================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23320 OLYMPIC STEEL, INC. (Exact name of registrant as specified in its charter) Ohio 34-1245650 ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5096 Richmond Road, Bedford Heights, Ohio 44146 ----------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 292-3800 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding as of November 5, 2001 -------------------------------------- ---------------------------------- Common stock, without par value 9,631,100 ================================================================================ 1 of 18
OLYMPIC STEEL, INC. INDEX TO FORM 10-Q <TABLE> <CAPTION> PAGE NO. ------------- <S> <C> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - September 30, 2001 and 3 December 31, 2000 Consolidated Statements of Income - for the three and nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows - for the nine months ended September 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6-9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10-15 CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET 16 RISK PART II. OTHER INFORMATION 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 </TABLE> 2 of 18
PART I. FINANCIAL INFORMATION Olympic Steel, Inc. Consolidated Balance Sheets (in thousands) <TABLE> <CAPTION> September 30, December 31, 2001 2000 ---------------- ---------------- (unaudited) (audited) <S> <C> <C> Assets Cash $ 315 $ 1,449 Accounts receivable 49,150 5,260 Inventories 77,491 89,404 Prepaid expenses and other 5,852 5,911 Assets held for sale 1,764 1,813 --------- --------- Total current assets 134,572 103,837 --------- --------- Property and equipment, at cost 160,865 158,843 Accumulated depreciation (47,807) (41,270) --------- --------- Net property and equipment 113,058 117,573 --------- --------- Goodwill and other, net 7,370 3,519 --------- --------- Total assets $ 255,000 $ 224,929 ========= ========= Liabilities Current portion of long-term debt $ 4,276 $ 6,061 Accounts payable 16,827 18,398 Accrued payroll 3,411 3,103 Other accrued liabilities 5,746 5,110 --------- --------- Total current liabilities 30,260 32,672 --------- --------- Revolving credit agreement 40,325 28,422 Term loans 48,684 24,588 Industrial revenue bonds 8,385 8,938 --------- --------- Total long-term debt 97,394 61,948 --------- --------- Deferred income taxes 4,188 4,568 Accumulated equity losses in joint ventures 23 821 --------- --------- Total liabilities 131,865 100,009 --------- --------- Shareholders' Equity Preferred stock -- -- Common stock 99,733 99,058 Officer note receivable (675) -- Retained earnings 24,077 25,862 --------- --------- Total shareholders' equity 123,135 124,920 --------- --------- Total liabilities and shareholders' equity $ 255,000 $ 224,929 ========= ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. 3 of 18
Olympic Steel, Inc. Consolidated Statements of Income (in thousands, except per share and tonnage data) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- --------------------------- 2001 2000 2001 2000 --------- --------- --------- --------- (unaudited) <S> <C> <C> <C> <C> Tons sold Direct 226,726 238,288 732,930 795,413 Toll 30,703 33,295 97,225 130,919 --------- --------- --------- --------- 257,429 271,583 830,155 926,332 --------- --------- --------- --------- Net sales $ 96,770 $ 122,548 $ 322,597 $ 406,197 Cost of sales 72,244 99,079 244,927 318,962 --------- --------- --------- --------- Gross margin 24,526 23,469 77,670 87,235 Operating expenses Warehouse and processing 7,318 8,644 22,978 25,706 Administrative and general 6,022 6,478 19,218 20,865 Distribution 3,840 4,682 12,137 15,359 Selling 2,988 3,047 9,438 9,542 Depreciation and amortization 2,799 2,270 7,436 6,813 Occupancy 977 1,039 3,563 3,438 --------- --------- --------- --------- Total operating expenses 23,944 26,160 74,770 81,723 --------- --------- --------- --------- Operating income (loss) 582 (2,691) 2,900 5,512 Loss from joint ventures (50) (444) (214) (933) --------- --------- --------- --------- Income (loss) before financing costs and taxes 532 (3,135) 2,686 4,579 Interest expense 2,156 1,632 4,329 4,867 Receivable securitization expense -- 950 1,260 2,784 --------- --------- --------- --------- Loss before taxes (1,624) (5,717) (2,903) (3,072) Income taxes (626) (2,172) (1,118) (1,167) --------- --------- --------- --------- Net loss $ (998) $ (3,545) $ (1,785) $ (1,905) ========= ========= ========= ========= Basic and diluted net loss per share $ (0.10) $ (0.37) $ (0.19) $ (0.19) ========= ========= ========= ========= Weighted average shares outstanding 9,631 9,505 9,574 9,793 ========= ========= ========= ========= </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 4 of 18
Olympic Steel, Inc. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, (in thousands) <TABLE> <CAPTION> 2001 2000 -------- -------- (unaudited) <S> <C> <C> Cash flows from operating activities: Net loss $ (1,785) $ (1,905) Adjustments to reconcile net loss to net cash from (used for) operating activities- Depreciation and amortization 7,436 6,813 Loss from joint ventures 214 933 Long-term deferred income taxes (380) 82 -------- -------- 5,485 5,923 Changes in assets and liabilities: Accounts receivable (43,890) (5,073) Inventories 11,913 13,345 Prepaid expenses and other (4,363) (264) Accounts payable (1,571) (1,803) Accrued payroll and other accrued liabilities 944 (492) -------- -------- (36,967) 5,713 -------- -------- Net cash from (used for) operating activities (31,482) 11,636 -------- -------- Cash flows from investing activities: Capital expenditures, net (2,301) (5,061) Investments in joint ventures (1,012) (397) -------- -------- Net cash used for investing activities (3,313) (5,458) -------- -------- Cash flows from financing activities: Revolving credit agreement 11,903 (613) Term loans and IRB's 21,758 (4,370) Repurchase of common stock -- (3,180) Unexpended IRB funds -- 1,256 -------- -------- Net cash from (used for) financing activities 33,661 (6,907) -------- -------- Cash: Net decrease (1,134) (729) Beginning balance 1,449 1,433 -------- -------- Ending balance $ 315 $ 704 ======== ======== </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 5 of 18
OLYMPIC STEEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (dollars in thousands, except share and per share amounts) The accompanying consolidated financial statements have been prepared from the financial records of Olympic Steel, Inc. and its wholly-owned subsidiaries (collectively Olympic or the Company), without audit and reflect all adjustments which are, in the opinion of management, necessary to fairly present the results of the interim periods covered by this report. All significant intercompany transactions and balances have been eliminated in consolidation. Investments in the Company's joint ventures are accounted for under the equity method. (1) SHARES OUTSTANDING AND EARNINGS PER SHARE: Earnings per share have been calculated based on the weighted average number of shares outstanding. Basic and diluted earnings per share are the same, as the effect of outstanding stock options is not dilutive. (2) ACCOUNTS RECEIVABLE: In connection with the refinancing of its bank credit agreement on June 28, 2001 (see Footnote 3), the Company's accounts receivable securitization program was terminated, resulting in the repurchase of $42,000 of accounts receivable previously sold. The repurchased receivables are reflected as an increase to accounts receivable and an increase to debt in the accompanying September 30, 2001 consolidated balance sheet. The accompanying December 31, 2000 consolidated balance sheet reflects the sale of $48,000 of receivables as a reduction of accounts receivable and debt under the then existing receivable securitization program. In conjunction with the termination of the receivable securitization program, the Company will no longer report receivable securitization expense on its consolidated income statements. 6 of 18
(3) DEBT: On June 28, 2001, the Company entered into a new 3-year, $135,000 secured financing agreement (the New Credit Facility). The New Credit Facility replaces the former bank credit agreement, accounts receivable securitization facility, and taxable rate note financing. The New Credit Facility is secured by the Company's accounts receivable, inventories, and substantially all property and equipment. Borrowings under the New Credit Facility are limited to the lesser of a borrowing base, comprised of eligible receivables, inventories and property and equipment, or $135,000 in the aggregate. The Company's effective borrowing rate for the first nine months of 2001 was 8.8% compared to 8.2% in 2000. The New Credit Facility, which significantly increases the Company's financing costs, consists of the following: <TABLE> <CAPTION> Component Base Interest Rate Premium Over Base --------- ------------------ ----------------- <S> <C> <C> $90,000 Revolver Prime or LIBOR at 1.0% on Prime Borrowings; Olympic's option 3.0% on LIBOR Borrowings $25,000 Fixed Asset Prime or LIBOR at 1.5% on Prime Borrowings; Term Loan A Olympic's option 3.5% on LIBOR Borrowings $20,000 Term Loan B Fixed 8.0% Current Pay; 9.0% Deferred Pay </TABLE> Beginning in 2002, the premium for the Revolver and Term Loan A components may increase or decrease by 25 basis points based on availability under the New Credit Facility. A commitment fee of .5% is payable on any unused portion of the New Credit Facility. The New Credit Facility requires the Company to comply with various covenants, the most significant of which include: (i) minimum excess availability of $10,000, (ii) a minimum fixed charge coverage ratio, which commences in December 2002, (iii) restrictions on additional indebtedness, and (iv) limitations on capital expenditures. At September 30, 2001, the Company had $29,762 available under the New Credit Facility. In connection with the establishment of the New Credit Facility, the Company incurred $4,157 of fees and expenses which have been capitalized and included in "goodwill and other, net" on the accompanying consolidated balance sheets. These costs are being amortized to expense over the 3-year term of the agreement. 7 of 18
Included in the revolving credit agreement balances on the accompanying consolidated balance sheets are $5,801 and $5,316 of checks issued that have not cleared the bank as of September 30, 2001, and December 31, 2000, respectively. (4) STOCK OPTIONS: During the first quarter of 2001, non-qualified stock options to purchase 350,000 shares of the Company's Common Stock were granted under the Stock Option Plan to the Company's President and COO, and to a senior manager, at option prices ranging from $1.97 to $2.38. On April 30, 2001, 152,000 additional non-qualified stock options were issued to the Company's outside directors, executive officers and senior managers at an option price of $2.63, the average market value of a share of common stock at the grant date. After issuance of the new grants, options to purchase 885,833 shares were outstanding, of which 244,422 were exercisable at prices ranging from $4.84 to $15.50 per share. A total of 950,000 shares of Common Stock are reserved under the Stock Option Plan. (5) JOINT VENTURES: During the first nine months of 2001, the Company contributed $800 to its Olympic Laser Processing joint venture (OLP) and $212 to its Trumark Steel & Processing joint venture (TSP). The Company may continue to fund the working capital and capital expenditure requirements of OLP and TSP during the remainder of 2001, subject to limitations under its New Credit Facility. As of September 30, 2001, Olympic guaranteed 50% of OLP's $19.2 million and 49% of TSP's $2.1 million of outstanding debt on a several basis. (6) SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid during the first nine months of 2001 and 2000 totaled $2,824 and $4,897, respectively. Income taxes paid during the first nine months of 2001 and 2000 totaled $98 and $84, respectively. 8 of 18
(7) RELATED PARTY TRANSACTION: David A. Wolfort, President and COO, purchased 300,000 shares of the Company's Common Stock from treasury on February 22, 2001 at the then market price. The shares were purchased pursuant to a 5-year note due and payable to the Company on or before January 1, 2006. The principal balance of $675 accrues interest at 5.07% per annum, and is secured by a pledge of the underlying shares until the note is paid in full. 9 of 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's results of operations are affected by numerous external factors, such as general economic and political conditions, competition, steel pricing and availability, energy prices, customer demand for steel, and layoffs or work stoppages by suppliers' or customers' personnel. Olympic sells a broad range of products, many of which have different gross margins. Products that have more value-added processing generally have a greater gross margin. Accordingly, the Company's overall gross margin is affected by product mix and the amount of processing performed, as well as volatility in selling prices and material purchase costs. The Company performs toll processing of customer-owned steel, the majority of which is performed by its Detroit and Georgia operations. Toll processing generally results in lower selling prices and gross margin dollars per ton but higher gross margin percentages than the Company's direct sales. The Company's two joint ventures include: Olympic Laser Processing (OLP), a company that processes laser welded sheet steel blanks for the automotive industry, and Trumark Steel & Processing (TSP), a Minority Business Enterprise (MBE) company supporting the flat-rolled steel requirements of the automotive industry. The Company's 50% interest in OLP and 49% interest in TSP are accounted for under the equity method. The Company guarantees portions of outstanding debt under both of the joint venture companies' bank credit facilities. As of September 30, 2001, Olympic guaranteed 50% of OLP's $19.2 million and 49% of TSP's $2.1 million of outstanding debt on a several basis. Financing costs historically included interest expense on debt and costs associated with the Company's accounts receivable securitization program (the Financing Costs). In connection with the refinancing of its bank credit agreement on June 28, 2001 (the New Credit Facility), the Company's accounts receivable securitization program was terminated, resulting in the repurchase of $42 million of accounts receivable previously sold. Receivable securitization costs were based on commercial paper rates calculated on the amount of receivables sold. 10 of 18
The Company sells certain products internationally, primarily in Mexico and Puerto Rico. All international sales and payments are made in United States dollars. These sales historically involve the Company's direct representation of steel producers and may be covered by letters of credit or trade receivable insurance. Typically, international sales are more transactional in nature with lower gross margins than domestic sales. Domestic steel producers generally supply domestic customers before meeting foreign demand, particularly during periods of supply constraints. Four separate collective bargaining units represent approximately 260 of the Company's hourly plant personnel at its Minneapolis and Detroit facilities. In August 2001, the Company's collective bargaining agreement covering its Detroit hourly plant personnel was renewed to June 30, 2004. The Detroit maintenance personnel agreement expires in July 2002. The two collective bargaining agreements covering the Minneapolis facilities do not expire until September 2002 and March 2003. The Company has never experienced a work stoppage and believes that its relationship with its employees is good. However, any prolonged disruption in business arising from work stoppages by Company personnel represented by collective bargaining units could have a material adverse effect on the Company's results of operations. RESULTS OF OPERATIONS Tons sold decreased 5.2% to 257 thousand in the third quarter of 2001 from 272 thousand in the third quarter of 2000. Tons sold in the third quarter of 2001 included 227 thousand from direct sales and 30 thousand from toll processing, compared with 239 thousand direct tons and 33 thousand toll tons in the comparable period of last year. Tons sold in the first nine months of 2001 decreased 10.4% to 830 thousand from 926 thousand last year. Tons sold in the first nine months included 733 thousand from direct sales and 97 thousand from toll processing, compared with 795 thousand direct tons and 131 thousand toll tons in the comparable period of last year. The decreases in direct and toll tons sold were attributable to continued depressed customer demand across substantially all markets served by the Company. Net sales decreased 21.0% to $96.8 million for the third quarter of 2001 from $122.5 million for 2000. For the nine months, net sales decreased 20.6% to $322.6 million from $406.2 million. Average selling prices decreased 16.7% and 11.4% in the third quarter and first nine months of 2001, respectively, due to continued depressed steel pricing. 11 of 18
As a percentage of net sales, gross margin increased to 25.3% for the third quarter of 2001 from 19.2% for 2000, and to 24.1% for the first nine months of 2001 from 21.5% last year. The margin increases reflect the benefit of lower raw material costs as well as a decline in lower margin service center sales. Operating expenses in the third quarter of 2001 decreased 8.5% to $23.9 million from $26.2 million in the same period last year. For the first nine months, operating expenses decreased 8.5% to $74.8 million from $81.7 million. As a percentage of net sales, operating expenses increased to 24.7% for the third quarter of 2001 from 21.3% for 2000. For the first nine months, operating expenses increased to 23.2% of net sales compared to 20.1% last year. For the first nine months of 2001, distribution and warehouse and processing expense declined $3.2 million and $2.7 million, respectively, primarily as a result of managing variable costs associated with the decrease in tons sold as well as a workforce reduction completed in June 2001. Administrative and general expense decreased $1.6 million from the first nine months of last year due to the cost reduction efforts of the Company and over $600 thousand of non-recurring consulting fees incurred in the prior year period. Occupancy expense for the nine months increased 3.6% as a result of higher fuel and natural gas prices. Loss from joint ventures totaled $50 thousand in the third quarter of 2001, compared with $444 thousand in 2000. For the first nine months of 2001, loss from joint ventures totaled $214 thousand compared to $933 thousand last year. Financing Costs in the third quarter of 2001 decreased to $2.2 million from $2.6 million in the third quarter of 2000. For the first nine months of 2001, Financing Costs decreased to $5.6 million from $7.7 million last year. The decrease between years is attributable to a $12.2 million reduction in average borrowing levels and a $24.2 million reduction in average receivables sold under the receivable securitization program. The Company's effective bank borrowing rate increased to 9.4% in the third quarter of 2001 from 8.6% in the comparable 2000 period. For the first nine months of 2001, the Company's effective bank borrowing rate increased to 8.8% compared to 8.2% last year. The Company's borrowing rates have increased significantly under its New Credit Facility. Loss before taxes for the third quarter of 2001 totaled $1.6 million, compared to $5.7 million for 2000. For the first nine months of 2001, loss before taxes totaled $2.9 million, compared to $3.1 million in 2000. An income tax benefit of approximately 38.5% was recorded in the first nine months of 2001, compared to 38.0% in 2000. 12 of 18
Net loss for the third quarter of 2001 totaled $998 thousand, or $.10 per share, compared to $3.5 million, or $.37 per share for 2000. For the first nine months of 2001, net loss totaled $1.8 million, or $.19 per share, compared to $1.9 million, or $.19 per share in 2000. Average shares outstanding totaled 9.6 million in the third quarter of 2001 compared to 9.5 million in last year's third quarter. For the first nine months of 2001, average shares outstanding were 9.6 million compared to 9.8 million last year. The Company expects weak steel pricing and depressed customer demand to continue to adversely impact its financial performance. LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirements are to fund its working capital needs, its upgrade of information technology and business systems software, its investments in joint ventures, and historically its purchase and upgrading of processing equipment and services, the construction and upgrading of related facilities, and acquisitions. The Company uses cash generated from operations and its revolving credit facility to finance its working capital requirements. Working capital at September 30, 2001 increased $33.1 million from the end of the prior year. In connection with the refinancing of its bank credit agreement on June 28, 2001, the Company's accounts receivable securitization program was terminated, resulting in the repurchase of $42.0 million of its trade accounts receivable, which increased its working capital. Offsetting the increase was an $11.9 million decrease in inventory. Net cash from operating activities primarily represents earnings before non-cash charges for depreciation, amortization and losses from joint ventures, as well as changes in working capital. During the first nine months of 2001, the Company used $31.5 million of net cash for operating activities resulting from the repurchase of $42.0 million of its trade accounts receivable upon termination of the accounts receivable securitization program on June 28, 2001. Cash generated from earnings before non-cash charges totaled $5.5 million, while cash used for working capital components totaled $37.0 million. During the first nine months of 2001, net cash used for investing activities totaled $3.3 million, consisting primarily of information technology spending and contributions to the Company's joint ventures. 13 of 18
During the first nine months of 2001, net cash provided by financing activities totaled $33.7 million and consisted of borrowings on the Company's credit agreement to repurchase the securitized receivables, offset by scheduled payments under its other existing long-term debt agreements and a reduction in total debt. On June 28, 2001, the Company entered into a new 3-year, $135,000 secured financing agreement. The New Credit Facility replaces the former bank credit agreement, accounts receivable securitization facility, and taxable rate note financing. The New Credit Facility is secured by the Company's accounts receivable, inventories, and substantially all property and equipment. Borrowings under the New Credit Facility are limited to the lesser of a borrowing base, comprised of eligible receivables, inventories and property and equipment, or $135,000 in the aggregate. The New Credit Facility significantly increases the Company's Financing Costs. The New Credit Facility requires the Company to comply with various covenants, the most significant of which include: (i) minimum excess availability of $10,000, (ii) a minimum fixed charge coverage ratio, which commences in December 2002, (iii) restrictions on additional indebtedness, and (iv) limitations on capital expenditures. As of September 30, 2001, approximately $29.8 million was available under the Company's New Credit Facility. The Company believes that funds available under its New Credit Facility, together with funds generated from operations, will be sufficient to provide the Company with the liquidity necessary to fund its anticipated working capital requirements and capital expenditure requirements over the next 12 months. Capital requirements are subject to change as business and economic conditions warrant and opportunities arise. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standard No. 141 (SFAS No. 141), "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." The statements are effective for the Company on January 1, 2002. These statements will result in modifications relative to the Company's accounting for goodwill and other intangible assets. Specifically, the Company will cease goodwill and certain intangible asset amortization beginning January 1, 2002. Additionally, intangible assets, including goodwill, will be subjected to new impairment testing criteria. Other than the cessation of goodwill amortization, which approximates $104 thousand annually, the Company has not had ample time to evaluate the impact of adoption on the Company's financial statements. 14 of 18
FORWARD-LOOKING INFORMATION This document contains various forward-looking statements and information that are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, the words "anticipate," "expect," "believe," "estimated," "project," "plan" and similar expressions are intended to identify forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, uncertainties and assumptions including, but not limited to: general business and economic conditions; competitive factors such as the availability and pricing of steel and fluctuations in demand, specifically in the automotive, transportation, and other service centers markets served by the Company; layoffs or work stoppages by suppliers' or customers' personnel; potential equipment malfunction; equipment installation delays; the adequacy of information technology and business system software investment; the successes of its joint ventures; the successes of the Company's initiatives to increase sales volumes, improve cash flows, inventory turns and reduce its costs. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected, believed, estimated, projected or planned. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. 15 of 18
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to the impact of interest rate changes and fluctuating steel prices. The Company has not entered into interest rate or steel commodity transactions for speculative purposes or otherwise. Inflation generally affects the Company by increasing the cost of personnel, transportation services, processing equipment, purchased steel, energy, and borrowings under the revolving credit agreement. During the first nine months of 2001, higher energy prices did have an adverse effect on the Company's occupancy expense. The Company's New Credit Facility significantly increases the Company's Financing Costs. When raw material prices decline, customer demands for lower prices result in lower selling prices and, as the Company uses existing steel inventory, lower gross margin dollars. Declining steel prices therefore have adversely affected the Company's net sales and net income since the first quarter of 2000. The Company expects the current environment of weak steel pricing and depressed customer demand to continue to impact its results of operations. Olympic's primary interest rate risk exposure results from floating rate debt. If interest rates were to increase 100 basis points (1.0%) from September 30, 2001 rates, and assuming no changes in debt from September 30, 2001 levels, the additional annual interest expense to the Company would be approximately $701 thousand. The Company currently does not hedge its exposure to floating interest rate risk. 16 of 18
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K None. 17 of 18
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. OLYMPIC STEEL, INC. (Registrant) Date: November 5, 2001 By: /s/ Michael D. Siegal ---------------------- MICHAEL D. SIEGAL Chairman of the Board and Chief Executive Officer By: /s/ Richard T. Marabito ----------------------- RICHARD T. MARABITO Chief Financial Officer and Treasurer (Principal Accounting Officer) 18 of 18