inventory, net		(7,890	)		(16,693	)			(6,494	)		(10,084	)
Accounts payable		(3,964	)		10,666				(8,115	)		643
Accrued employment costs		2,595			(922	)			(3,227	)		1,891
Income taxes		(36	)		(131	)			(1	)		(29	)
Other, net		1,307			(399	)			(3,535	)		267

Net cash provided by operating activities		729			866
Net cash (used in) provided by operating activities									(15,665	)		205

Investing Activity:
Capital expenditures		(13,211	)		(4,699	)			(9,396	)		(6,647	)

Net cash used in investing activity		(13,211	)		(4,699	)			(9,396	)		(6,647	)

Financing Activities:
Borrowings under revolving credit facility		347,395			240,750				108,777			264,889
Payments on revolving credit facility		(351,918	)		(232,909	)			(84,532	)		(283,346	)
Proceeds under New Markets Tax Credit financing		2,835			-				-			2,835
Payments on term loan facility, capital leases, and notes		(11,821	)		(3,908	)
Payments on term loan facility, finance leases, and notes									(2,944	)		(3,567	)
Payments of financing costs		(1,105	)		-				-			(695	)
Proceeds from public offering, net of cash expenses		32,246		-					-			32,253
Proceeds from exercise of stock options		834			104
Proceeds from the exercise of stock options									327			262

Net cash provided by financing activities		18,466			4,037				21,628			12,631

Net increase in cash and restricted cash		5,984			204
Net (decrease) increase in cash and restricted cash									(3,433	)		6,189
Cash and restricted cash at beginning of period		207			75				4,091			207

Cash and restricted cash at end of period	$	6,191		$	279			$	658		$	6,396

The following table ~~provides a reconciliation of~~reconciles cash and restricted cash ~~reported within~~above to the Consolidated Balance Sheets ~~that sums to the total of the same such amounts shown in the Consolidated Statements of Cash Flow.~~

Amounts included in restricted cash represent those funds required to be used pursuant to the construction of a new bar cell unit at the Company's Dunkirk, NY facility. These funds were obtained pursuant to the terms of the New Markets Tax Credit Program.

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

									Accumulated
	Common				Additional				other
	shares		Common		paid-in		Retained		comprehensive			Treasury			Treasury
	outstanding		stock		capital		earnings		income (loss)			shares			stock

For the six months ended June 30, 2019
Balance at December 31, 2018		8,752,490	$	9	$	93,100	$	146,191	$	1			292,855	$		(2,290	)
Common stock issuance under
Employee Stock Purchase Plan		9,270		-		128		-		-			-			-
Exercise of stock options		4,050		-		41		-		-			-			-
Share-based compensation		6,401		-		432		-		-			-			-
Net loss on derivative instruments		-		-		-		-		(67	)		-			-
Adoption of ASU 2018-02		-		-		-		21		(21	)		-			-
Net income		-		-		-		1,222		-			-			-
Balance at March 31, 2019		8,772,211	$	9	$	93,701	$	147,434	$	(87	)		292,855	$		(2,290	)
Common stock issuance under
Employee Stock Purchase Plan		11,182		-		152		-		-			-			-
Exercise of stock options		600		-		17		-		-			-			-
Share-based compensation		3,844		-		357		-		-			1,424			(21	)
Net gain on derivative instruments		-		-		-		-		154			-			-
Net income		-		-		-		2,086		-			-			-
Balance at June 30, 2019		8,787,837	$	9	$	94,227	$	149,520	$	67			294,279	$		(2,311	)

For the six months ended June 30, 2018
Balance at December 31, 2017		7,257,787	$	8	$	58,514	$	135,529	$	(93	)		292,855	$		(2,290	)
Common stock issuance under
Employee Stock Purchase Plan		-		-		-		-		-			-			-
Exercise of stock options		4,550		-		54		-		-			-			-
Share-based compensation		2,848		-		401		-		-			-			-
Capital investment		-		-		33		-		-			-			-
Net loss on derivative instruments		-		-		-		-		(58	)		-			-
Net income		-		-		-		2,125		-			-			-
Balance at March 31, 2018		7,265,185	$	8	$	59,002	$	137,654	$	(151	)		292,855	$		(2,290	)
Common stock issuance under
Employee Stock Purchase Plan		7,922		-		149		-		-			-			-
Exercise of stock options		5,375		-		59		-		-			-			-
Public offering		1,408,163		1		32,253		-		-			-			-
Share-based compensation		-		-		351		-		-			-			-
Net gain on derivative instruments		-		-		-		-		166			-			-
Net income		-		-		-		4,038		-			-			-
Balance at June 30, 2018		8,686,645	$	9	$	91,814	$	141,692	$	15			292,855	$		(2,290	)

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

Universal Stainless & Alloy Products, Inc., and its wholly-owned subsidiaries ~~(“Universal”, “we”, “our”~~(collectively, “Universal,” “we,” “us,” “our,” or the “Company”), manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to service centers, forgers, rerollers, original equipment manufacturers and wire redrawers. Our customers further process our products for use in a variety of industries, including the aerospace, power generation, oil and gas, heavy equipment, and general industrial manufacturing industries. We also perform conversion services on materials supplied by customers.

The accompanying unaudited consolidated statements include the accounts of Universal Stainless & Alloy Products, Inc. and its subsidiaries and are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reports and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to such regulations. Although the December 31, 2018 consolidated balance sheet data was derived from the audited financial statements, it does not include all disclosures required by U.S. GAAP. However, we believe that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our most recently audited financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary to present a fair presentation of the consolidated financial statements for the periods shown. Interim results are not necessarily indicative of the operating results for the full fiscal year or any future period. The preparation of these financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from our estimates. The consolidated financial statements include our accounts and the accounts of our wholly–owned subsidiaries. We also consolidate, regardless of our ownership percentage, variable interest entities (each a “VIE”) for which we are deemed to have a controlling financial interest. All intercompany transactions and balances have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity is a VIE, and if we are deemed to be a primary beneficiary. As a part of our evaluation, we are required to qualitatively assess if we are the primary beneficiary of the VIE based on whether we hold the power to direct those matters that most significantly impacted the activities of the VIE and the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant. Refer to Note 6,7, New Markets Tax Credit Financing Transaction, for a description of the VIE’s included in our consolidated financial statements.

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted the provisions of ASU 2014-09 on January 1, 2018, using the modified retrospective approach. Revenue from the Company’s product sales continue to generally be recognized when products are shipped (i.e. point in time). As such, the adoption of ASU 2014-09 had no material effect on revenue, gross margin or operating income; however, the Company has now presented the disclosures required by this new standard, refer to Note 3.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” or (“ASU 2016-18”). ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of cash flows. When cash and cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively. We adopted ASU 2016-18 in the first quarter of 2018 and applied the guidance retrospectively to our prior period Consolidated Statements of Cash Flow.

The Company considers the applicability and impact of all ASUs. Recently issued ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-2~~2016-02 “Leases (Topic 842),”. which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use ~~asset and a lease liability.~~asset. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. The criteria for evaluating are similar to those applied in current lease accounting. ~~This guidance is~~The Company adopted the ASU effective for annual and interim reporting periods beginning after December 15, 2018 with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements and will adopt on January 1, 2019. The adoption resulted in the recognition of current and noncurrent lease liabilities and corresponding right-of-use assets on the balance sheet, and did not have a material impact on the consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income,” that ~~will permit~~permits companies the option to reclassify stranded tax effects caused by the ~~newly-enacted~~2017 U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. ~~Adoption of~~The Company adopted the ASU ~~will be optional,~~effective January 1, 2019 and ~~companies will need~~recorded the reclassification to disclose if it elects not to adopt the ASU. The ASU will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption will be permitted, including adoption in any interim period, for financial statements that have not yet been issued or made available for issuance. Entities will have the option to apply the amendments retrospectively or to record the reclassificationretained earnings as of the ~~beginning~~effective date of the ~~period of~~ adoption. ~~We are currently evaluating~~The adoption did not have a material impact on the consolidated financial statements.

The Company considers the applicability and impact of ~~this guidance~~all ASUs. Recently issued ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial ~~statements and will adopt on January 1, 2019.~~statements.

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement,” ~~that~~which will modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the removal of certain disclosure requirements. The amendments in the ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. We are currently evaluating the impact of this guidance on our financial statements and will adopt on or before January 1, 2020.

The following table sets forth the computation of basic and diluted net income ~~(loss)~~ per common share:

	Three months ended					Nine months ended					Three months ended				Six months ended
	September 30,					September 30,					June 30,				June 30,
(dollars in thousands, except per share amounts)	2018		2017			2018		2017			2019		2018		2019		2018

Numerator:

Net income (loss)	$	3,916	$	(259	)	$	10,079	$	(250	)
Net income											$	2,086	$	4,038	$	3,308	$	6,163

Denominator:

Weighted average number of shares of common stock outstanding (A)		8,699,953		7,228,277			7,931,783		7,221,426			8,773,263		7,817,628		8,769,242		7,541,332
Weighted average effect of dilutive stock options and other stock compensation		252,796		-			234,976		-			74,564		258,480		90,901		243,071

Weighted average number of shares of common stock outstanding, as adjusted		8,952,749		7,228,277			8,166,759		7,221,426			8,847,827		8,076,108		8,860,143		7,784,403

Net income (loss) per common share:
Net income per common share:

Net income (loss) per common share - Basic	$	0.45	$	(0.04	)	$	1.27	$	(0.03	)
Net income per common share - Basic											$	0.24	$	0.52	$	0.38	$	0.82

Net income (loss) per common share - Diluted	$	0.44	$	(0.04	)	$	1.23	$	(0.03	)
Net income per common share - Diluted											$	0.24	$	0.50	$	0.37	$	0.79

On May 25, 2018, the Company completed an underwritten, public offering involving the issuance and sale by the Company of 1,224,490 shares of common stock at a public offering price of $24.50 per share. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 183,673 shares of common stock. On June 1, 2018, the underwriters exercised the option in full, and an additional 183,673 shares of common stock were issued and sold on June 5, 2018. The public offering resulted in gross proceeds to the Company of approximately $34.5 million, or $32.2 million net of the underwriting discount and other offering fees and expenses. We used the net proceeds from the public offering to repay amounts outstanding under the Company’s revolving credit facility. ~~The public offering’s impact on the weighted average number of shares for the three and nine months ending September 30, 2018 is 1.4 million shares and 0.7 million shares, respectively.~~

We had options to purchase ~~236,000~~651,900 and ~~495,675~~265,150 shares of common stock outstanding at a weighted average price of ~~$34.53~~$26.16 and ~~$31.74~~$34.02 for the three months ended ~~September~~June 30, 2019 and 2018, ~~and 2017~~respectively, which were excluded in the computation of diluted net income ~~(loss)~~ per common ~~share for the three months ended September 30, 2018 and 2017, respectively.~~share. We had options to purchase ~~261,000~~646,900 and ~~566,075~~265,150 shares of common stock outstanding at ana weighted average price of ~~$33.86~~$26.25 and ~~$30.21~~$34.02 for the six months ended June 30, 2019 and 2018, respectively, which were excluded in the computation of diluted net income ~~(loss)~~ per common ~~share for the nine months ended September 30, 2018 and 2017, respectively.~~share. These ~~outstanding~~ options were not included in the computation of diluted net income ~~(loss)~~ per common share because their exercise prices were greater than the average market price of our common stock. ~~The calculation of diluted net loss per~~

common share for the three months ended September 30, 2017 excluded 121,750 shares, for the assumed exercise of stock options as a result of being in a net loss position. The calculation of diluted net loss per common share for the nine months ended September 30, 2017 excluded 99,638 shares, for the assumed exercise of stock options as a result of being in a net loss position. In addition, for the three and nine months ended September 30, 2017, the calculation of diluted net loss per share excluded 39,216 and 29,101 shares, respectively, for the assumed issuance of stock for restricted stock units as a result of being in a net loss position.

The Company’s revenues are primarily comprised of sales of products. Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are excluded from revenues. Invoiced shipping and handling costs are included in revenue.

The Company’s revenue is primarily from products transferred to customers at a point in time. The Company recognizes revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes to the customer upon shipment.

~~The Company has evaluated the impact of the new revenue recognition standard on individual customer contracts.~~ We have determined that there are certain customer agreements involving production of specified product grades and shapes that require revenue to be recognized over time, in advance of shipment, due to there being no alternative use for these grades and shapes without significant economic loss. Also, the Company maintains an enforceable right to payment including a normal profit margin from the customer in the event of contract

termination. ~~Over-time recognition is a change from prior accounting, which was point-in-time for these products.~~

The adoption of ASU 2014-09, using the modified retrospective approach, had no material effect on revenue, gross margin or operating income. Additionally, on January 1, 2018 the adoption had an immaterial impact on the Company’s Consolidated Balance Sheets. As of September 30, 2018, the adoption created contractContract assets related to services performed, not yet ~~billed. These amounts~~billed of $2.0 million and $1.0 million are included in Accounts Receivable in the Consolidated Balance Sheets ~~as of September~~at June 30, ~~2018. Contract assets recorded as of September 30,~~2019 and December 31, 2018, ~~totaled $1.6 million. The Company does not have any material contract liabilities as of September 30, 2018.~~respectively.

The Company has elected the following practical expedients allowed under ~~ASU 2014-09:~~Accounting Standards Codification Topic 606:

Our raw material and starting stock inventory is primarily comprised of ferrous and non-ferrous scrap metal and alloys such as nickel, chrome, molybdenum, cobalt, vanadium and copper. Our semi-finished and finished steel products are work-in-process in various stages of production or are finished products waiting to be shipped to our customers. Operating materials are primarily comprised of forge dies and production molds and rolls that are consumed over their useful lives. During the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, we amortized these operating materials in the amount of ~~$1.7~~$1.1 million ~~and $1.5 million, respectively.~~in each period. This expense is recorded as a component of cost of products sold on the consolidated statements of operations and included as a part of our total depreciation and amortization on the consolidated statements of cash flows. Inventory is stated at the lower of cost or net realizable value with cost principally determined on a weighted average cost method. Such costs include the acquisition cost for raw materials and supplies, direct labor and applied manufacturing overhead. We assess market based upon actual and estimated transactions at or around the balance sheet date. Typically, we reserve for slow-moving inventory and inventory that is being evaluated under our quality control process. The reserves are based upon management’s expected method of disposition. Inventories consisted of the following:

The Company periodically enters into leases in its normal course of business. At June 30, 2019, the leases in effect were primarily related to mobile and other production equipment. The term of our leases is generally 60 months or less, and the leases do not have significant restrictions, covenants, or other nonstandard terms.

We adopted the guidance effective in Leases (Topic 842) on January 1, 2019. Adoption of this guidance did not change the balance sheet recognition of our finance leases or the income statement recognition of our finance or operating leases. As a result of adopting the guidance, the Company recorded lease liabilities and right-of-use assets related to its operating leases. The impact at adoption was immaterial to the Company’s consolidated financial statements.

Right-of-use assets and lease liabilities are recorded at the present value of minimum lease payments. For our operating leases, the assets are included in Other long-term assets on the consolidated balance sheet at June 30, 2019 and are amortized within operating income over the respective lease terms. The long-term component of the lease liability is included in Other long-term liabilities, net, and the current component is included in Other current liabilities. During the six months ended June 30, 2019, the Company entered into two new lease agreements accounted for as operating leases, both of which were during the first quarter.

For our finance leases, the assets are included in Property, plant and equipment, net on the consolidated balance sheets and are depreciated over the respective lease terms which range from three to five years. The long-term component of the lease liability is included in Long-term debt and the

current component is included in Current portion of long-term debt. During the six months ended June 30, 2019 and 2018, the Company did not enter into any material new lease agreements accounted for as a finance lease.

As of June 30, 2019, future minimum lease payments applicable to operating and finance leases were as follows:

Right-of-use assets recorded to the consolidated balance sheet at June 30, 2019 were $0.7 million and $1.0 million for operating leases and finance leases, respectively. For the three and six months ended June 30, 2019, the amortization of finance lease assets was $0.1 million and $0.2 million, respectively, and was included in cost of products sold in the Consolidated Statements of Operations.

The Company elected the practical expedient allowed under Leases (Topic 842) to exclude leases with a term of 12 months or less from the calculation of our lease liabilities and right-of-use assets.

In determining the lease liability and corresponding right-of-use asset for each lease, the Company calculated the present value of future lease payments using the interest rate implicit in the lease, when available, or the Company’s incremental borrowing rate. The incremental borrowing rate was determined with reference to the interest rate applicable under our senior secured revolving credit facility discussed in Note 6, as this facility is collateralized by a first lien on substantially all of the assets of the Company and its term is similar to the term of our leases.

On August 3, 2018, we entered into the First Amended and Restated Revolving Credit, Term Loan and Security Agreement (“Credit Agreement”) with PNC Bank, National Association, as administrative agent and co-collateral agent, Bank of America, N.A., as co-collateral agent, and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement amended the prior Revolving Credit, Term Loan and Security Agreement (“Prior Agreement”), and provides for a senior secured revolving credit facility not to exceed $110.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in the amount of $10.0 million (together with the Revolving Credit Facility, the “Facilities”). The Company was in compliance with all the applicable financial covenants prior to the August 3, 2018 amendment to the Credit Agreement and ~~at September~~through June 30, ~~2018.~~2019.

The Facilities, which expire August 3, 2023 (the ‘Expiration Date”), are collateralized by a first lien in substantially all of the assets of the company and its subsidiaries, except that no real property is collateral under the Facilities other than Company’s real property in North Jackson, Ohio.

Availability under the Credit Agreement is based on eligible accounts receivable and inventory. Further, the Company must maintain undrawn availability under the Credit Agreement of at least an amount equal to payments due on the notes issued in connection with the acquisition of the North Jackson facility, ~~(collectively,~~as defined in the ~~“Notes”),~~Credit Agreement, plus 12.5% of the maximum borrowing amount of $110.0 ~~million.~~million “(Minimum Liquidity”). At June 30, 2019, there were no payments due on the notes relevant to the Minimum Liquidity calculation. This requirement exists until the Notes are paid in full, refinanced or extended.

The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility.

With respect to the Term Loan, the Company ~~will pay~~pays quarterly installments of the principal of approximately $0.4 million, plus accrued and unpaid interest, on the first day of each fiscal quarter beginning onafter September 30, 2018. To the extent not previously paid, the Term Loan will become due and payable in full on the Expiration Date.

Amounts outstanding under the Facilities, at the Company’s option, will bear interest at either a base rate or a LIBOR based rate, in either case calculated in accordance with the terms of the Credit Agreement. Interest under the Credit Agreement is payable monthly. We elected to use the LIBOR based rate for the majority of the debt outstanding under the Facilities for the three months ended ~~September~~June 30, ~~2018,~~2019, which was ~~3.61%~~3.94% on our Revolving Credit Facility and ~~4.11%~~4.44% for the Term Loan.

The Credit Agreement contains customary affirmative and negative covenants. If a triggering event occurs as defined in the Credit Agreement, the Company must maintain a fixed charge coverage ratio of not less than 1.10 to 1.0 measured on a rolling four quarter basis and calculated in accordance with the terms of the Credit Agreement.

At ~~September~~June 30, ~~2018,~~2019, we had Credit Agreement related net deferred financing costs of approximately ~~$1.0~~$0.8 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we amortized ~~$0.2~~$0.1 million of those deferred financing costs.

~~$6.7~~During 2018, $6.7 million was drawn on the Revolving Credit Facility to fund cash restricted for use related to the New Markets Tax Credit (“NMTC”) Financing Transaction. ~~As of September 30, 2018,~~ NMTC related restricted cash receipts totaling ~~$2.2~~$8.0 million in 2018 were applied to the Company’s Revolving Credit Facility, described in Note 6.7.

In connection with the acquisition of the North Jackson facility, in August 2011, we issued $20.0 million in aggregate principal amount of Notes to the sellers of the North Jackson facility as partial consideration of the acquisition.

On January 21, 2016, the Company entered into Amended and Restated Notes in the aggregate principal amount of $20.0 million, each in favor of Gorbert Inc. (“Holder”). The Company’s obligations under the Notes are collateralized by a second lien on the same assets of the Company that collateralize the obligations of the Company under the Facilities.The Holder had the right toelectat any time on or prior to August 17, 2017 to convert all or any portion of the outstanding principal amount of the Notes. The Holder’s conversion rights expired and are no longer subject to exercise.

The Notes were originally scheduled to mature on March 17, 2019. On March 30, 2018, the Company provided notification of its intent to extend the maturity date to March 17, 2020 in accordance with the terms of the Notes.

Upon the Company’s extension of the maturity date of the Notes to March 17, 2020, principal payments in the aggregate of $2.0 million ~~will be required to be~~were made in March 2019. ~~In conjunction with the intended extension of the maturity date of the Notes, $2.0 million has been classified within current portion of long-term debt.~~

~~Additionally,~~On March 18, 2019, the Company ~~has the option~~provided notification of its intent to ~~further~~ extend the maturity date ~~of the Notes~~ to March 17, ~~2021.~~2021 in accordance with the terms of the Notes. Extending the maturity date of the Notes to March 17, 2021 would require a principal payment in the aggregate amount of $2.0 million to be made in March 2020. In conjunction with the intended extension of the maturity date of the Notes, $2.0 million has been classified within current portion of long-term debt.

~~The~~In accordance with the terms of the Notes, ~~bore~~the Notes have borne interest at ~~a rate of 5.0% per year through and including August 17, 2017 and bear~~ a rate of 6.0% per year ~~from and after~~since August ~~18,~~17, 2017. ~~Through and including June 18, 2017, all accrued and unpaid interest was payable semi-annually in arrears on each June 18 and December 18. After June 18, 2017, all~~All accrued and unpaid interest is payable quarterly in arrears on each September 18, December 18, March 18 and June 18.

The Holder had the right to elect at any time on or prior to August 17, 2017 to convert all or any portion of the outstanding principal amount of the Notes. The Holder’s conversion rights expired and are no longer subject to exercise.

The Company enters into capital lease arrangements. The capital assets and obligations are recorded at the present value of minimum lease payments. The assets are included in Property, Plant and Equipment, net on the Consolidated Balance Sheets and are depreciated over the respective lease terms which range from three to five years. The long-term component of the capital lease obligations is included in Long-term debt and the current component is included in Current portion of long-term debt. During the nine months ended September 30, 2018, the Company entered into a new capital lease agreement for which the net present value of the minimum lease payments, at inception, was not significant. During the nine months ended September 30, 2017, the Company entered into capital lease agreements for which the net present value of the minimum lease payments, at inception, was $0.4 million. These amounts have been excluded from the Consolidated Statements of Cash Flows as they are non-cash.

~~As of September 30, 2018, future minimum lease payments applicable to capital leases were as follows:~~

For the three and nine months ended September 30, 2018, the amortization of capital lease assets was $0.1 million and $0.4 million, respectively, which is included in cost of products sold in the Consolidated Statements of Operations.

On March 9, 2018, the Company entered into a qualified New Markets Tax Credit financing program with PNC New Markets Investment Partners, LLC and Boston Community Capital, Inc. related to a new mid-size bar cell capital project at the Company’s Dunkirk, NY facility. PNC New Markets Investment Partners, LLC made a capital contribution and the Company made a loan to Dunkirk Investment Fund, LLC (“Investment Fund”) under the qualified NMTC program. Through this financing transaction, the Company secured low interest financing and the potential for other future benefits related to its mid-size bar cell capital project.

In connection with the NMTC financing program, the Company loaned $6.7 million aggregate principal amount (“Leverage Loan”) due in March 2048, to the Investment Fund. Additionally, PNC New Markets Investment Partners, LLC contributed $3.5 million to the Investment Fund, and as such, PNC New Markets Investment Partners, LLC is entitled to substantially all tax and other benefits derived from the NMTC. The Investment Fund then contributed the proceeds to a community development entity (“CDE”). The CDE then loaned the funds, on similar terms, as the Leverage Loan to Dunkirk Specialty Steel, LLC, a wholly-owned subsidiary of the Company. The CDE loan proceeds are restricted for use on the mid-size bar cell capital project.

The NMTC is subject to 100 percent recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to comply with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, require the Company to indemnify PNC New Markets Investment Partners, LLC for any loss or recapture of NMTCs related to the financing until the Company’s obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. This transaction also includes a put/call provision whereby the Company may be obligated or entitled to repurchase PNC New Markets Investment Partners, LLC’s interest in the Investment Fund. The Company believes that PNC New Markets Investment Partners, LLC will exercise the put option in March 2025, at the end of the recapture period. The value attributed to the put/call is negligible.

Direct costs incurred in structuring this financing transaction totaled $0.7 million. These costs were deferred and will be amortized over the term of the loans.

The Company has determined that the Investment Fund and CDE are each a VIE, and that it is the primary beneficiary of each VIE. This conclusion was reached based on the following:

Because the Company is the primary beneficiary of each VIE, these entities have been included in the Company’s Consolidated Financial Statements.

As of ~~September~~June 30, ~~2018,~~2019, the Company recorded ~~$6.2~~$0.4 million as restricted cash which is included in Other long-term assets on the Company’s Consolidated Balance Sheets and $2.8 million as Other long-term liabilities related to this financing transaction. Cash is restricted for use in bar cell capital purchases only. Other long-term liabilities represent funds contributed to the Investment Fund by PNC New Markets Investment Partners, LLC. ~~There was no significant change in restricted cash as of September 30, 2018 compared to June 30, 2018.~~

The fair value hierarchy has three levels based on the inputs used to determine fair value, which are 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 carrying amounts of our cash, accounts receivable and accounts payable approximated fair value at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 due to their short-term maturities (Level 1). The fair value of the Term Loan and Revolving Credit facility at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 approximated the carrying amount as the interest rate is based upon floating short-term interest rates (Level 2). ~~At September 30, 2018 and December 31, 2017, the~~The fair value of our Notes was approximately ~~$18.9~~$16.9 million at June 30, 2019 and $18.8 million ~~respectively~~December 31, 2018 (Level 2).

From time to time, various lawsuits and claims have been or may be asserted against us 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 our 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 our results of operations for the period in which the resolution occurs.

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision ~~(benefit)~~ is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate (“ETR”), increased or decreased for the tax effect of discrete items.

For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, our estimated annual effective tax rates applied to ordinary income ~~(losses)~~ were ~~18.5%~~16.0% and ~~22.6%~~19.6%, respectively. The difference between the statutory rate and the projected annual ETR of ~~18.5%~~16.0% for ~~2018~~2019 is primarily due to ~~increased~~ research and development credits. ~~Our estimated~~Discrete items were not significant during the six months ended June 30, 2019, and our ETR ~~incorporated the 21% statutory U.S. corporate income tax rate that was enacted on December 22, 2017 by the Tax Cuts and Jobs Act,~~ for the ~~tax years beginning after December 31, 2017.~~period was 16.0%.

Including the effect of discrete items, our ~~effective tax rate~~ETR for the ~~nine~~six months ended ~~September~~June 30, 2018 was ~~19.1%~~23.7%. The difference between the estimated annual ETR of ~~18.5%~~19.6% and the ~~quarterly~~ rate of ~~19.1%~~23.7% for the ~~nine~~six months ended ~~September~~June 30, 2018 iswas primarily related to the expiration of fully vested stock options, ~~partially offset~~which impacted income tax expense by research and development credits. Our pre-tax income for the nine months ended September 30, 2017 was approximately break-even and our effective tax rate for the same period varied due to discrete items, primarily expense from the expiration of fully vested stock options.$0.3 million.

The Company invoices certain customers in foreign currencies. In order to mitigate the risks associated with fluctuations in exchange rates with the US Dollar, the Company entered into foreign exchange forward contracts during ~~2018~~2019 and ~~2017~~2018 for a portion of these sales, and has designated these contracts as cash flow hedges. The notional value of ~~these~~ contracts at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$1.1~~$6.0 million and ~~$4.5~~$7.4 million, respectively. An accumulated unrealized gain of less than $0.1 million was recorded in other comprehensive income ~~for the nine months ended September~~at June 30, ~~2018~~2019 and ~~an accumulated unrealized loss of $0.1 million was recorded in other comprehensive income for the 12 months ended~~also at December 31, ~~2017.~~2018.

This Quarterly Report on Form 10-Q contains or incorporates forward looking statements within the meaning of the Private Securities Reform Act of 1995, which involves risks and uncertainties. The following information should be read in conjunction with the unaudited consolidated financial information and the notes thereto included in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward looking statements. Actual events or results may differ materially due to competitive factors and other factors referred to in Part 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, our other filings with the Securities and Exchange Commission and elsewhere in this Quarterly Report. These factors may cause our actual results to differ materially from any forward looking statement. These forward looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate, and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.

We manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to rerollers, forgers, service centers, original equipment manufacturers and wire redrawers. Our customers further process our products for use in a variety of industries, including the aerospace, power generation, oil and gas, heavy equipment and general industrial markets. We also perform conversion services on materials supplied by customers.

Sales in the ~~third~~second quarter of ~~2018~~2019 were ~~$69.1~~$71.0 million, an increase of ~~$18.2~~$10.7 million, or ~~35.7%~~17.8%, from the ~~third~~first quarter of ~~2017 and an increase of $3.0~~2019. During this period, sales to our largest end market, aerospace, increased $6.7 million, or ~~4.5%, from the second quarter~~15.8%. Sales increased in all of ~~2018. Overall, net sales increased for the majority of~~our other end markets ~~in the third quarter of 2018 compared to the third quarter of 2017 with aerospace up $9.6~~as well. Power generation increased $0.7 million, or ~~34.6%~~27.9%, oil & gas ~~up $4.3~~increased $2.4 million, or ~~94.3%~~43.9%, heavy equipment ~~up $3.7~~increased $0.7 million, or ~~38.4%~~11.4%, and general industrial ~~and conversion services up $1.1~~increased $0.2 million, or ~~19.1%, offset by power generation being down $0.5 million, or 16.7%~~8.0%.

Compared to the second quarter of 2018, ~~heavy equipment was up $4.4~~sales in the second quarter of 2019 increased $4.9 million, or ~~48.4%~~7.5%. Aerospace sales increased by $9.1 million, or 22.7%, and power generation by $0.9 million, or 37.1%. These increases were partially offset by decreases in our other end markets, as oil & gas ~~was up $1.1~~decreased $0.1 million, or ~~14.1%~~1.1%, ~~power generation was up $0.4~~heavy equipment decreased $1.9 million, or ~~16.3% and~~20.7%, general industrial ~~was up $0.2~~decreased $2.5 million, or ~~5.1%, offset by aerospace being down $2.9 million, or 7.2%~~51.5%, and conversion services ~~was down $0.3~~and other sales decreased $0.6 million, or ~~15.0%~~35.0%.

During the ~~third~~second quarter of ~~2018,~~2019, our ~~net~~ sales of premium alloy products, which we define as all vacuum induction melt products, represented ~~$9.2~~a record $12.8 million, or ~~13.3%~~18.0% of total ~~net~~ sales. This was an increase compared to ~~the third~~first quarter ~~of 2017~~2019 premium alloy ~~net~~ sales of ~~$7.4~~$9.4 million, ~~or 14.5%~~which was 15.5% of total ~~net~~ sales, and ~~the~~compared to second quarter of 2018 premium alloy ~~net~~ sales of $12.0 million, or 18.2% of total ~~net~~ sales. Our premium alloy products are primarily sold to the aerospace end market.

Our backlog, before surcharges, at ~~September~~June 30, ~~2018~~2019 was ~~$111.4~~$116.9 million, ~~an increase~~a decrease of ~~$45.2~~$13.2 million, or ~~68.3%~~10.1%, compared to ~~September 30, 2017~~March 31, 2019, and an increase of ~~$7.2~~$12.7 million, or ~~6.9%~~12.1%, compared to June 30, 2018.

The Company’s gross margin for the ~~third~~second quarter of ~~2018~~2019 was ~~$10.4~~$9.1 million, or ~~15.1%~~12.8% of net sales, compared to ~~$5.5~~$7.4 million, or ~~10.7%~~12.2% of net sales, for the ~~third~~first quarter of ~~2017~~2019 and $11.7 million, or 17.7% of net sales, for the second quarter of 2018. Gross margin in the second quarter of 2019 was negatively impacted by $0.4 million of expenses resulting from a fire at our North Jackson facility. The ~~increase~~Company also incurred $0.2 million of increased operations cost as a result of the fire, which is expected to negatively impact gross margin in future periods. In addition, the decrease in our gross margin from the ~~third~~second quarter of ~~2017~~2018 is largely a result of ~~shift~~slower recovery in surcharges and changes in product ~~mix to higher value premium alloys, higher volumes, base price increases, and cost reduction programs.~~mix.

Selling, General and Administrative (“SG&A”) expenses were ~~$5.1~~$5.6 million, or ~~7.4%~~7.9% of net sales, in the ~~third~~second quarter ~~2018~~2019 compared to ~~$4.4~~$5.0 million, or ~~8.7%~~8.2% of net sales, in the ~~third~~first quarter of ~~2017~~2019 and $5.8 million, or 8.9% of net sales, in the second quarter of 2018. SG&A ~~decreased as a percent~~increased compared to the first quarter of ~~sales~~2019 but decreased compared to the second quarter of 2018 due to changes in salary and ~~the third quarter 2017.~~employment costs, including employee incentive compensation.

The Company’s net income was ~~$3.9~~$2.1 million for the ~~third~~second quarter of ~~2018~~2019 compared to ~~approximately break-even in~~$1.2 million for the ~~third~~first quarter of ~~2017~~2019 and ~~net income of~~ $4.0 million in the second quarter of 2018.

Three months ended ~~September~~June 30, ~~2018~~2019 as compared to the three months ended ~~September~~June 30, ~~2017~~2018:

	Three months ended September 30,												Three months ended June 30,
(in thousands, except shipped ton information)	2018				2017								2019				2018

	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar / ton variance		Percentage variance		Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar / ton variance		Percentage variance
Net sales:
Stainless steel	$	46,754	67.7	%	$	34,106	67.0	%	$	12,648	37.1	%	$	53,183	74.9	%	$	47,691	72.2	%	$	5,492	11.5	%
High-strength low alloy steel		5,444	7.9			3,359	6.6			2,085	62.1			7,985	11.2			4,888	7.4			3,097	63.4
Tool steel		13,130	19.0			9,202	18.1			3,928	42.7			6,926	9.8			8,766	13.3			(1,840)	(21.0)
High-temperature alloy steel		2,149	3.1			3,208	6.3			(1,059)	(33.0)			1,737	2.5			2,931	4.4			(1,194)	(40.7)
Conversion services and other sales		1,579	2.3			1,012	2.0			567	56.0			1,166	1.6			1,795	2.7			(629)	(35.0)

Total net sales		69,056	100.0			50,887	100.0			18,169	35.7			70,997	100.0			66,071	100.0			4,926	7.5
Cost of products sold		58,631	84.9			45,423	89.3			13,208	29.1			61,891	87.2			54,376	82.3			7,515	13.8

Gross margin		10,425	15.1			5,464	10.7			4,961	90.8			9,106	12.8			11,695	17.7			(2,589)	(22.1)
Selling, general and administrative expenses		5,131	7.4			4,448	8.7			683	15.4			5,604	7.9			5,849	8.9			(245)	(4.2)

Operating income (loss)		5,294	7.7			1,016	2.0			4,278	NM
Operating income														3,502	4.9			5,846	8.8			(2,344)	(40.1)
Interest expense		906	1.3			1,059	2.1			(153)	(14.4)			966	1.4			1,197	1.8			(231)	(19.3)
Deferred financing amortization		60	0.1			63	0.1			(3)	(4.8)			56	0.1			71	0.1			(15)	(21.1)
Other (income) expense, net		(48)	(0.1)			(23)	-			(25)	108.7
Other expense (income), net														10	-			(599)	(0.9)			(609)	(101.7)

Income (loss) before income taxes		4,376	6.4			(83)	(0.2)			4,459	NM
Provision (benefit) for income taxes		460	0.7			176	0.3			284	161.4
Income before income taxes														2,470	3.4			5,177	7.8			(2,707)	(52.3)
Provision for income taxes														384	0.5			1,139	1.7			(755)	(66.3)

Net income (loss)	$	3,916	5.7	%	$	(259)	(0.5)	%	$	4,175	NM
Net income													$	2,086	2.9	%	$	4,038	6.1	%	$	(1,952)	(48.3)

Tons shipped		12,385				9,829				2,556	26.0			11,720				11,139				581	5.2

Sales dollars per shipped ton	$	5,576			$	5,177			$	399	7.7	%	$	6,058			$	5,932			$	126	2.1	%

Market Segment Information
	Three months ended September 30,												Three months ended June 30,
(in thousands)	2018				2017								2019				2018
	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance		Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance
Net sales:
Service centers	$	49,889	72.2	%	$	35,507	69.7	%	$	14,382	40.5	%	$	48,247	68.0	%	$	44,743	67.7	%	$	3,504	7.8	%
Original equipment manufacturers		4,981	7.2			4,361	8.6			620	14.2			9,230	13.0			5,769	8.7			3,461	60.0
Rerollers		6,530	9.5			5,640	11.1			890	15.8			7,356	10.4			8,293	12.6			(937)	(11.3)
Forgers		6,077	8.8			4,367	8.6			1,710	39.2			4,998	7.0			5,471	8.3			(473)	(8.6)
Conversion services and other sales		1,579	2.3			1,012	2.0			567	56.0			1,166	1.6			1,795	2.7			(629)	(35.0)

Total net sales	$	69,056	100.0	%	$	50,887	100.0	%	$	18,169	35.7	%	$	70,997	100.0	%	$	66,071	100.0	%	$	4,926	7.5	%

The majority of our products are sold to service centers rather than the ultimate end market customers. The end market information in this Quarterly Report is our estimate based upon our knowledge of our customers and the grade of material sold to them, which they will in-turn sell to the ultimate end market customer.

End Market Information
	Three months ended September 30,													Three months ended June 30,
(in thousands)	2018				2017									2019				2018
	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance			Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance
Net sales:
Aerospace	$	37,302	54.0	%	$	27,717	54.5	%	$	9,585	34.6	%		$	49,335	69.5	%	$	40,205	60.9	%	$	9,130	22.7	%
Power generation		2,714	3.9			3,259	6.4			(545)	(16.7)				3,201	4.5			2,334	3.5			867	37.1
Oil & gas		8,926	12.9			4,593	9.0			4,333	94.3				7,738	10.9			7,826	11.8			(88)	(1.1)
Heavy equipment		13,423	19.4			9,698	19.1			3,725	38.4				7,177	10.1			9,048	13.7			(1,871)	(20.7)
General industrial, conversion services and other sales		6,691	9.8			5,620	11.0			1,071	19.1		General industrial, conversion services and other sales		3,546	5.0			6,658	10.1			(3,112)	(46.7)

Total net sales	$	69,056	100.0	%	$	50,887	100.0	%	$	18,169	35.7	%		$	70,997	100.0	%	$	66,071	100.0	%	$	4,926	7.5	%

Net sales for the three months ended ~~September~~June 30, ~~2018~~2019 increased ~~$18.2~~$4.9 million, or ~~35.7%~~7.5%, as compared to the three months ended ~~September~~June 30, ~~2017.~~2018. This reflects an increase in consolidated ~~shipments~~shipment volume of 5.2% and an increase in average sales dollar per shipped ton of ~~26.0% and 7.7%, respectively.~~2.1%. The increase in sales dollars per ton ~~for the three months ended September 30, 2018, compared to the same period in 2017,~~ is primarily the result of ~~shift in mix of products to higher value premium alloy. In addition,~~ announced base price ~~increases and higher surcharges relative to market pricing of raw materials and graphite electrodes contributed to the overall increase in net sales.~~ increases.

Product sales to the aerospace ~~oil & gas, heavy equipment, general industrial~~ and ~~conversion services~~power generation end markets increased, while ~~power generation~~sales to our other end markets decreased. As a percent of sales, our premium alloy sales decreased to ~~13.3%~~18.0% of total sales for the three months ended ~~September~~June 30, ~~2018~~2019 compared to ~~14.5%~~18.2% for the three months ended ~~September~~June 30, ~~2017;~~2018; however, premium alloy sales increased from the three months ended March 31, 2019 when they were 15.5% of total sales.

As a percent of sales, our gross margin for the three months ended ~~September~~June 30, ~~2018 increased by $1.8 million, or 24.3%, when~~2019 was 12.8% compared to 17.7% for the three months ended June 30, 2018. The decrease is largely a result of slower recovery in customer surcharges and product mix. Gross margin compared to the three months ended ~~September 30, 2017. Our premium alloy sales are primarily for the aerospace market and are the principal contributing factor of growth in that end market.~~

We continuously monitor market price fluctuations of key raw materials. The market values for these raw materials continue to fluctuate based on supply and demand, market disruptions, and other factors. We maintain sales price surcharge mechanisms on certain of our products, 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 our raw material costs.

~~The following table reflects the average market values per pound for selected months during the last 13-month period:~~

Sources: Nickel is the daily average LME Cash Settlement Price; Chrome and Molybdenum is the final monthly average as published by CRUs; Carbon is the consumer price for #1 Industrial Bundles in the Pittsburgh, PA area as reported in American Metal Market.

Our gross margin, as a percent of sales, was 15.1% for the three months ended September 30, 2018 as compared to 10.7% for the three months ended September 30, 2017. The increase in our gross margin is largely a result of shift in product mix to higher value premium alloys, higher volumes, base price increases, and cost reduction programs. Gross margin, as a percent of sales compared to the three months ending June 30, 2018 decreased by 2.6%, primarily on lower sales of premium alloy products.March 31, 2019 increased from 12.2%.

Our SG&A expenses consist primarily of employee costs, which include salaries, payroll taxes and benefit related costs, legal and accounting services, stock compensation and insurance costs. SG&A expenses ~~increased~~decreased by ~~$0.7~~$0.2 million in the three months ended ~~September~~June 30, ~~2018 as~~2019 compared to the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease is primarily due to salary and employment costs including employee incentive compensation which increased approximately $0.7 million. As a percentage of sales, our SG&A expenses were 7.4% of sales for the three months ended September 30, 2018 and 8.7% of sales for the three months ended September 30, 2017.costs.

Interest expense for the three months ended ~~September~~June 30, ~~2018~~2019 totaled ~~$0.9~~$1.0 million, compared to ~~$1.1~~$1.2 million for the three months ended ~~September~~June 30, ~~2017. The decrease in interest expense is attributable to lower debt resulting from the second quarter public offering activity.~~

~~Deferred financing amortization was $0.1 million in the third quarter of 2018 which was consistent with the same period in the prior year.~~2018.

For the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, our estimated annual effective tax rates applied to ordinary income ~~(losses)~~ were ~~18.5%~~16.0% and ~~22.6%~~19.6%, respectively. The difference between the statutory rate and the projected annual ETR ~~of 18.5%~~ for ~~2018~~2019 is ~~primarily~~ due to ~~increased~~ research and development credits. ~~Our estimated~~Discrete items were not significant during the three months ended June 30, 2019, and our ETR ~~incorporated~~for the ~~21% statutory U.S. corporate income tax rate that~~second quarter was ~~enacted on December 22, 2017 by the Tax Cuts and Jobs Act, for tax years beginning after December 31, 2017.~~15.5%.

Including the effect of discrete items, our ~~effective tax rates~~ETR for the three months ended ~~September~~June 30, 2018 was ~~10.5%~~22.0%. The difference between the estimated annual ETR of ~~18.5%~~19.6% and the quarterly rate of ~~10.5% for the three months ended September 30, 2018 is~~22.0% was primarily related to ~~higher than expected research and development credits.~~the expiration of fully vested stock options, which impacted income tax expense by $0.1 million.

For the three months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded net income of ~~$3.9~~$2.1 million, or ~~$0.44~~$0.24 per diluted share, compared to ~~approximately break-even~~$4.0 million, or $0.50 per diluted share, for the three months ended ~~September~~June 30, ~~2017.~~ 2018. The second quarter of 2019 includes an additional 0.9 million weighted average shares outstanding compared to the second quarter of 2018 due to the second quarter 2018 equity issuance.

Six months ended ~~September~~June 30, ~~2018~~2019 as compared to ~~nine~~the six months ended ~~September~~June 30, ~~2017~~2018:

	Nine months ended September 30,												Six months ended June 30,
(in thousands, except shipped ton information)	2018				2017								2019					2018

	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar / ton variance		Percentage variance		Amount		Percentage of net sales			Amount			Percentage of net sales				Dollar / ton variance			Percentage variance
Net sales:
Stainless steel	$	137,384	69.1	%	$	106,296	69.7	%	$	31,088	29.2	%	$	99,178		75.5	%	$	90,630			69.7		%	$	8,548			9.4		%
High-strength low alloy steel		15,535	7.8			10,949	7.2			4,586	41.9			13,749		10.5			10,090			7.8				3,659			36.3
Tool steel		31,537	15.9			24,924	16.4			6,613	26.5			13,493		10.3			18,407			14.2				(4,914	)		(26.7	)
High-temperature alloy steel		9,627	4.8			8,085	5.3			1,542	19.1			2,545		1.9			7,478			5.8				(4,933	)		(66.0	)
Conversion services and other sales		4,781	2.4			2,115	1.4			2,666	126.1			2,303		1.8			3,203			2.5				(900	)		(28.1	)

Total net sales		198,864	100.0			152,369	100.0			46,495	30.5			131,268		100.0			129,808			100.0				1,460			1.1
Cost of products sold		167,472	84.2			135,494	88.9			31,978	23.6			114,792		87.4			108,841			83.8				5,951			5.5

Gross margin		31,392	15.8			16,875	11.1			14,517	86.0			16,476		12.6			20,967			16.2				(4,491	)		(21.4	)
Selling, general and administrative expenses		16,187	8.1			13,676	9.0			2,511	18.4			10,570		8.1			11,056			8.5				(486	)		(4.4	)

Operating income (loss)		15,205	7.7			3,199	2.1			12,006	375.3
Operating income														5,906		4.5			9,911			7.7				(4,005	)		(40.4	)
Interest expense		3,245	1.6			3,018	2.0			227	7.5			1,820		1.4			2,339			1.8				(519	)		(22.2	)
Deferred financing amortization		195	0.1			191	0.1			4	2.1			115		0.1			135			0.1				(20	)		(14.8	)
Other (income) expense, net		(690)	(0.3)			(43)	-			(647)	NM
Other expense (income), net														31		-			(642	)		(0.5	)			673			(104.8	)

Income (loss) before income taxes		12,455	6.3			33	-			12,422	NM
Provision (benefit) for income taxes		2,376	1.2			283	0.2			2,093	NM
Income before income taxes														3,940		3.0			8,079			6.2				(4,139	)		(51.2	)
Provision for income taxes														632		0.5			1,916			1.5				(1,284	)		(67.0	)

Net income (loss)	$	10,079	5.1	%	$	(250)	(0.2)	%	$	10,329	NM
Net income													$	3,308		2.5	%	$	6,163			4.7		%	$	(2,855	)		46.3

Tons shipped		34,681				30,250				4,431	14.6			21,880					22,296							(416	)		(1.9	)

Sales dollars per shipped ton	$	5,734			$	5,037			$	697	13.8	%	$	5,999				$	5,822						$	177			3.0		%

Market Segment Information
	Nine months ended September 30,												Six months ended June 30,
(in thousands)	2018				2017								2019					2018
	Amount		Percentage of net sales		Amount		Percentage of net sales			Dollar variance	Percentage variance		Amount		Percentage of net sales			Amount		Percentage of net sales				Dollar variance			Percentage variance
Net sales:
Service centers	$	139,152	70.0	%	$	105,618	69.2	%	$	33,534	31.8	%	$	91,303		69.5	%	$	89,262		68.8	%	$		2,041			2.3		%
Original equipment manufacturers		15,232	7.6			13,239	8.7			1,993	15.1			14,456		11.0			10,251		7.9				4,205			41.0
Rerollers		23,188	11.7			17,452	11.5			5,736	32.9			13,387		10.2			16,658		12.8				(3,271	)		(19.6	)
Forgers		16,511	8.3			13,945	9.2			2,566	18.4			9,819		7.5			10,434		8.0				(615	)		(5.9	)
Conversion services and other sales		4,781	2.4			2,115	1.4			2,666	126.1			2,303		1.8			3,203		2.5				(900	)		(28.1	)

Total net sales	$	198,864	100.0	%	$	152,369	100.0	%	$	46,495	30.5	%	$	131,268		100.0	%	$	129,808		100.0	%	$		1,460			1.1		%

Melt Type Information
	Nine months ended September 30,												Six months ended June 30,
(in thousands)	2018				2017								2019					2018
	Amount		Percentage of net sales			Amount	Percentage of net sales			Dollar variance	Percentage variance		Amount		Percentage of net sales				Amount		Percentage of net sales				Dollar variance			Percentage variance
Net sales:
Specialty alloys	$	161,048	81.0	%	$	130,287	85.5	%	$	30,761	23.6	%	$	106,781		81.3	%	$		102,728		79.1	%	$		4,053			3.9		%
Premium alloys (A)		33,035	16.6			19,967	13.1			13,068	65.4			22,184		16.9				23,877		18.4				(1,693	)		(7.1	)
Conversion services and other sales		4,781	2.4			2,115	1.4			2,666	126.1			2,303		1.8				3,203		2.5				(900	)		(28.1	)

Total net sales	$	198,864	100.0	%	$	152,369	100.0	%	$	46,495	30.5	%	$	131,268		100.0	%	$		129,808		100.0	%	$		1,460			1.1		%

End Market Information
	Nine months ended September 30,												Six months ended June 30,
(in thousands)	2018				2017								2019					2018
	Amount		Percentage of net sales		Amount		Percentage of net sales			Dollar variance	Percentage variance		Amount		Percentage of net sales			Amount		Percentage of net sales				Dollar variance			Percentage variance
Net sales:
Aerospace	$	113,742	57.2	%	$	83,404	54.7	%	$	30,338	36.4	%	$	91,942		70.0	%	$	76,440		58.9	%	$		15,502			20.3		%
Power generation		7,337	3.7			12,267	8.1			(4,930)	(40.2)			5,704		4.4			4,623		3.6				1,081			23.4
Oil & gas		25,211	12.7			14,296	9.4			10,915	76.4			13,114		10.0			16,285		12.5				(3,171	)		(19.5	)
Heavy equipment		32,506	16.3			26,331	17.3			6,175	23.5			13,621		10.4			19,083		14.7				(5,462	)		(28.6	)
General industrial, conversion services and other sales		20,068	10.1			16,071	10.5			3,997	24.9			6,887		5.2			13,377		10.3				(6,490	)		(48.5	)

Total net sales	$	198,864	100.0	%	$	152,369	100.0	%	$	46,495	30.5	%	$	131,268		100.0	%	$	129,808		100.0	%	$		1,460			1.1		%

Net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$46.5~~$1.5 million, or ~~30.5%~~1.1%, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This reflects an increase in ~~consolidated shipments and~~ average sales dollar per shipped ton of ~~14.6% and 13.8%~~3.0%, ~~respectively.~~partially offset by a decrease in consolidated shipment volume of 1.9%. The increase in sales dollars per ton ~~in the nine months ended September 30, 2018, compared to the same period in 2017,~~ is primarily the result of ~~a shift in mix of products to higher value premium alloy. In addition,~~ announced base price ~~increases and higher surcharges relative to market pricing of raw materials and graphite electrodes contributed to the overall increase in net sales~~. increases. Product sales to ~~all~~the aerospace and power generation end markets ~~except power generation, increased.~~increased, while sales to our other end markets decreased. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, premium alloy sales ~~increased~~decreased by ~~$13.1~~$1.7 million, or ~~65.4%~~7.1%, ~~when~~ compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. As a percent of sales, our premium alloy sales ~~increased~~decreased to ~~16.6% of total sales~~16.9% for the nine months ended September 30, 2018 compared to 13.1% for the nine months ended September 30, 2017. Our premium alloy sales are primarily for the aerospace market and are the principal contributing factor of growth in that end market.same period.

Our gross margin, as a percent of sales, was ~~15.8%~~12.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2018 as~~2019 compared to ~~11.1%~~16.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease in our gross margin is largely a result of ~~a shift~~slower recovery in customer surcharges and product ~~mix to higher value premium alloys, higher volumes, base price increases, and cost reduction programs.~~mix.

Our SG&A expenses consist primarily of employee costs, which include salaries, payroll taxes and benefit related costs, legal and accounting services, stock compensation and insurance costs. SG&A expenses ~~increased~~decreased by ~~$2.5~~$0.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018 as~~2019 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease is ~~primarily~~ due to salary ~~expense~~ and employment costs, including lower employee incentive compensation which increased $2.6 million. As a percentage of sales, our SG&A expenses were 8.1% of sales for the nine months ended September 30, 2018 and 9.0% of sales for the nine months ended September 30, 2017.compensation.

Interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 totaled ~~$3.2~~$1.8 million, compared to ~~$3.0~~$2.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017. The increase in interest expense is attributable to increased interest rates.~~

2018. Deferred financing amortization was ~~$0.2~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, respectively~~.2018.

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision (benefit) is comprised of tax on ordinary income provided at the most recent ETR, increased or decreased for the tax effect of discrete items.

For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, our estimated annual effective tax rates applied to ordinary income ~~(losses)~~ were ~~18.5%~~16.0% and ~~22.6%~~19.6%, respectively. The difference between the statutory rate and the projected annual ETR ~~of 18.5%~~ for ~~2018~~2019 is ~~primarily~~ due to ~~increased~~ research and development credits. ~~Our estimated~~Discrete items were not significant during the six months ended June 30, 2019, and our ETR ~~incorporated~~for the ~~21% statutory U.S. corporate income tax rate that~~first half of 2019 was ~~enacted on December 22, 2017 by the Tax Cuts and Jobs Act, for tax years beginning after December 31, 2017.~~16.0%.

Including the effect of discrete items, our ~~effective tax rate~~ETR for the ~~nine~~six months ended ~~September~~June 30, 2018 was ~~19.1%~~23.7%. The difference between the annual ETR of ~~18.5%~~19.6% and the rate of ~~19.1%~~23.7% for the ~~nine~~six months ended ~~September~~June 30, 2018 is primarily related to the expiration of fully vested stock options, ~~partially offset~~which impacted income tax expense by higher than expected research and development credits. Our pre-tax income for the nine months ended September 30, 2017 was approximately break-even and our effective tax rate for the same period varied due to discrete items, primarily expense from the expiration of fully vested stock options.$0.3 million.

For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded net income of ~~$10.1~~$3.3 million, or ~~$1.23~~$0.37 per diluted share, compared to ~~approximately break-even net income~~$6.2 million, or $0.79 per diluted share, for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Historically, we have financed our ~~operating activities~~operations through cash provided by ~~operations~~operating activities and ~~cash provided through~~borrowings on our credit facilities.

On March 9, 2018, the Company entered into a qualified ~~New Markets Tax Credit~~NMTC financing program with PNC New Markets Investment Partners, LLC and Boston Community Capital, Inc. related to a new mid-size bar cell capital project at the Company’s Dunkirk, NY facility. PNC New Markets Investment Partners, LLC made a capital contribution and the Company made a loan to Dunkirk Investment Fund, LLC (“Investment Fund”) under the ~~qualified~~ NMTC program. Through this financing transaction, the Company secured low interest financing and the potential for other future benefits related to its mid-size bar cell capital project.

The economic effect of the NMTC transactions described above is that the Company secured low cost financing for its mid-size bar cell project.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, net cash ~~provided by~~used in operating activities was ~~$0.7~~$15.4 million. Our net income, adjusted for non-cash expenses, generated ~~$27.9~~$14.2 million. We utilized ~~$31.0~~$23.0 million of cash from managed working capital, which we define as net accounts receivable, plus inventory and minus accounts payable. Accounts receivable increased ~~$19.2~~$8.4 million due to the ~~increase in~~timing of sales and collections, and accounts payable decreased $8.1 million due to the timing of purchasing activity. We used $6.5 million in the ~~third quarter~~growth of ~~2018 compared~~inventory to ~~the fourth quarter~~support our order backlog. In addition, we utilized $6.6 million of ~~2017. Inventories used $7.9 million in support of the increased backlog~~cash from other assets and ~~$4.0 million decrease in accounts payable. Accrued Employment Costs increased $2.6 million~~liabilities, primarily ~~due to increased variable compensation expenses.~~decreased down payments from customers and decreased accruals for employee related costs.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017, we generated $0.9 million~~2018, net cash inprovided by operating ~~activities. Net~~activities was $0.2 million. Our net income, adjusted for non-cash expenses, ~~was $15.5 million.~~generated $18.3 million of cash. We utilized ~~$13.1~~$20.3 million of cash ~~for~~from managed working capital, which we define as net accounts receivable, plus inventory and minus accounts payable. ~~$7.1~~Accounts receivable increased $10.8 million ~~of the increase in managed working capital is from accounts receivable~~ due to the increase in sales in the ~~third~~second quarter of ~~2017~~2018 compared to the fourth quarter of ~~2016.~~2017. Inventories used ~~$16.7~~$10.1 million ~~reflecting higher commodity cost combined with increased quantities~~ in support of ~~higher~~the increased backlog ~~which was partially~~with an offset ~~by the $10.7~~of $0.6 million increase in accounts ~~payable~~payable. Accrued employment cost increased $1.9 million primarily due to increased ~~production activity. Accrued employment costs decreased by $0.9 million due to the payout of 2016~~ variable compensation ~~partially offset by other payroll related accruals. Other activities, primarily maintenance costs, used $0.4 million of cash and income taxes used $0.1 million.~~expenses.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we used ~~$13.2~~$9.4 million in cash for capital expenditures compared to ~~$4.7~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Approximately $3.4 million of the current year to date capital expenditures were payments related to the mid-size bar cell capital project at our Dunkirk, NY facility. We expect 2019 capital expenditures to ~~be approximately $16.5 million in 2018.~~ approximate 2018 levels.

Net cash provided by financing activities totaled $21.4 million for the six months ended June 30, 2019. The change was driven by our capital expenditures and managed working capital needs.

Net cash provided by financing activities netted ~~$18.5~~$12.6 million in cash from financing activities for the ~~nine~~six months ended ~~September~~June 30, 2018. The change was driven by $32.2 million of proceeds from the equity offering which we used to repay amounts outstanding under the Company’s Revolving Credit Facility. Financing activities were also impacted by higher working capital levels, as well as, borrowings related to the mid-size bar cell capital project at our Dunkirk, NY facility. These borrowings were done in conjunction with utilization of the NMTC financing program, described in Note 6.

~~We received $4.0 million~~7 to the unaudited consolidated financial statements included in cash from financing activities for the nine months ended September 30, 2017. We increased borrowings under our Revolving Credit Facility by $7.8 million due to increased working capital requirements resulting from increased net sales and backlog. We paid down $3.9 million of our term loan and received $0.1 million for shares issued through our Employee Stock Purchase Plan.this Quarterly Report on Form 10-Q.

We believe that our cash flows from continuing operations as well as available borrowings under our credit facility are adequate to satisfy our working capital, capital expenditure requirements, and other contractual obligations for the foreseeable future, including at least the next 12 months.

The cost of raw materials represents approximately 40% of the cost of products sold in the first six months of 2019 and 2018. The major raw materials used in our operations include nickel, chrome, molybdenum, vanadium and carbon scrap. We continuously monitor market price fluctuations of key raw materials. We maintain sales price surcharge mechanisms on certain of our products, priced at time of order or shipment, to mitigate the risk of substantial raw material cost fluctuations. The market values for these raw materials and others continue to fluctuate based on supply and demand, market disruptions and other factors.

On August 3, 2018, we entered into the First Amended and Restated Revolving Credit, Term Loan and Security Agreement (“Credit Agreement”) with PNC Bank, National Association, as administrative agent and co-collateral agent, Bank of America, N.A., as co-collateral agent, and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement amended the prior Revolving Credit, Term Loan and Security Agreement (“Prior Agreement”), and provides for a senior secured revolving credit facility not to exceed $110.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in the amount of $10.0 million (together with the Revolving Credit Facility, the “Facilities”).~~The Company was in compliance with all the applicable financial covenants prior to the August 3, 2018 amendment to the Credit Agreement and September 30, 2018.~~

The Facilities, which expire on August 3, 2023 (the ‘Expiration Date”), are collateralized by a first lien in substantially all of the assets of the ~~company~~Company and its subsidiaries, except that no real property is collateral under the Facilities other than Company’s real property in North Jackson, Ohio.

Availability under the Credit Agreement is based on eligible accounts receivable and inventory. Further, the Company must maintain undrawn availability under the Credit Agreement of at least an amount equal to payments due on the notes issued in connection with the acquisition of the North Jackson facility, ~~(collectively,~~as defined in the ~~“Notes”),~~Credit Agreement, plus 12.5% of the maximum borrowing amount of $110.0 ~~million.~~million (“Minimum Liquidity”). At June 30, 2019, there were no payments due on the notes relevant to the Minimum Liquidity calculation. This requirement exists until the Notes are paid in full, refinanced or extended.

The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility.

~~The~~ In conjunction with the intended extension of the maturity date of the Notes, ~~bore~~$2.0 million has been classified within current portion of long-term debt.

In accordance with the terms of the Notes, the Notes have borne interest at ~~a rate of 5.0% per year through and including August 17, 2017 and bear~~ a rate of 6.0% per year ~~from and after~~since August ~~18,~~17, 2017. ~~Through and including June 18, 2017, all accrued and unpaid interest was payable semi-annually in arrears on each June 18 and December 18. After June 18, 2017, all~~All accrued and unpaid interest is payable quarterly in arrears on each September 18, December 18, March 18 and June 18.

The Company periodically enters into ~~capital~~leases in its normal course of business. We adopted the guidance effective in Leases (Topic 842) on January 1, 2019. As a result of adopting the guidance, the Company recorded lease ~~arrangements.~~liabilities and right-of-use assets related to its operating leases to the consolidated balance sheet at the present value of minimum lease payments. The ~~capital~~assets are included in Other long-term assets in the consolidated balance sheet at June 30, 2019, and are amortized over the respective terms which are five years or less. The long term component of the lease liability is recorded in Other long-term liabilities, net and the current component is included in Other current liabilities. During the six months ended June 30, 2019, the Company entered into two new lease agreements accounted for as operating leases.

The accounting for finance leases did not change. The right-of-use assets and ~~obligations~~lease liabilities for leases finance leases are recorded at the present value of minimum lease payments. The assets are included in Property, ~~Plant~~plant and ~~Equipment,~~equipment, net on the ~~Consolidated Balance Sheets~~consolidated balance sheets and are depreciated over the respective lease ~~terms which range from three to five years.~~terms. The long-term component of the ~~capital~~ lease ~~obligations~~liability is included in Long-term debt and the current component is included in Current portion of long-term debt. During the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, the Company ~~has entered~~did not enter into aany material new capital lease agreement for which the net present value of the minimum lease payments, at inception, was not significant. During the nine months ended September 30, 2017, the Company entered into capital lease agreements accounted for ~~which the net present value of the minimum~~as a finance lease ~~payments, at inception, was $0.4 million. These amounts have been excluded from the Consolidated Statements of Cash Flows as they are non-cash.~~

During the third quarter the Company entered into new labor agreements with the hourly employees of its North Jackson and Bridgeville facilities. A six-year collective bargaining agreement with the hourly employees at its North Jackson Specialty Steel facility was agreed to effective July 1, 2018 and expires on June 30, 2024 and a new five-year agreement with the hourly employees at its Bridgeville facility was agreed to effective September 1, 2018 and expires on August 31, 2023. Onetime costs incurred in the quarter in the negotiation and management of the new Bridgeville labor agreement totaled $0.1 million, or $0.01 per diluted share..

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, ~~2017,~~2018, except as provided in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 ~~September~~June 30, ~~2018,~~2019, 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.

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, ~~2017.~~2018.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 could materially affect our business, financial conditions or future results. Those risk factors are not the only risks facing us. Additional risks and uncertainties not currently known or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. We believe that there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30,~~ 2018.

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.

Large accelerated filer	☐	Accelerated filer	☑

Non-accelerated filer	☐	Smaller reporting company	☐☑

Emerging growth company	☐

	DESCRIPTION	PAGE NO.

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Statements of Operations	1

	Consolidated Statements of Comprehensive Income ~~(Loss~~)	2

	Consolidated Balance Sheets	3

	Consolidated Statements of Cash Flow	4

	Consolidated Statements of Shareholders' Equity	5

	Notes to the Unaudited Consolidated Financial Statements	56

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1213

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION	21

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosures	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

SIGNATURES		23

	September 30,		December 31,		June 30,		December 31,
(in thousands)	2018		2017		2019		2018

Raw materials and starting stock	$	11,448	$	8,527	$	10,279	$	9,555
Semi-finished and finished steel products		102,189		99,820		119,648		115,627
Operating materials		11,973		10,850		13,499		12,515

Gross inventory		125,610		119,197		143,426		137,697
Inventory reserves		(2,771)		(2,534)		(3,323)		(2,959)

Total inventory, net	$	122,839	$	116,663	$	140,103	$	134,738

	Operating Leases		Finance Leases
2019	$	107	$	302
2020		207		583
2021		184		471
2022		173		56
2023 and thereafter		84		15
Total minimum lease payments	$	755	$	1,427
Less amounts representing interest		(51)		(155)
Present value of minimum lease payments	$	704	$	1,272
Less current obligations		(213)		(495)
Total long-term lease obligations, net	$	491	$	777
Weighted-average remaining lease term		4 years		2 years

	September 30,		December 31,		June 30,		December 31,
(in thousands)	2018		2017		2019		2018

Revolving credit facility	$	33,500	$	38,024	$	42,449	$	18,204
Notes		19,000		19,000		17,000		19,000
Term loan		10,000		21,541		8,929		9,643
Capital leases		1,618		1,897
Finance leases						1,272		1,502

Total debt		64,118		80,462		69,650		48,349
Less: current portion of long-term debt		(3,896)		(4,707)		(3,924)		(3,907)
Less: deferred financing costs		(1,659)		(749)		(1,489)		(1,603)

Long-term debt, net	$	58,563	$	75,006	$	64,237	$	42,839

	September 30, 2018		September 30, 2017		June 30, 2019		June 30, 2018
Cash	$	33	$	279	$	228	$	263
Restricted cash included in other long-term assets		6,158		-		430		6,133
Total cash and restricted cash	$	6,191	$	279	$	658	$	6,396

		September			June			December			September
		2018			2018			2017			2017

Nickel	$		5.68	$		6.85	$		5.18	$		5.10
Chrome	$		1.41	$		1.44	$		1.44	$		1.45
Molybdenum	$		12.14	$		11.25	$		9.43	$		8.71
Carbon scrap	$		0.18	$		0.19	$		0.18	$		0.19

Exhibit Number		Exhibit

~~10.1~~		First Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of August 3, 2018, by and among Universal Stainless & Alloy Products, Inc., the other borrowers party thereto, the guarantors party thereto from time to time, PNC Bank, National Association, as administrative agent and co-collateral agent, Bank of America, N.A., as co-collateral agent, the lenders party thereto from time to time and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed August 6, 2018).

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 Chief 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 Chief 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).

101		The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September~~June 30, ~~2018,~~2019, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive ~~Income~~Income; (iv) the Consolidated Statements of Cash Flows; the Consolidated Statements of Shareholders’ Equity; and (v) the Notes to the Consolidated Financial Statements (filed herewith).

Date: ~~October~~July 24, ~~2018~~2019

/s/ Dennis M. Oates		/s/ Christopher T. Scanlon
Dennis M. Oates		Christopher T. Scanlon
Chairman, President and Chief Executive Officer		Vice President of Finance,
(Principal Executive Officer)		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)