-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DkeJ8zmLnDbPbPBQhB4vKA6lRAkW3zQ1X77vqiUiRkJ0mX57/P8QkmvFslKEH1OW COb6rlOAL+3HJXYY8aGbfQ== 0000950152-01-002003.txt : 20010402 0000950152-01-002003.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950152-01-002003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPIC STEEL INC CENTRAL INDEX KEY: 0000917470 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051] IRS NUMBER: 341245650 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23320 FILM NUMBER: 1588251 BUSINESS ADDRESS: STREET 1: 5080 RICHMOND RD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 BUSINESS PHONE: 2162923800 10-K 1 l86061ae10-k.txt OLYMPIC STEEL FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2000 ( ) 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, without par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of March 16, 2001, the aggregate market value of voting stock held by nonaffiliates of the registrant based on the closing price at which such stock was sold on The NASDAQ Stock Market on such date approximated $20,270,000. The number of shares of Common Stock outstanding as of March 16, 2001 was 9,631,100. DOCUMENTS INCORPORATED BY REFERENCE Registrant intends to file with the Securities and Exchange Commission a definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120 days of the close of its fiscal year ended December 31, 2000, portions of which document shall be deemed to be incorporated by reference in Part I and Part III of this Annual Report on Form 10-K from the date such document is filed. Exhibit Index Appears on Page 36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS THE COMPANY The Company is a leading North American steel service center with 46 years of experience in specialized processing and distribution of large volumes of carbon, coated carbon and stainless steel, flat-rolled sheet, coil and plate, and tubular steel products from 13 facilities in eight midwestern and eastern states. The Company also participates in two joint ventures in Michigan. The Company operates as an intermediary between steel producers and manufacturers that require processed steel for their operations. The Company purchases flat-rolled steel typically from steel producers and responds to its customers' needs by processing steel to customer specifications and by providing critical inventory and just-in-time delivery services. Such services reduce customers' inventory levels, as well as save time, labor and expense for customers, thereby reducing their overall production costs. The Company's services include both traditional service center processes of cutting-to-length, slitting, shearing and roll forming and higher value-added processes of blanking, tempering, plate burning, laser welding, and precision machining of steel parts. The Company is organized into four regional operations with domestic processing and distribution facilities in Connecticut, Georgia, Pennsylvania, Ohio, Michigan, Illinois, Iowa, and Minnesota, servicing a diverse base of over 2,800 active customers located throughout the midwestern, eastern and southern United States. Its international sales office is located in Miami, Florida and services customers primarily in Mexico and Puerto Rico. The Company is incorporated under the laws of the State of Ohio. The Company's executive offices are located at 5096 Richmond Road, Cleveland, Ohio 44146. Its telephone number is (216) 292-3800. INDUSTRY OVERVIEW The steel industry is comprised of three types of entities: steel producers, intermediate steel processors and steel service centers. Steel producers have historically emphasized the sale of steel to volume purchasers and have generally viewed intermediate steel processors and steel service centers as part of their customer base. However, all three entities can compete for certain customers who purchase large quantities of steel. Intermediate steel processors tend to serve as processors in large quantities for steel producers and major industrial consumers of processed steel, including automobile and appliance manufacturers. Services provided by steel service centers can range from storage and distribution of unprocessed metal products to complex, precision value-added steel processing. Steel service centers respond directly to customer needs and emphasize value-added processing of flat-rolled steel and plate pursuant to specific customer demands, such as cutting-to-length, slitting, shearing, roll forming, shape correction and surface improvement, blanking, tempering, plate burning and stamping. These processes produce steel to specified lengths, widths, shapes and surface characteristics through the use of specialized equipment. Steel service centers typically have lower cost structures and provide services and value-added processing not otherwise available from steel producers. End product manufacturers and other steel users have increasingly sought to purchase steel on shorter lead times and with more frequent and reliable deliveries than can normally be provided by steel producers. Steel service centers generally have lower labor costs than steel producers and consequently process steel on a more cost-effective basis. In addition, due to this lower cost structure, steel service centers are able to handle orders in quantities smaller than would be economical for steel producers. The net results to customers purchasing products from steel service centers are lower inventory levels, lower overall cost of raw materials, more timely response and decreased manufacturing time and operating expense. The Company believes that the increasing prevalence of just-in-time delivery requirements has made the value-added inventory, processing and delivery functions performed by steel service centers increasingly important. 2 3 CORPORATE HISTORY The Company was founded in 1954 by the Siegal family as a general steel service center. Michael Siegal (CEO), the son of one of the founders, began working at the Company in the early 1970's and became CEO at the end of 1983. David Wolfort (President and COO) was hired as general manager at the end of 1983. In the late 1980's, the Company's business strategy changed from a focus on warehousing and distributing steel from a single facility with no major processing equipment to a focus on growth, geographic and customer diversity and value-added processing. An integral part of the Company's growth has been the acquisition and start-up of several processing and sales operations, and the continued investment in processing equipment. In March 1994, the Company completed an initial public offering, and in August 1996, completed a follow-on offering of its Common Stock. BUSINESS STRATEGY The Company believes that the steel service center and processing industry continues to be driven by four primary trends: increased outsourcing of manufacturing processes by domestic manufacturers; shift by customers to fewer and larger suppliers; increased customer demand for higher quality products and services; and consolidation of industry participants. In recognition of these industry dynamics, the Company has historically focused its business strategy on achieving profitable growth through the start-up, acquisition, or joint venture partnering of service centers, processors, and related businesses, and continued investments in higher value-added processing equipment and services, while continuing its commitment to expanding and improving its sales and servicing efforts and information systems. In the third quarter of 1999, the Company hired a strategic planning firm to assist the Company with its strategic initiatives. Assistance from the strategic consulting firm concluded in the first quarter of 2000. The strategic process focused on expense reduction and management, and the establishment and communication of specific operating objectives including: (i) increasing tons sold; (ii) reducing controllable operating expenses; (iii) improving on-time delivery; (iv) improving quality directives; (v) improving inventory turns; and (vi) improving return on assets performance. The Company's strategic plans also involve other efforts such as: (i) Flawless execution (Fe), which is an internal program that empowers every employee to achieve profitable growth by delivering superior customer service and exceeding customer expectations. (ii) Development and communication of a set of core values which will cascade throughout the Company. (iii) On-going business process reviews and redesigns to be more efficient and cost effective, including the assembly of a Company-wide team to implement one common computer system across the Company. (iv) Continued evolution of information and reports that are generated and distributed to key managers to focus on those matters important to achieving the specific operating objectives mentioned above. (v) Aggressive marketing and e-commerce initiatives. Olympic believes its depth of management, strategically located facilities, information systems, reputation for quality and customer service, extensive and experienced sales force, and supplier relationships provide a strong foundation for implementation of its strategy. Certain elements of the Company's strategy are set forth in more detail below. 3 4 INVESTMENT IN VALUE-ADDED PROCESSING EQUIPMENT. An integral part of the Company's growth has been the purchase of major processing equipment and construction of facilities. The Company's philosophy is that equipment purchases should be driven by customer demand, and Olympic will continue to invest in processing equipment to support such demand. When the results of sales and marketing efforts indicate that there is sufficient customer demand for a particular product or service, the Company will purchase the equipment to satisfy that demand. In addition, the Company is constantly evaluating existing equipment to ensure that it remains productive. This includes upgrading, replacing, or disposing equipment wherever necessary. In 1987, the Company constructed a facility to house its first major piece of processing equipment, a heavy gauge, cut-to-length line. The Company now has 97 major pieces of processing equipment. Certain equipment was purchased directly from equipment manufacturers while the balance was acquired in the Company's acquisitions of other steel service centers and related businesses. In response to customer demands for higher tolerances and flatness specifications, in 1996 the Company began operating a customized four-high 1/2" by 72" temper mill and heavy gauge cut-to-length line in one of its Cleveland facilities. It remains one of only a few of its kind in the United States and incorporates state-of-the-art technology and unique design specifications. The equipment permits the Company to process steel to a more uniform thickness and flatness, upgrades the quality and consistency of certain of the Company's products, and enables the Company to produce tempered sheet or coil to customer specifications in smaller quantities than is available from other sources. Customer response to the Cleveland Temper Mill product was so strong, especially by agricultural equipment manufacturers and plate fabricators located in the central states region, that the Company constructed and equipped a new, 190,000 square foot temper mill, sheet processing, and plate burning facility in Bettendorf, Iowa which became operational in the fourth quarter of 1998. Since 1995, the Company has significantly expanded its plate processing capacity. In 1995, the Company constructed a $7.4 million, 112,200 square foot facility in Minneapolis which now houses ten laser, plasma and oxygen burning tables and shot blasting equipment. Additional plate burning tables have been added in Philadelphia and Connecticut as well. In September 1999, the Company completed construction of an 87,000 square foot facility in Chambersburg, Pennsylvania to house existing machining centers as well as two new pieces of plate processing equipment. These investments in plate processing equipment have allowed the Company to further increase its higher value-added processing services. The Company believes it is among the largest processors and distributors of steel plate in the United States. In addition to the plate burning and temper mill investments described above, the Company has also invested over the last 3 years in a new tube mill and end finishing equipment in Cleveland, new or upgraded cut-to-length capabilities in Detroit, Minneapolis, and Georgia, and a new slitter for the Detroit operation. As part of its strategy to evaluate and upgrade or replace non-productive equipment, in many cases the new equipment has replaced multiple pieces of older, less efficient equipment. The expansion of the Company's plate processing, machining and tempering capabilities were made in response to the growing trend among capital equipment manufacturers to outsource non-core production processes, such as plate processing, and to concentrate on engineering, design and assembly. The Company expects to further benefit from this trend. SALES AND MARKETING. The Company believes that its commitment to quality, service and just-in-time delivery has enabled it to build and maintain strong customer relationships, while expanding its geographic growth through the continued upgrading and addition of sales personnel and the value-added services provided. The Company is continuously analyzing its customer base and adapting its marketing plan to ensure that strategic customers are properly targeted and serviced, while focusing its efforts to supply and service its larger customers on a national account basis. The national account program has successfully resulted in selling to multi-location customers from multi-location Olympic facilities. 4 5 The Company initiated a "Flawless execution" program (Fe) in 1998, which is a commitment that every Olympic employee makes to provide superior customer service while striving to exceed customer expectations. The Fe program includes tracking actual on-time delivery and quality performance against goals, and the appointment of Fe teams and leaders to improve efficiencies and streamline processes at each operation. The Company believes its sales force is among the largest and most experienced in the industry, which is a significant competitive advantage. These individuals make direct daily sales calls to customers throughout the continental United States. The continuous interaction between the Company's sales force and active and prospective customers provides the Company with valuable market information and sales opportunities, including opportunities for outsourcing and increased sales. The Company's sales efforts are further supported by metallurgical engineers and technical service personnel, who have specific expertise in carbon and stainless steel and alloy plate. The Company's e-commerce initiatives include extranet pages for specific customers, which are integrated with the Company's internal business systems to provide cost efficiencies for both the Company and its customers. In the international market, the Company's objective is to service foreign customers by matching their steel requirements to a specific primary steel producer. The Company functions as the sales and logistics arm of primary producers, giving them access to customers that they might otherwise not sell or service. All international sales and payments are made in United States dollars. International sales have represented less than 5% of net sales in each of the last three years. ACQUISITIONS. Although the Company has focused on start-up and internal operations over the past 30 months, its strategy is to continue to expand geographically by making acquisitions of steel service centers, processors and related businesses, with a focus on the central and southern United States. The Company has made seven acquisitions of other steel service centers or processors since 1987. Its most recent acquisition was the June 1998 strategic acquisition of JNT Precision Machining (JNT), a machining center located in McConnellsburg, Pennsylvania. JNT allowed the Company to provide additional value added services to its existing and prospective customers that continue to outsource. Additionally, the processes performed by JNT augment the Company's plate processing performed at its Philadelphia operation. JNT operated lathes, machining centers, drills and saws, which were relocated in September 1999 to a newly constructed 87,000 square foot, $7 million facility in nearby Chambersburg, Pennsylvania. The new facility also includes two new pieces of plate processing equipment, which allows for multiple processing of plate products in one location. INVESTMENTS IN JOINT VENTURES. The Company has diversified its selling and processing capabilities for its customers by participating in the following joint venture relationships: Olympic Laser Processing (OLP), a 50% owned joint venture, was formed in 1997 with the U.S. Steel Group of USX Corporation. OLP constructed a facility in Michigan equipped with two automated laser-welding lines, which are both in production. An additional manual-feed line was added in 2000 and a second manual feed line is expected to become operational during the second half of 2001. OLP produces laser-welded sheet steel blanks for the automotive industry. Although OLP's ramp-up to capacity has been slower than expected, demand for laser-welded parts is expected to continue growing due to cost benefits, and reduced scrap and auto body weight. The Company expects OLP to be operating at four-line capacity and to achieve profitability by the end of 2001. OLP obtained its QS-9000 quality certification in 1998. In December 1997, the Company invested in a 49% interest in Trumark Steel & Processing (TSP), a joint venture formed in eastern Michigan with Michael J. Guthrie and Carlton L. Guthrie (the Guthries). TSP was formed to support the flat-rolled steel requirements of the automotive industry as a Minority Business Enterprise (MBE). TSP obtained certification as an MBE from the Michigan Minority Business Development Council in December 1998, and obtained its QS-9000 quality certification in January 1999. 5 6 DEPTH OF MANAGEMENT. The Company attributes a portion of its success to the depth of its management. In addition to its principal executive officers, the Company's management team includes three Regional Vice Presidents, eleven General Managers, its Vice President of Sales and Marketing, its Directors of Investor Relations, Taxes & Risk Management, Materials Management and Human Resources, its Credit Manager and its Corporate Controller. Members of the management team have a diversity of backgrounds within the steel industry, including management positions at steel producers and other steel service centers. They average 20 years of experience in the steel industry and 9 years with the Company. This depth of management allows the Company to pursue and implement its strategic plans. PRODUCTS, PROCESSING SERVICES, AND QUALITY STANDARDS The Company maintains a substantial inventory of coil and plate steel. Coil is in the form of a continuous sheet, typically 36 to 96 inches wide, between 0.015 and 0.625 inches thick, and rolled into 10 to 30 ton coils. Because of the size and weight of these coils and the equipment required to move and process them into smaller sizes, such coils do not meet the requirements, without further processing, of most customers. Plate is typically thicker than coil and is processed by laser, plasma or oxygen burning. Customer orders are entered (or electronically transmitted) into computerized order entry systems, and appropriate inventory is then selected and scheduled for processing in accordance with the customer's specified delivery date. The Company attempts to maximize yield by combining customer orders for processing each coil or plate to the fullest extent practicable. The Company's services include both traditional service center processes of cutting-to-length, slitting, shearing and roll forming and higher value-added processes of blanking, tempering, plate burning, precision machining and laser welding to process steel to specified lengths, widths and shapes pursuant to specific customer orders. Cutting-to-length involves cutting steel along the width of the coil. Slitting involves cutting steel to specified widths along the length of the coil. Shearing is the process of cutting sheet steel, while roll forming is the process in which flat rolled coils are formed into tubing and welded. Blanking cuts the steel into specific shapes with close tolerances. Tempering improves the uniformity of the thickness and flatness of the steel through a cold rolling process. Plate burning is the process of cutting steel into specific shapes and sizes. The Company's machining activities include drilling, bending, milling, tapping, boring and sawing. Laser welding of processed steel blanks is performed by the Company's OLP joint venture. The following table sets forth the major pieces of processing equipment in operation by geographic region:
PROCESSING EQUIPMENT (A) EASTERN REGION (B) CENTRAL REGION (C) DETROIT (D) MINNEAPOLIS (E) JOINT VENTURES TOTAL ---------- ------------------ ------------------ ----------- --------------- ------------------ ----- Cutting-to-length........ 5 5 2 3 15 Blanking presses......... 4 4 Tempering (f)............ 2 2 1 5 Plate processing......... 7 9 10 26 Slitting................. 4 2 2 1 9 Shearing (g)............. 4 6 3 13 Roll forming............. 2 2 Machining................ 18 18 Shot blasting/grinding... 1 1 2 Laser welding............ 3 3 -- -- -- -- -- -- Total............... 37 22 8 23 7 97 == == == == == ==
- --------------- (a) Consists of four facilities located in Connecticut, Pennsylvania and Georgia. (b) Consists of six facilities located in Ohio, Illinois, and Iowa. Excludes the Elk Grove Village, Illinois facility, which is held for sale. (c) Consists of one facility primarily serving the automotive industry. (d) Consists of two facilities located in Minnesota. (e) Consists of two facilities located in Michigan. (f) In addition to the temper mills located in Cleveland and Iowa, tempering includes press brake equipment. (g) Shearing in the Central Region includes two tubing recut lines. 6 7 The Company's quality control system establishes controls and procedures covering all aspects of its products from the time the material is ordered through receipt, processing and shipment to the customer. These controls and procedures encompass periodic supplier audits, meetings with customer advisory boards, inspection criteria, traceability and certification. From time to time, the Company has undergone quality audits by certain of its customers and has met all requirements of those customers. In addition, the Philadelphia, Southern, and both Minneapolis operations are ISO 9002 certified. The Detroit operation is one of only a few domestic service centers to earn Ford's Q1 quality rating, and is also QS-9000 certified. The TSP and OLP joint ventures are also QS-9000 certified. The Company has a quality testing lab adjacent to its temper mill facility in Cleveland. CUSTOMERS AND DISTRIBUTION The Company offers business solutions through value-added and value-engineered services for sale to over 2,800 domestic and foreign customers. The Company has a diversified customer and geographic base, which reduces the inherent cyclicality of its business. The concentration of net sales to the Company's top 20 customers increased to approximately 26% of net sales in 2000 compared to 20% in 1999, as the Company continues to expand its participation with national accounts. In addition, the Company's largest customer accounted for approximately 4% and 3% of net sales in 2000 and 1999, respectively. Major domestic customers include manufacturers and fabricators of transportation and material handling equipment, automobiles, construction and farm machinery, storage tanks, environmental equipment, appliances, food service and electrical equipment, as well as general and plate fabricators, and steel service centers. Sales to the three largest U.S. automobile manufacturers and their suppliers, made principally by the Company's Detroit operation, and sales to other steel service centers, accounted for approximately 15% and 12%, respectively, of the Company's net sales in 2000, and 17% and 12% of net sales in 1999. While the Company ships products throughout the United States, most of its customers are located in the midwestern, eastern and southern regions of the United States. Most domestic customers are located within a 250-mile radius of one of the Company's processing facilities, thus enabling an efficient delivery system capable of handling a high frequency of short lead-time orders. The Company transports most of its products directly to customers via dedicated independent trucking firms, although the Company also owns and operates some trucks in different locations to facilitate short-distance, multi-stop deliveries. International products are shipped either directly from the steel producers to the customer or to an intermediate processor, and then to the customer by rail, truck or ocean carrier. The Company processes its steel to specific customer orders as well as for stock. Many of the Company's customers commit to purchase on a regular basis with the customer notifying the Company of specific release dates as the processed products are required. Customers typically notify the Company of release dates anywhere from a just-in-time basis up to three weeks before the release date. Therefore, the Company is required to carry sufficient inventory to meet the short lead time and just-in-time delivery requirements of its customers. SUPPLIERS Olympic concentrates on developing relationships with high-quality domestic integrated and mini mills, as well as foreign steel producers. The Company is a major customer of flat-rolled coil and plate for many of its principal suppliers, but is not dependent on any one supplier. The Company purchases in bulk from steel producers in quantities that are efficient for such producers. This enables the Company to maintain a continued source of supply at what it believes to be competitive prices. Olympic believes the accessibility and proximity of its facilities to major domestic steel producers will continue to be an important factor in maintaining strong relationships with them. The Company purchases flat-rolled steel for processing at regular intervals from a number of domestic and foreign producers of primary steel. The Company believes that its relationships with its suppliers are good. The Company has no long-term commitments with any of its suppliers. 7 8 COMPETITION The principal markets served by the Company are highly competitive. The Company competes with other regional and national steel service centers, single location service centers and, to a certain degree, steel producers and intermediate steel processors on a regional basis. The Company has different competitors for each of its products and within each region. The Company competes on the basis of price, product selection and availability, customer service, quality and geographic proximity. Certain of the Company's competitors have financial and operating resources in excess of those of the Company. With the exception of certain Canadian operations, foreign steel service centers are generally not a material factor in the Company's principal domestic markets. The Company competes for international sales with many domestic and foreign steel traders and producers, none of whom dominates or controls the international markets served by the Company. Many of these international competitors are also suppliers to the Company. MANAGEMENT INFORMATION SYSTEMS Information systems are a critical component of Olympic's strategy. The Company has invested, and will continue to invest, in advanced technologies and human resources required in this area. The Company believes that its information systems provide it with a significant competitive advantage over smaller competitors with less resources than Olympic. The Company's information systems focus on the following core application areas: INVENTORY MANAGEMENT. The Company's information systems track the status of inventories in all locations on a daily basis. This information is essential in allowing the Company to closely monitor and manage its inventory. DIFFERENTIATED SERVICES TO CUSTOMERS. The Company's information systems allow it to provide value-added services to customers, including quality control monitoring and reporting, just-in-time inventory management and shipping services and EDI communications. INTERNAL COMMUNICATIONS. The Company believes that its ability to quickly and efficiently share information across its operations is critical to the Company's success. The Company continues to invest in various communications and workgroup technologies, which enables employees to remain effective and responsive. E-COMMERCE AND ADVANCED CUSTOMER INTERACTION. The Company is actively involved in electronic commerce initiatives, including buying or selling steel on the primary Internet auction sites for steel. These include MetalSite, e-Steel, MaterialNet, FreeMarkets, and Ferrous Exchange. Olympic has also introduced extranet sites for specific customers, which are integrated with the Company's internal business systems to streamline the costs and time associated with processing these electronic transactions. The Company has initiated a project to implement a new management information system (ERP). The new system will integrate all of the business units of the Company and will provide a common foundation for the future. The new system is expected to become operational in 2003. EMPLOYEES At December 31, 2000, the Company employed 1,012 people. Approximately 220 of the Company's hourly plant personnel at the Minneapolis and Detroit facilities are represented by four separate collective bargaining units. The two collective bargaining agreements at Detroit expire in July 2001 and July 2002. The agreements covering personnel at the Minneapolis facilities expire in September 2002 and March 2003. The Company has never experienced a work stoppage and believes that its relationship with its employees is good. 8 9 SERVICE MARKS, TRADE NAMES AND PATENTS The Company conducts its business under the name "Olympic Steel." A provision of federal law grants exclusive rights to the word "Olympic" to the U.S. Olympic Committee. The U.S. Supreme Court has recognized, however, that certain users may be able to continue to use the word based on long-term and continuous use. The Company has used the name Olympic Steel since 1954, but is prevented from registering the name "Olympic" and from being qualified to do business as a foreign corporation under that name in certain states. In such states, the Company has registered under different names, including "Oly Steel" and "Olympia Steel." The Company's wholly-owned subsidiary, Olympic Steel Lafayette, Inc., does business in certain states under the names "Lafayette Steel and Processing" and "Lafayette Steel," and the Company's operation in Georgia does business under the name "Southeastern Metal Processing." The Company's web site is located at http://www.olysteel.com. GOVERNMENT REGULATION The Company's operations are governed by many laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse effect on its results of operations or financial condition. ENVIRONMENTAL The Company's facilities are subject to certain federal, state and local requirements relating to the protection of the environment. The Company believes that it is in material compliance with all environmental laws, does not anticipate any material expenditures to meet environmental requirements and does not believe that compliance with such laws and regulations will have a material adverse effect on its results of operations or financial condition. CYCLICALITY IN THE STEEL INDUSTRY; IMPACT OF CHANGING STEEL PRICES The principal raw material used by the Company is flat-rolled carbon and stainless steel that the Company typically purchases from steel producers. The steel industry as a whole is cyclical, and at times pricing and availability in the steel industry can be volatile due to numerous factors beyond the control of the Company, including general, domestic and international economic conditions, labor costs, production levels, competition, steel import levels, import duties and tariffs and currency exchange rates. This volatility can significantly affect the availability and costs of raw materials for the Company. Steel service centers maintain substantial inventories of steel to accommodate the short lead times and just-in-time delivery requirements of their customers. Accordingly, the Company purchases steel in an effort to maintain its inventory at levels that it believes to be appropriate to satisfy the anticipated needs of its customers based upon historic buying practices, contracts with customers and market conditions. The Company's commitments for steel purchases are generally at prevailing market prices in effect at the time the Company places its orders. The Company has no long-term, fixed-price steel purchase contracts. When raw material prices increase, competitive conditions will influence how much of the steel price increases can be passed on to the Company's customers. When raw material prices decline, customer demands for lower prices could result in lower sale prices and, as the Company uses existing steel inventory, lower margins. Changing steel prices therefore could adversely affect the Company's net sales, gross margins and net income. 9 10 CYCLICALITY OF DEMAND; SALES TO THE AUTOMOTIVE INDUSTRY Certain of the Company's products are sold to industries that experience significant fluctuations in demand based on economic conditions or other matters beyond the control of the Company. The Company's diversified customer and geographic base reduce such cyclicality; however, no assurance can be given that the Company will be able to increase or maintain its level of sales in periods of economic stagnation or downturn. Sales of the Company's products for use in the automotive industry accounted for approximately 15% and 17% of the Company's net sales in 2000 and 1999, respectively. Such sales include sales directly to automotive manufacturers and to manufacturers of automotive components and parts. The automotive industry experiences significant fluctuations in demand based on numerous factors such as general economic conditions and consumer confidence. The automotive industry is also subject, from time to time, to labor work stoppages. Any prolonged disruption in business arising from work stoppages by automotive manufacturers or by steel manufacturers could have a material adverse effect on the Company's results of operations. EFFECTS OF INFLATION AND PRICING FLUCTUATIONS Inflation generally affects the Company by increasing the cost of personnel, transportation services, processing equipment, purchased steel, energy, and borrowings under the various credit agreements. In 2000, increasing energy prices had an adverse effect on the Company's distribution and occupancy expense. Rising interest rates also adversely impacted the Company's Financing Costs in 2000. Additionally, when raw material prices decline, as in 2000, customer demands for lower prices result in lower selling prices and, as the Company uses existing steel inventory, lower margins. Declining steel prices therefore adversely affected the Company's net sales, gross margins and net income in 2000. 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; potential equipment malfunction; equipment installation and facility construction delays especially as related to the equipment installations at OLP in 2001; the adequacy of information technology and business system software investment; the successes of the Company's strategic efforts and initiatives; the successes of its joint ventures; the successes of the Company's ability to increase sales volumes, improve gross margins, quality, service, inventory turns and reduce its costs; and the availability of acquisition opportunities. 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. 10 11 ITEM 2. PROPERTIES The Company believes that its properties are strategically situated relative to its customers and each other, allowing the Company to support customers from multiple locations. This permits the Company to provide inventory and processing services which are available at one operation but not another. Steel is shipped from the most advantageous facility, regardless of where the order was taken. The facilities are located in the hubs of major steel consumption markets, and within a 250-mile radius of most of the Company's customers, a distance approximating the one-day driving and delivery limit for truck shipments. The following table sets forth certain information concerning the Company's principal properties:
SQUARE OWNED OR OPERATION LOCATION FEET FUNCTION LEASED --------- --------------------------- ------- ------------------------------ -------- Cleveland Bedford Heights, Ohio (1) 127,000 Corporate headquarters and Owned coil processing and distribution center Bedford Heights, Ohio (1) 121,500 Coil processing, distribution Owned center and offices Bedford Heights, Ohio (1) 59,500 Plate processing, distribution Leased(2) center and offices Cleveland, Ohio 118,500 Roll form processing, Owned distribution center and offices Minneapolis Plymouth, Minnesota 196,800 Coil processing, distribution Owned center and offices Plymouth, Minnesota 112,200 Plate processing, distribution Owned center and offices Lafayette Detroit, Michigan 256,000 Coil processing, distribution Owned center and offices South Winder, Georgia 240,000 Coil processing, distribution Owned center and offices Iowa Bettendorf, Iowa 190,000 Coil and plate processing, Owned distribution center and offices Connecticut Milford, Connecticut 134,000 Coil and plate processing, Owned distribution center and offices Chicago Schaumburg, Illinois 80,500 Coil processing, distribution Owned center and offices Elk Grove Village, 48,000 Discontinued use Owned Illinois (3) Philadelphia Lester, Pennsylvania 92,500 Plate processing, distribution Leased center and offices Chambersburg Chambersburg, Pennsylvania 87,000 Plate processing and Owned machining, distribution center and offices
- --------------- (1) The Bedford Heights facilities are all adjacent properties. (2) This facility is leased from a related party pursuant to the terms of a triple net lease for $195,300 per year. The lease was renewed in June 2000 for a 10-year term, with one remaining renewal option for an additional 10 years. (3) The Company has consolidated its Chicago operations in the Schaumburg, Illinois facility. The Company has discontinued use of its Elk Grove Village facility, which is included in assets held for sale on the accompanying consolidated balance sheets as of December 31, 2000. 11 12 The Company's international sales office is located in Miami, Florida. The Company also has invested in two joint ventures which each own a facility in Michigan. All of the properties listed in the table as owned are subject to mortgages securing industrial revenue bonds, taxable rate notes, term loans and the Company's credit agreement. Management believes that the Company will be able to accommodate its capacity needs for the immediate future at its existing facilities. ITEM 3. LEGAL PROCEEDINGS The Company is party to various legal actions that it believes are ordinary in nature and incidental to the operation of its business. In the opinion of management, the outcome of the proceedings to which the Company is currently a party will not have a material adverse effect upon its operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None EXECUTIVE OFFICERS OF THE REGISTRANT This information is included in this Report pursuant to Instruction 3 of Item 401(b) of Regulation S-K. The following is a list of the executive officers of the Company and a brief description of their business experience. Each executive officer will hold office until his successor is chosen and qualified. Michael D. Siegal, age 48, has served as Chief Executive Officer of the Company since 1984, and as Chairman of the Board of Directors since 1994. From 1984 until January 2001, he also served as President. He has been employed by the Company in a variety of capacities since 1974. Mr. Siegal is a member of the Executive Committee for the Steel Service Center Institute (SSCI). He is also a member of the American Iron and Steel Institute. He previously served as National Chairman of Israel Bonds during the period 1991-1993 and presently serves as Vice Chairman of the Executive Committee of the Development Corporation for Israel and as an officer for the Cleveland Jewish Community Federation. He is also a member of the Board of Directors of American National Bank (Cleveland, Ohio). David A. Wolfort, age 48, has served as Chief Operating Officer since 1995 and a director of the Company since 1987. Mr. Wolfort assumed the additional title of President in January 2001. He previously served as Vice President -- Commercial from 1987 to 1995, after having joined the Company in 1984 as General Manager. Mr. Wolfort's duties include the management of all sales, purchasing and operational aspects of each region. Prior to joining the Company, Mr. Wolfort spent eight years with Sharon Steel, a primary steel producer, in a variety of sales assignments. Mr. Wolfort is the Chairman of SSCI's Political Action Committee and serves as Past Chairman of SSCI's Governmental Affairs Committee. He is also a member of the Northern Ohio Regional Board of the Anti-Defamation League. Richard T. Marabito, age 37, serves as the Company's Chief Financial Officer (CFO) and Treasurer. He joined the Company in 1994 as Corporate Controller and Treasurer and served in these capacities until being named CFO in March 2000. Prior to joining the Company, Mr. Marabito served as Corporate Controller for Waxman Industries, Inc., a publicly traded wholesale distribution company. Mr. Marabito is a certified public accountant, and was employed from 1985 to 1990 by Arthur Andersen LLP in its audit division. Mr. Marabito also serves as a director for the Company's two joint ventures. Mr. Heber MacWilliams, age 57, serves as Vice President -- Management Information Systems, and has been employed by the Company since 1994. Prior to joining the Company, Mr. MacWilliams spent 14 years as partner in charge of management consulting at Walthall & Drake, a public accounting firm in Cleveland, Ohio. Mr. MacWilliams is also a member of the faculty of the Weatherhead School of Management at Case Western Reserve University in Cleveland, Ohio. 12 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock trades on NASDAQ under the symbol "ZEUS." The following table sets forth, for each quarter in the two year period ended December 31, 2000, the high and low closing prices of the Company's Common Stock on NASDAQ:
HIGH LOW ----- ----- 2000 First quarter............................................. $5.13 $3.88 Second quarter............................................ 5.00 3.50 Third quarter............................................. 4.06 2.50 Fourth quarter............................................ 2.81 1.88 1999 First quarter............................................. $8.38 $5.06 Second quarter............................................ 8.88 6.50 Third quarter............................................. 7.00 5.63 Fourth quarter............................................ 6.22 4.38
HOLDERS OF RECORD March 12, 2001, the Company believed there were approximately 3,051 beneficial holders of the Company's Common Stock. DIVIDENDS The Company presently retains all of its earnings, and anticipates that all of its future earnings will be retained to finance the expansion of its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors after taking into account various factors, including the Company's financial condition, results of operations, current and anticipated cash needs, plans for expansion and restrictions under the Company's credit agreements. STOCK REPURCHASE In April 1999, the Company's Board of Directors authorized a one-year program to purchase up to 1 million shares of Olympic Common Stock. During the first half of 2000, the Company completed the 1 million share repurchase at an average price of $5.86 per share. In July 2000, the Company's Board of Directors authorized a one-year program to purchase up to an additional 1 million shares of Olympic Common Stock. During the third quarter of 2000, the Company repurchased 360,900 shares at an average price of $3.88 per share. Repurchased shares are held in treasury and are available for general corporate purposes. The Company does not anticipate purchasing additional shares before the program expires in July 2001. SHAREHOLDER RIGHTS PLAN On February 15, 2000, the Company filed a Form 8-K relative to the adoption of a shareholder rights plan. 13 14 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected data of the Company for each of the five years in the period ended December 31, 2000. Certain amounts have been reclassified to conform to the 2000 presentation. The data presented should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this report.
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) TONS SOLD DATA: Direct............................ 1,038 1,065 1,070 1,111 1,022 Toll.............................. 165 207 231 219 150 Total.......................... 1,203 1,272 1,301 1,330 1,172 INCOME STATEMENT DATA: Net sales........................... $520,359 $525,785 $576,769 $608,714 $560,588 Cost of sales....................... 411,624 401,028 455,544 483,071 436,553 Gross margin........................ 108,735 124,757 121,225 125,643 124,035 Operating expenses (a).............. 110,247 111,155 125,764 103,536 93,653 Operating income (loss)............. (1,512) 13,602 (4,539) 22,107 30,382 Income (loss) from joint ventures... (1,425) (1,032) (322) 11 -- Interest expense.................... 6,258 4,315 3,856 4,172 4,301 Receivable securitization expense... 3,724 3,119 3,773 3,791 3,393 Income (loss) before taxes.......... (12,919) 5,136 (12,490) 14,155 22,688 Income taxes........................ (4,198) 1,977 (4,059) 5,308 8,569 Net income (loss)................... $ (8,721) $ 3,159 $ (8,431) $ 8,847 $ 14,119 Basic and diluted net income (loss) per share......................... $ (0.90) $ 0.30 $ (0.79) $ 0.83 $ 1.50 Weighted average shares outstanding....................... 9,677 10,452 10,692 10,692 9,427 BALANCE SHEET DATA: Current assets...................... $103,837 $137,513 $132,080 $142,175 $152,255 Current liabilities................. 32,672 36,248 43,225 37,126 36,267 Working capital..................... 71,165 101,265 88,855 105,049 115,988 Total assets................... 224,929 267,007 256,108 265,534 241,130 Total debt..................... 68,009 93,426 76,520 79,924 64,582 Shareholders' equity................ 124,920 136,820 137,743 146,174 137,327
- --------------- (a) 2000 and 1998 operating expenses include asset impairment charges of $1,178 and $19,056, respectively. 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, and work stoppages by automotive manufacturers. 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 December 31, 2000, Olympic guaranteed 50% of OLP's $19.9 million and 49% of TSP's $3.0 million of outstanding debt on a several basis. Financing costs include interest expense on debt and costs associated with the Company's accounts receivable securitization program (Financing Costs). Interest rates paid by the Company under its credit agreement are generally based on prime or LIBOR plus a premium (the Premium) determined quarterly, which varies based on the Company's operating performance and financial leverage. Receivable securitization costs are based on commercial paper rates calculated on the amount of receivables sold. 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. Because the Company conducts its operations generally on the basis of short-term orders, backlog is not a meaningful indicator of future performance. RESULTS OF OPERATIONS The following table sets forth certain income statement data expressed as a percentage of net sales:
2000 1999 1998 ----- ----- ----- Net sales........................................... 100.0% 100.0% 100.0% Cost of sales....................................... 79.1 76.3 79.0 ----- ----- ----- Gross margin...................................... 20.9 23.7 21.0 Operating expenses before asset impairment charge... 21.0 21.1 18.5 Asset impairment charge............................. 0.2 -- 3.3 ----- ----- ----- Operating income (loss)........................... (0.3) 2.6 (0.8) Loss from joint ventures............................ (0.3) (0.2) (0.1) Interest and receivable securitization expense...... 1.9 1.4 1.3 ----- ----- ----- Income (loss) before taxes........................ (2.5) 1.0 (2.2) Income taxes........................................ (0.8) 0.4 (0.7) ----- ----- ----- Net income (loss)................................. (1.7)% 0.6% (1.5)% ===== ===== =====
15 16 2000 COMPARED TO 1999 Tons sold decreased 5.5% to 1,203 thousand in 2000 from 1,272 thousand in 1999. Tons sold in 2000 included 1,038 thousand from direct sales and 165 thousand from toll processing, compared with 1,065 thousand from direct sales and 207 thousand from toll processing in 1999. The decrease in direct and toll tons sold was attributable to depressed demand primarily in the automotive, transportation, and other service center sectors. Net sales decreased by $5.4 million, or 1.0%, to $520.4 million from $525.8 million in 1999. Average selling prices increased 4.7% primarily due to more direct sales as a percentage of total sales. The Company does not expect improvement in customer demand during the first half of 2001. As a percentage of net sales, gross margin decreased to 20.9% in 2000 from 23.7% in 1999. The decrease is attributable to the significant and continuous decline in steel prices since April 2000, as well as the Company's initiative to reduce its inventory levels in reaction to depressed customer demand. Base hot rolled pricing declined by 35% from April to December 2000. The Company expects steel pricing to stabilize in the first half of 2001, resulting in increased gross margin percentages. Operating expenses in 2000 include a $1.2 million asset impairment charge to reduce the net book value of certain equipment to its estimated sale value. The Company also recorded $1.5 million of incremental accounts receivable reserves for collectibility concerns. Excluding the impact of these charges in 2000, operating expenses decreased $3.6 million or 3.2% from 1999. On a per ton basis excluding the charges, operating expenses increased 2.4% to $89.45 from $87.36 in 1999. Operating expenses, specifically distribution and occupancy expense, were also adversely affected by rising energy costs in 2000. As a percentage of net sales before the charges, operating expenses decreased to 20.7% from 21.1% in 1999. The decrease was primarily due to strategic initiatives to reduce controllable expenses, which began with the Company's strategic planning efforts in late 1999. Costs associated with the strategic planning initiative, which concluded in March 2000, approximated $600 thousand in both 2000 and 1999. Loss from joint ventures totaled $1.4 million in 2000, compared to $1.0 million in 1999. The Company's losses from OLP totaled $1.4 million in 2000 compared to $1.0 million last year, while TSP operated at approximately breakeven for both years. Financing Costs increased 34.3% to $10.0 million in 2000 from $7.4 million in 1999. Total average borrowings outstanding in 2000 increased approximately $4.9 million. However, total borrowings outstanding at December 31, 2000 reflect a $25.4 million, or 27.2% reduction from December 31, 1999, primarily due to lower inventory levels. The Company's overall effective borrowing rate was 8.3% in 2000, compared to 6.9% in 1999. The Premium for 2000 averaged 2.05%, compared to 1.50% in 1999. The Company's Premium increased to 3.0% effective January 1, 2001. Costs associated with the accounts receivable securitization program increased $605 thousand or 19.4%. The effective borrowing rate on the securitization program increased to 7.0% in 2000 from 5.9% in 1999. Loss before taxes for 2000 totaled $12.9 million compared to income before taxes of $5.1 million in 1999. Excluding the impact of the asset impairment and accounts receivable reserve charges in 2000, loss before taxes totaled $10.3 million. In 2000, the income tax benefit approximated 32.5% of loss before taxes, compared to income tax expense recorded at 38.5% of income before taxes in 1999. The lower tax rate in 2000 is primarily attributable to a valuation reserve against the realizability of net operating loss carryforwards. Net loss totaled $8.7 million or $.90 per share in 2000, compared to net income of $3.2 million or $.30 per share in 1999. Excluding the impact of the asset impairment and accounts receivable reserve charges in 2000, net loss totaled $6.4 million or $.66 per share. During 2000, the Company repurchased 760 thousand shares of its Common Stock. Weighted average shares outstanding totaled 9.7 million in 2000, compared to 10.5 million in 1999. 16 17 1999 COMPARED TO 1998 Tons sold decreased 2.2% to 1,272 thousand in 1999 from 1,301 thousand in 1998. Tons sold in 1999 included 1,065 thousand from direct sales and 207 thousand from toll processing, compared with 1,070 thousand from direct sales and 231 thousand from toll processing in 1998. The decrease in direct tons was primarily attributable to the elimination of low margin automotive business in Detroit and depressed demand from customers in the agricultural equipment market, especially for unprocessed plate products. The decrease in tolling tons was attributable to the Company's Georgia operation, which increased its proportion of direct sales in 1999. Net sales decreased by $51.0 million, or 8.8%, to $525.8 million from $576.8 million in 1998. Average selling prices declined 6.8% due to continued decreased market prices for steel, resulting from the significant penetration of imported steel in 1998. As a percentage of net sales, gross margin increased to 23.7% in 1999 from 21.0% in 1998. The increase resulted from selling a larger proportion of processed, higher value-added steel, and elimination of certain lower margin automotive sales. Operating expenses in 1998 included an asset impairment charge of $19.1 million. Excluding the 1998 impairment charge, operating expenses in 1999 increased 4.2% to $111.2 million from $106.7 million. On a per ton basis, operating expenses increased 6.5% to $87.36 from $82.00 in 1998. As a percentage of net sales, operating expenses increased to 21.1% from 18.5% in 1998. The increases were primarily due to lower sales volume; lower average selling prices; new facility start-up costs; and costs associated with strategic planning efforts. Operating expenses in 1999 also included approximately $3.5 million of incremental costs associated with the Iowa temper mill and plate processing facility start-up, and the JNT / Chambersburg operation acquisition and new facility start-up. Net start-up costs from joint ventures totaled $1.0 million in 1999 compared to $322 thousand in 1998. The Company's losses from OLP totaled $1.0 million in 1999 compared to $553 thousand in 1998, while TSP losses decreased to $14 thousand in 1999 from $264 thousand in 1998. OCR, the Company's former joint venture which ceased operations and was dissolved in 1999, contributed $495 thousand of income in 1998. OLP incurred higher start-up costs in 1999 as a result of the facility and equipment becoming operational. TSP was profitable in the second half of 1999. Financing Costs decreased 2.6% to $7.4 million in 1999 from $7.6 million in 1998. Total average borrowings outstanding in 1999 decreased approximately $2.1 million, primarily as a result of lower inventory levels in 1999. Interest costs associated with the Iowa facility borrowings were expensed in 1999 and capitalized in 1998. The Company's overall effective borrowing rate was 6.9% in both 1999 and 1998. The Premium for 1999 averaged 1.50%, compared to 1.15% in 1998. The Company's Premium increased to 2.0% effective December 1, 1999. Costs associated with the accounts receivable securitization program decreased $654 thousand or 17.3%, as a result of less average receivables sold in 1999 compared to 1998, due to lower sales in 1999. Income before taxes for 1999 totaled $5.1 million compared to a loss before taxes of $12.5 million in 1998. Excluding the impact of the asset impairment charge, 1998 income before taxes totaled $6.6 million. Income taxes approximated 38.5% of income before taxes in 1999, compared to a 1998 tax benefit of 32.5% of loss before taxes. The lower tax rate in 1998 was attributable to the asset impairment charge. Net income totaled $3.2 million or $.30 per share compared to a net loss of $8.4 million or $.79 per share in 1998. Excluding the impact of the asset impairment charge, 1998 net income totaled $4.1 million, or $.38 per share. During 1999, the Company repurchased 601 thousand shares of its Common Stock. Average shares outstanding totaled 10.5 million in 1999, compared to 10.7 million in 1998. 17 18 LIQUIDITY AND CAPITAL RESOURCES The Company's principal capital requirement is to fund the purchase and upgrading of processing equipment and services, the construction and upgrading of related facilities, its working capital requirements, and historically its investments in joint ventures and acquisitions. The Company uses cash generated from operations, long-term debt obligations, equity offerings, and leasing transactions to fund these requirements. Historically, the Company has used revolving credit borrowings under its bank credit facility and proceeds from its receivable securitization program to finance its working capital requirements. Net cash from operating activities primarily represents earnings plus non-cash charges for depreciation, amortization and losses from joint ventures, as well as changes in working capital. During 2000, $33 million of net cash was provided from operating activities, consisting of $1.1 million of cash generated from earnings and non-cash charges and $31.9 million of cash from working capital components. Working capital at December 31, 2000 decreased $30.1 million from the end of 1999. The decrease is attributable to a $30.2 million decrease in inventories. As of December 31, 2000, $48 million of eligible receivables were sold under the Company's accounts receivable securitization program, compared to $52 million at December 31, 1999. The amount of trade receivables sold by the Company typically changes monthly depending upon the level of defined eligible receivables available for sale at each month end. Net cash used for investing activities in 2000 totaled $6.1 million, consisting primarily of progress payments made for the new slitter in Detroit, which became operational in the fourth quarter of 2000, as well as final expenditures for the new Chambersburg, Pennsylvania plate processing and machining facility. The Company's 2001 capital spending plan approximates $6 million, one-half of which will be spent on the development of a common computer system for the Company. The remaining capital expenditure budget primarily consists of maintenance capital spending for the Company's existing buildings and equipment. Cash flows used for financing activities totaled $26.9 million, and primarily consisted of $25.4 million of net paydowns under the Company's various bank agreements, and $3.2 million used to repurchase shares of Olympic Common Stock. In April 1999, the Company's Board of Directors authorized a one-year program to purchase up to 1 million shares of Olympic Common Stock (Stock Purchase), and in July 2000, authorized a one-year program to purchase up to an additional 1 million shares. A total of 1,360,900 shares have been purchased under the programs. The cost of purchasing such shares has been funded from the Company's revolving credit facility. The Company does not anticipate purchasing additional shares before the program expires in July 2001. The Company's bank credit agreement (the Credit Facility) and its other long-term debt agreements contain certain financial covenants including minimum net worth, interest coverages, and capital expenditure limitations. The Company obtained waivers for non-compliance with its minimum net worth and interest coverage covenants through March 31, 2001. In February 2001, the Company signed a proposal with an affiliate of its current agent bank to replace its existing Credit Facility and accounts receivable securitization program with a secured 3-year, $125 million facility. The Company expects to complete the refinancing in the second quarter, subject to customary conditions, due diligence, and the execution of definitive documentation. The Company believes the new agreement, when executed, will provide the Company with sufficient availability to meet its anticipated working capital requirements and capital expenditure requirements over the next 12 months. As of December 31, 2000, approximately $61.6 million was available under the Company's revolving credit and accounts receivable securitization facilities. The Company believes that funds available under its existing financing facilities and its proposed new financing 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 conditions warrant and opportunities arise. In connection with its internal and external expansion strategies, the Company may from time to time seek additional funds to finance other new facilities and equipment, acquisitions and significant improvements to processing equipment to respond to customers' demands. 18 19 RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains or losses be reported either in the income statement or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS No. 133 was adopted by the Company on January 1, 2001. The Company does not currently hold derivative instruments or engage in hedging activities. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition. The Company adopted the provisions of this bulletin in 2000. The adoption did not impact the Company's recognition of revenue in 2000. In September 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires shipping and handling amounts billed to a customer to be classified as revenue. The Company restated its revenues and distribution expenses for the fiscal years ended December 31, 1999 and 1998, resulting in an increase to both revenues and distribution expenses of $991 thousand and $580 thousand, respectively. ITEM 7A. 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 various credit agreements. In 2000, increasing energy prices did have an adverse effect on the Company's distribution and occupancy expense. Rising interest rates also adversely impacted the Company's Financing Costs in 2000. Additionally, when raw material prices decline, as in 2000, customer demands for lower prices result in lower selling prices and, as the Company uses existing steel inventory, lower margins. Declining steel prices therefore adversely affected the Company's net sales, gross margins and net income in 2000. Olympic's primary interest rate risk exposure results from floating rate debt. If interest rates were to increase 100 basis points (1.0%) from December 31, 2000 rates, and assuming no changes in debt from December 31, 2000 levels, the additional annual interest expense to the Company would be approximately $680 thousand. The Company currently does not hedge its exposure to floating interest rate risk. 19 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of Olympic Steel, Inc.: We have audited the accompanying consolidated balance sheets of Olympic Steel, Inc. (an Ohio corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Olympic Steel, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Cleveland, Ohio, January 26, 2001 (except with respect to the matters discussed in Notes 8, 14, and 16, as to which the date is February 22, 2001.) 20 21 ITEM 8. FINANCIAL STATEMENTS OLYMPIC STEEL, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998 (in thousands, except per share data)
2000 1999 1998 -------- -------- -------- Net sales.................................................. $520,359 $525,785 $576,769 Cost of sales.............................................. 411,624 401,028 455,544 -------- -------- -------- Gross margin.......................................... 108,735 124,757 121,225 Operating expenses Warehouse and processing................................. 34,137 35,226 35,456 Administrative and general............................... 27,323 29,371 27,166 Distribution............................................. 19,436 18,959 18,604 Selling.................................................. 14,353 15,176 14,209 Occupancy................................................ 4,598 4,571 4,300 Depreciation and amortization............................ 9,222 7,852 6,973 Asset impairment charge.................................. 1,178 -- 19,056 -------- -------- -------- Total operating expenses.............................. 110,247 111,155 125,764 -------- -------- -------- Operating income (loss)............................... (1,512) 13,602 (4,539) Loss from joint ventures................................... (1,425) (1,032) (322) -------- -------- -------- Income (loss) before interest and taxes............... (2,937) 12,570 (4,861) Interest expense........................................... 6,258 4,315 3,856 Receivable securitization expense.......................... 3,724 3,119 3,773 -------- -------- -------- Income (loss) before taxes............................ (12,919) 5,136 (12,490) Income taxes............................................... (4,198) 1,977 (4,059) -------- -------- -------- Net income (loss)................................... $ (8,721) $ 3,159 $ (8,431) ======== ======== ======== Basic and diluted net income (loss) per share....... $ (0.90) $ 0.30 $ (0.79) ======== ======== ======== Weighted average shares outstanding................. 9,677 10,452 10,692
The accompanying notes are an integral part of these statements. 21 22 OLYMPIC STEEL, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 1999 (in thousands)
2000 1999 -------- -------- ASSETS Cash........................................................ $ 1,449 $ 1,433 Accounts receivable......................................... 5,260 9,850 Inventories................................................. 89,404 119,585 Prepaid expenses and other.................................. 5,911 6,645 Assets held for sale........................................ 1,813 -- -------- -------- Total current assets................................... 103,837 137,513 -------- -------- Property and equipment, at cost............................. 158,843 156,849 Accumulated depreciation.................................... (41,270) (32,645) -------- -------- Net property and equipment............................. 117,573 124,204 -------- -------- Unexpended IRB funds........................................ -- 1,668 Goodwill, net............................................... 3,519 3,622 -------- -------- Total assets........................................... $224,929 $267,007 ======== ======== LIABILITIES Current portion of long-term debt........................... $ 6,061 $ 6,061 Accounts payable............................................ 18,398 20,671 Accrued payroll............................................. 3,103 3,595 Other accrued liabilities................................... 5,110 5,921 -------- -------- Total current liabilities.............................. 32,672 36,248 -------- -------- Revolving credit agreement.................................. 28,422 47,892 Term loans.................................................. 24,588 29,076 Industrial revenue bonds.................................... 8,938 10,397 -------- -------- Total long-term debt................................... 61,948 87,365 -------- -------- Deferred income taxes....................................... 4,568 6,532 Accumulated equity losses in joint ventures................. 821 42 -------- -------- Total liabilities...................................... 100,009 130,187 -------- -------- SHAREHOLDERS' EQUITY Preferred stock, without par value, 5,000 shares authorized, no shares issued or outstanding........................... -- -- Common stock, without par value, 20,000 shares authorized, 9,331 and 10,091 issued and outstanding at December 31, 2000 and 1999, respectively............................... 99,058 102,237 Retained earnings........................................... 25,862 34,583 -------- -------- Total shareholders' equity............................. 124,920 136,820 -------- -------- Total liabilities and shareholders' equity............. $224,929 $267,007 ======== ========
The accompanying notes are an integral part of these balance sheets. 22 23 OLYMPIC STEEL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in thousands)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net income (loss)......................................... $ (8,721) $ 3,159 $ (8,431) Adjustments to reconcile net income (loss) to net cash from operating activities- Depreciation and amortization.......................... 9,222 7,852 6,973 Asset impairment charge................................ 1,178 -- 19,056 Loss on sale of fixed assets........................... -- -- 432 Loss from joint ventures............................... 1,425 1,032 322 Long-term deferred income taxes........................ (1,964) 3,024 (2,524) -------- -------- -------- 1,140 15,067 15,828 Changes in working capital: Accounts receivable....................................... 4,590 (6,730) 3,312 Inventories............................................... 30,181 1,822 10,904 Prepaid expenses and other................................ 706 (983) (3,712) Accounts payable.......................................... (2,273) (8,240) 4,645 Accrued payroll and other accrued liabilities............. (1,303) 90 (12) -------- -------- -------- 31,901 (14,041) 15,137 -------- -------- -------- Net cash from operating activities..................... 33,041 1,026 30,965 -------- -------- -------- Cash flows from investing activities: Equipment purchases and deposits.......................... (4,523) (6,688) (16,904) Facility purchases and construction....................... (230) (4,115) (8,368) Other capital expenditures, net........................... (698) (1,771) (1,319) Acquisition of JNT........................................ -- -- (795) Investments in joint ventures............................. (646) -- (98) -------- -------- -------- Net cash used for investing activities................. (6,097) (12,574) (27,484) -------- -------- -------- Cash flows from financing activities: Revolving credit agreement................................ (19,470) 10,442 (11,359) Term loans and IRB's...................................... (5,947) 6,464 7,955 Unexpended IRB funds...................................... 1,668 (1,668) -- Repurchase of common stock................................ (3,179) (4,082) -- -------- -------- -------- Net cash from (used for) financing activities.......... (26,928) 11,156 (3,404) -------- -------- -------- Cash: Net change................................................ 16 (392) 77 Beginning balance......................................... 1,433 1,825 1,748 -------- -------- -------- Ending balance............................................ $ 1,449 $ 1,433 $ 1,825 ======== ======== ========
The accompanying notes are an integral part of these statements. 23 24 OLYMPIC STEEL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in thousands)
COMMON RETAINED STOCK EARNINGS -------- -------- Balance at December 31, 1997........................... $106,319 $39,855 Net loss............................................. -- (8,431) -------- ------- Balance at December 31, 1998........................... 106,319 31,424 Net income........................................... -- 3,159 Repurchase of 601 common shares...................... (4,082) -- -------- ------- Balance at December 31, 1999........................... 102,237 34,583 NET LOSS............................................. -- (8,721) REPURCHASE OF 760 COMMON SHARES...................... (3,179) -- -------- ------- BALANCE AT DECEMBER 31, 2000........................... $ 99,058 $25,862 ======== =======
The accompanying notes are an integral part of these statements. 24 25 OLYMPIC STEEL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (dollars in thousands, except share and per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Olympic Steel, Inc. and its wholly-owned subsidiaries (collectively the Company or Olympic), after elimination of intercompany accounts and transactions. Investments in the Company's joint ventures are accounted for under the equity method. Cumulative losses in excess of investments made in the joint ventures are shown as a liability on the accompanying consolidated balance sheets. Certain amounts in the 1999 and 1998 consolidated financial statements have been reclassified to conform to the 2000 presentation. NATURE OF BUSINESS The Company is a North American steel service center with 46 years of experience in specialized processing and distribution of large volumes of carbon, coated carbon and stainless steel, flat-rolled sheet, coil and plate, and tubular steel products from 13 facilities in eight midwestern and eastern states. The Company operates as one business segment. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION RISKS The Company is a major customer of flat-rolled coil and plate steel for many of its principal suppliers, but is not dependent on any one supplier. The Company purchased approximately 17% and 16% of its total steel requirements from its single largest supplier in 2000 and 1999, respectively. INVENTORIES Inventories are stated at the lower of cost or market and include the costs of purchased steel, internal and external processing, and inbound freight. Cost is determined using the specific identification method. PROPERTY AND EQUIPMENT, AND DEPRECIATION Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives ranging from 3 to 30 years. GOODWILL AND AMORTIZATION Goodwill includes the cost in excess of fair value of the net assets acquired and is being amortized on a straight-line method ranging from 15 to 40 years. The Company evaluates facts and circumstances to determine if the value of goodwill or other long-lived assets may be impaired. Goodwill amortization expense totaled $104 in both 2000 and 1999, and $358 in 1998. Accumulated amortization of goodwill totaled $360 at December 31, 2000, and $256 at December 31, 1999. 25 26 REVENUE RECOGNITION Revenue is recognized in accordance with the Securities and Exchange Commissions Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." Revenue is recognized when steel is shipped to the customer and title is transferred. Sales returns and allowances are treated as reductions to sales and are provided for based on historical experience and current estimates. SHARES OUTSTANDING AND EARNINGS PER SHARE In April 1999, the Company's Board of Directors authorized a one-year program to purchase up to 1 million shares of Olympic Common Stock. During the first half of 2000, the Company completed the 1 million share repurchase at an average price of $5.86 per share. In July 2000, the Company's Board of Directors authorized a one-year program to purchase up to an additional 1 million shares of Olympic Common Stock. During the third quarter of 2000, the Company repurchased 360,900 shares at an average price of $3.88 per share. Repurchased shares are held in treasury and are available for general corporate purposes. The Company does not anticipate purchasing additional shares before the program expires in July 2001. Earnings per share have been calculated based on the weighted average number of shares outstanding. Average shares outstanding were 9.7 million in 2000, 10.5 million in 1999, and 10.7 million in 1998. Basic and diluted earnings per share are the same, as the effect of outstanding stock options is not dilutive. IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 established new standards of accounting and reporting for derivative instruments and hedging activities. SFAS No. 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains or losses be reported either in the income statement or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS No. 133 was adopted by the Company on January 1, 2001. The Company does not currently hold derivative instruments or engage in hedging activities. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to revenue recognition. The Company adopted the provisions of this bulletin in 2000. The adoption did not impact the Company's recognition of revenue in 2000. In September 2000, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which requires shipping and handling amounts billed to a customer to be classified as revenue. The Company restated its revenues and distribution expenses for the fiscal years ended December 31, 1999 and 1998, resulting in an increase to both revenues and distribution expenses of $991 and $580, respectively. 2. ASSET IMPAIRMENT CHARGES: The Company recorded an asset impairment charge in the fourth quarter of 2000 totaling $1,178 to reduce the net book value of certain equipment held for sale to its estimated sale value in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 requires assets such as goodwill and fixed assets to be written down to fair market value when circumstances indicate that their carrying values are impaired. In 1998, the Company recorded an asset impairment charge of $19,056. The charge consisted of $14,356 to write-off goodwill and write-down certain fixed assets at the Company's Detroit operation in accordance with SFAS No. 121. The remaining $4,700 of the charge related to the write-down of Olympic's investment in the Olympic Continental Resources joint venture. 26 27 3. ACQUISITIONS: In June 1998, the Company acquired certain assets and assumed certain liabilities of JNT Precision Machining, Inc. (JNT), a machining center located in McConnellsburg, Pennsylvania, which operates lathes, machine centers, drills and saws. The cash purchase price totaled $795. The acquisition was accounted for as a purchase and, accordingly, assets and liabilities were reflected at estimated fair values. The purchase price allocation resulted in goodwill of $162, which is being amortized over 15 years. During the second half of 1999, the JNT operation was relocated to a new 87,000 square foot plate processing and machining facility constructed in Chambersburg, Pennsylvania. 4. INVESTMENTS IN JOINT VENTURES: In 1997, the Company and the U.S. Steel Group of USX Corporation (USS) formed Olympic Laser Processing (OLP), a joint venture to process laser welded sheet steel blanks for the automotive industry. OLP is owned 50% by each of the companies. OLP constructed a facility in Michigan equipped with two automated laser-welding lines, which are both in production. An additional manual-feed line was added in 2000 and a second manual feed line is expected to become operational during the second half of 2001. OLP start-up costs have been expensed as incurred. The Company and USS each contributed $2,000 in cash to OLP upon formation and each guarantees, on a several basis, 50% of OLP's outstanding debt under its $20,000 bank loan agreement. During 2000, the Company and USS each contributed $500 in cash to OLP. Subsequent to year-end, the Company and USS each contributed an additional $500 in cash to OLP. OLP bank debt outstanding at December 31, 2000 totaled $19,854. In 1997, the Company, Michael J. Guthrie and Carlton L. Guthrie (the Guthries) formed Trumark Steel & Processing, LLC (TSP), a joint venture to support the flat-rolled steel requirements of the automotive industry as a Minority Business Enterprise (MBE). The Company made a $147 cash contribution to TSP for its 49% ownership interest in the venture. In December 1998, and February 2000, additional contributions of $98 and $147, respectively, were made by Olympic. TSP start-up costs have been expensed as incurred. The Company and the Guthries severally guarantee outstanding debt under TSP's credit facility in proportion to each member's ownership interest. TSP bank debt outstanding at December 31, 2000 totaled $3,043. In December 1998, the Company wrote-off its investment in Olympic Continental Resources LLC (OCR), which was a broker of scrap metal and alternate iron products, and during the third quarter of 1999, Olympic announced the dissolution of OCR. Olympic, as guarantor of OCR's bank debt, made a payment to extinguish all $4,700 of OCR outstanding bank debt, and simultaneously assumed all remaining OCR receivables, inventory, and accounts payable, which were then included in the consolidated financial statements of the Company. 5. ACCOUNTS RECEIVABLE: Since 1995, the Company has operated under an agreement to sell, on a revolving basis, through its wholly-owned subsidiary Olympic Steel Receivables LLC (OSRI), an undivided interest in a designated pool of its trade accounts receivable. Accounts receivable which are ineligible for sale under the agreement remain on the Company's consolidated balance sheets at fair value after considering allowances for projected credit losses. The maximum amount of receivables available for sale under the agreement, which expires December 19, 2002, is $70,000. The Company, as agent for the purchaser of the receivables, retains collection and administrative responsibilities for the participating interests sold. As collections reduce the receivables included in the pool, the Company may sell additional undivided interests in new receivables up to the $70,000 limit. The amount of receivables sold by the Company typically will change monthly depending upon the level of defined eligible receivables available for sale at each month end settlement date. Net payments made to OSRI by the Company for the monthly receivable settlements totaled $4,000 in 2000. 27 28 As of December 31, 2000 and 1999, $48,000 and $52,000, respectively, of receivables were sold and reflected as a reduction of accounts receivable in the accompanying consolidated balance sheets. The average receivable pool sold totaled $52,066 in 2000, compared to $52,581 in 1999. Costs of the program, which primarily consist of the purchaser's financing cost of issuing commercial paper backed by the receivables, totaled $3,724 in 2000, $3,119 in 1999, and $3,773 in 1998, and have been classified as Receivable Securitization Expense in the accompanying consolidated statements of income. The program costs are based on commercial paper rates plus 65 basis points. The average program costs for 2000, 1999 and 1998 were 7.0%, 5.9%, and 6.2%, respectively. The Company anticipates terminating the securitization agreement during the second quarter of 2001 in connection with the refinancing of its credit agreement, as further described in Footnote 8. Accounts receivable are presented net of allowances for doubtful accounts of $2,375 and $1,031 as of December 31, 2000 and 1999, respectively. Bad debt expense totaled $2,355 in 2000, $911 in 1999, and $98 in 1998. 6. ASSETS HELD FOR SALE: During the fourth quarter of 2000, the Company decided to dispose of certain underutilized equipment and to consolidate its Chicago operations in its existing Schaumburg, Illinois facility and close its Elk Grove Village facility. The Company recorded an asset impairment charge in 2000 of $1,178 to reflect the assets held for sale at their estimated realizable values. The Company will use the proceeds from the sale of these assets to reduce long-term debt. 7. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
DECEMBER 31, -------------------- 2000 1999 -------- -------- Land and improvements................................. $ 9,914 $ 10,256 Buildings and improvements............................ 56,371 57,056 Machinery and equipment............................... 80,592 76,475 Furniture and fixtures................................ 4,846 4,799 Computer equipment.................................... 6,679 6,149 Vehicles.............................................. 198 198 Construction in progress.............................. 243 1,916 -------- -------- 158,843 156,849 Less accumulated depreciation......................... (41,270) (32,645) -------- -------- Net property and equipment.......................... $117,573 $124,204 ======== ========
8. REVOLVING CREDIT AGREEMENT: The Company's bank credit agreement (the Credit Facility) currently consists of a secured $68,000 revolving credit component, a $21,000 term loan component for the Iowa temper mill and plate processing facility (the Iowa Term Loan), letter of credit commitments totaling $5,069 as of December 31, 2000, and a $71,400 liquidity facility related to the Company's accounts receivable securitization agreement. The respective assets financed provide collateral for the Iowa Term Loan and the letters of credit, and inventory and unencumbered real estate and equipment provide security for the revolver. The Credit Facility's maturity date is June 30, 2002. Each year, the Company may request to extend the maturity date one year with the approval of the bank group. The commitment for the liquidity facility is renewable annually each May 31 for a one-year period. 28 29 The Company has the option to borrow based on the agent bank's base rate or London Interbank Offered Rates (LIBOR) plus a premium (the Premium). The Premium is determined every three months based on the Company's operating performance and leverage ratio. During 2000, the Premium averaged 2.05%, compared to 1.50% in 1999. The effective interest rate for revolving credit borrowings amounted to 9.0% in 2000, 7.7% in 1999, and 7.2% in 1998. Interest on the base rate option is payable quarterly in arrears while interest on the LIBOR option is payable at the end of the LIBOR interest period, which ranges from one to six months. The agreement also includes a commitment fee of .25% of the unused portion of the revolver, payable quarterly in arrears. The Company's Premium increased to 3.0% commencing January 1, 2001. The Company obtained waivers for non-compliance with its minimum net worth and interest coverage covenants through March 31, 2001. In February 2001, the Company signed a proposal with an affiliate of its current agent bank to replace its existing Credit Facility and accounts receivable securitization program with a secured 3-year $125 million facility. The Company expects to complete the refinancing in the second quarter, subject to customary conditions, due diligence, and the execution of definitive documentation. The revolving credit agreement balance includes $5,316 and $6,311 of checks issued that have not cleared the bank as of December 31, 2000 and 1999, respectively. 9. TERM LOANS: The Company entered into a $12,000 loan agreement with a domestic bank to finance the 1997 acquisition and subsequent expansion of its Georgia operation (the Southeastern Term Loan). The loan is secured by the real estate and equipment financed, and is repayable in quarterly installments that commenced September 1, 1997. Interest is charged at LIBOR plus the same Premium associated with the Company's Credit Facility. In 1993, the Company completed a $10,000 refinancing of certain of its real estate in Minnesota, Connecticut, Illinois, and Ohio in the form of taxable rate notes. The term of the notes is 15 years with annual principal payments of $700 for the first 10 years and $600 for years 11 through 15. The notes are backed by a bank letter of credit, expiring June 15, 2001, and are secured by mortgages on the real estate financed. The interest rate changes each week based on the taxable rate note market. The $21,000 Iowa Term Loan requires annual principal repayments of 10% of the amount borrowed, which commenced May 30, 1999. Interest is charged at LIBOR plus the same Premium associated with the Company's Credit Facility. The long-term portion of term loans at December 31, 2000 and 1999, consisted of the following:
EFFECTIVE INTEREST DESCRIPTION RATE AT 12/31/00 2000 1999 ----------- ------------------ ------- ------- Iowa Term Loan.......................... 8.9% $14,700 $16,800 Southeastern Term Loan.................. 8.2% 5,346 7,025 Taxable rate notes...................... 6.7% 4,400 5,100 Other................................... 4.0% 142 151 ------- ------- $24,588 $29,076 ======= =======
29 30 10. INDUSTRIAL REVENUE BONDS: In April 1999, the Company entered into a $6,000, 5.1% fixed rate tax-exempt industrial development bond agreement to finance the construction and equipping of its $7,000, 87,000 square foot plate processing and machining facility in Chambersburg, Pennsylvania. Proceeds from the bonds were deposited into an escrow account and were invested in commercial paper funds until withdrawn for reimbursement. The loan agreement includes a 15-year, $3,100 real estate component, and a 10-year, $2,900 million equipment component. Quarterly repayments commenced October 1, 1999. The Chambersburg land, building and equipment secure the outstanding debt. The long-term portion of industrial revenue bonds at December 31, 2000 and 1999, consisted of the following:
EFFECTIVE INTEREST DESCRIPTION OF BONDS RATE AT 12/31/00 2000 1999 -------------------- ------------------ ------ ------- $6,000 fixed rate bonds due 1999 through 2014................................... 5.1% $5,173 $ 5,472 $6,000 variable rate bonds due 1995 through 2004........................... 5.1% 1,800 2,400 $4,800 variable rate bonds due 1992 through 2004........................... 5.1% 1,300 1,650 $2,660 variable rate bonds due 1992 through 2004........................... 5.1% 665 875 ------ ------- $8,938 $10,397 ====== =======
The bonds due in 2004 are all backed by standby letters of credit, expiring June 30, 2002 with the revolving credit bank group, and are secured by a first lien on certain land, buildings and equipment. 11. SCHEDULED DEBT MATURITIES, INTEREST, DEBT CARRYING VALUES AND COVENANTS: Scheduled maturities of all long-term debt for the years succeeding December 31, 2000 are $6,061 in 2001, $6,082 in 2002, $6,103 in 2003, $5,712 in 2004, $3,541 in 2005, and $12,088 thereafter. The overall effective interest rate for all debt amounted to 8.3% in 2000 and 6.9% in both 1999 and 1998. Interest paid totaled $6,293, $4,712, and $5,124, for the years ended December 31, 2000, 1999, and 1998, respectively. Amounts paid relative to the accounts receivable securitization program totaled $3,805 in 2000, $3,159 in 1999, and $3,858 in 1998. Interest of $149 and $1,082 was capitalized in 1999 and 1998, respectively, in connection with constructing and equipping facilities. Management believes the carrying values of its long-term debt approximate their fair values, as each of the Company's variable rate debt arrangements bear interest at rates that fluctuate based on a bank's base rate, LIBOR, the short-term tax exempt revenue bond index or taxable rate note market. Under its debt agreements, the Company is subject to certain covenants such as minimum net worth, interest coverages, and capital expenditure limitations. The Company obtained waivers for non-compliance with its minimum net worth and interest coverage covenants through March 31, 2001. 30 31 12. INCOME TAXES: The components of the Company's net current and deferred tax asset or liability at December 31 are as follows:
ASSET/(LIABILITY) 2000 1999 ----------------- ------ ------- Refundable income taxes................................... $1,806 $ 5,211 Current deferred income taxes: Inventory............................................... 413 847 Tax credit and net operating loss carryforward.......... 1,850 -- Other temporary items................................... 595 (885) ------ ------- Total current deferred income taxes.................. 2,858 (38) ------ ------- Refundable and current deferred income taxes.............. 4,664 5,173 ------ ------- Long-term deferred income taxes: Goodwill................................................ 895 1,383 Tax credit and net operating loss carryforward.......... 5,187 896 Tax in excess of book depreciation...................... (9,599) (8,066) Other temporary items................................... (1,051) (745) ------ ------- Total long-term deferred income taxes................ (4,568) (6,532) ------ ------- Total income tax asset (liability)................... $ 96 $(1,359) ====== =======
The following table reconciles the U.S. federal statutory rate to the Company's effective tax rate:
2000 1999 1998 ---- ---- ---- U.S. federal statutory rate............................ 34.0% 35.0% 35.0% State and local taxes, net of federal benefit.......... 2.0 2.0 2.0 Asset impairment / valuation reserve................... (4.5) -- (5.5) All other, net......................................... 1.0 1.5 1.0 ---- ---- ---- Effective income tax rate.............................. 32.5% 38.5% 32.5% ==== ==== ====
The tax provision includes a current provision (benefit) of ($1,706), $252, and $1,255, and a deferred expense or (benefit) of ($2,492), $1,725, and ($5,314), in 2000, 1999, and 1998, respectively. Income taxes paid in 2000, 1999, and 1998, totaled $94, $315, and $3,202, respectively. The Company has net operating loss carryforwards of $13,862 expiring in the year ended December 31, 2020. 13. RETIREMENT PLANS: The Company has several retirement plans consisting of a profit-sharing plan and a 401(k) plan covering all non-union employees, and two separate 401(k) plans covering all union employees. Company contributions for the non-union profit-sharing plan are in discretionary amounts as determined annually by the Board of Directors. Company contributions were 2% in 2000, 3% in 1999, and 4% in 1998, of each eligible employee's W-2 earnings. The non-union 401(k) retirement plan allows eligible employees to contribute up to 10% of their W-2 earnings. The Company contribution is determined annually by the Board of Directors and is based on a percentage of eligible employees' contributions. For each of the last three years, the Company matched one half of each eligible employee's contribution. Company contributions for each of the last three years for the union plans were 3% of eligible W-2 wages plus one half of the first 4% of each employee's contribution. Retirement plan expense amounted to $1,759, $1,841, and $2,346 for the years ended December 31, 2000, 1999, and 1998, respectively. 31 32 14. STOCK OPTIONS: In January 1994, the Stock Option Plan (Option Plan) was adopted by the Board of Directors and approved by the shareholders of the Company. Pursuant to the provisions of the Option Plan, key employees of the Company, non-employee directors and consultants may be offered the opportunity to acquire shares of Common Stock by the grant of stock options, including both incentive stock options (ISOs) and nonqualified stock options. ISOs are not available to non-employee directors or consultants. A total of 950,000 shares of Common Stock are reserved under the Option Plan. The purchase price of a share of Common Stock pursuant to an ISO will not be less than the fair market value of a share of Common Stock at the grant date. Options vest over three or five years at rates of 33.3% and 20% per year, respectively, commencing on the first anniversary of the grant date, and all expire 10 years after the grant date. The Option Plan will terminate on January 5, 2004. Termination of the Option Plan will not affect outstanding options. During 2000, additional non-qualified options to purchase 171,500 shares of Common Stock were issued to the Company's outside directors, executive officers and senior managers at an option price of $4.84. During 1999, 194,333 shares of Common Stock were issued at option prices ranging from $7.18 to $8.75. No options were issued in 1998. Since adoption of the Option Plan, options to purchase 8,000 shares have been exercised. As of December 31, 2000, options to purchase 441,833 shares were outstanding, of which 152,011 were exercisable at prices ranging from $8.75 to $15.50 per share. During the first quarter of 2001, 350,000 additional shares were granted under the Option Plan to the Company's President and COO, and a senior manager of the Company at prices ranging from $1.97 to $2.38. In 1996, the Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Black-Scholes option-pricing model was used to determine that the pro forma impact of compensation expense from options granted was immaterial for all years presented. 15. COMMITMENTS AND CONTINGENCIES: The Company leases certain warehouses, sales offices and processing equipment under long-term lease agreements. All leases are classified as operating and expire at various dates through 2010. In some cases the leases include options to extend. Rent expense was $1,448, $1,600, and $2,278 for the years ended December 31, 2000, 1999, and 1998, respectively. Future minimum lease payments as of December 31, 2000 are as follows: 2001........................................................ $1,265 2002........................................................ 1,205 2003........................................................ 862 2004........................................................ 792 2005........................................................ 199 Thereafter.................................................. 879 ------ $5,202 ======
The Company is a defendant in various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the outcome of the proceedings to which the Company is currently a party will not have a material adverse effect upon its operations or financial position. 32 33 16. RELATED PARTY TRANSACTIONS: Related entities handled a portion of the freight activity for the Company's Cleveland operation. Payments to these entities totaled $1,563, $1,319, and $2,383 for the years ended December 31, 2000, 1999, and 1998, respectively. There is no common ownership or management of these entities with the Company. Another related entity owns one of the Cleveland warehouses and leases it to the Company at an annual rental of $195. The lease was renewed in June 2000 for a 10-year term with one remaining renewal option for an additional 10 years. David A. Wolfort, President and COO purchased 300,000 shares of the Company's Common Stock from treasury on February 22, 2001. The shares were purchased pursuant to a 5-year note payable to the Company due and payable 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. 17. SHAREHOLDER RIGHTS PLAN: On January 31, 2000, the Company's Board of Directors (the Directors) approved the adoption of a share purchase rights plan. The terms and description of the plan are set forth in a rights agreement, dated January 31, 2000, between the Company and National City Bank, as rights agent (the Rights Agreement). The Directors declared a dividend distribution of one right for each share of Common Stock of the Company outstanding as of the March 6, 2000 record date (the Record Date). The Rights Agreement also provides, subject to specified exceptions and limitations, that Common Stock issued or delivered from the Company's treasury after the record date will be accompanied by a right. Each right entitles the holder to purchase one-one-hundredth of a share of Series A Junior Participating Preferred stock, without par value at a price of $20 per one one-hundredth of a preferred share (a Right). The Rights expire on March 6, 2010, unless earlier redeemed, exchanged or amended. Rights become exercisable to purchase Preferred Shares following the commencement of certain tender offer or exchange offer solicitations resulting in beneficial ownership of 15% or more of the Company's outstanding common shares as defined in the Rights Agreement. 33 34 SUPPLEMENTARY FINANCIAL INFORMATION UNAUDITED QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share amounts)
2000 1ST 2ND 3RD 4TH(b) YEAR ---- -------- -------- -------- -------- -------- Net sales.......................... $144,687 $138,962 $122,548 $114,162 $520,359 Gross margin....................... 33,609 30,157 23,469 21,500 108,735 Operating income (loss)............ 4,987 3,216 (2,691) (7,024) (1,512) Income (loss) before taxes......... 2,382 263 (5,717) (9,847) (12,919) Net income (loss).................. $ 1,477 $ 163 $ (3,545) $ (6,816) $ (8,721) Net income (loss) per share...... $ 0.15 $ 0.02 $ (0.37) $ (0.73) $ (0.90) Weighted average shares outstanding................... 10,034 9,836 9,505 9,331 9,677 Market price of common stock: (a) High............................. $ 5.13 $ 5.00 $ 4.06 $ 2.81 $ 5.13 Low.............................. 3.88 3.50 2.50 1.88 1.88
1999 1ST 2ND 3RD 4TH YEAR ---- -------- -------- -------- -------- -------- Net sales.......................... $129,392 $133,802 $125,388 $137,203 $525,785 Gross margin....................... 30,361 32,804 30,825 30,767 124,757 Operating income................... 3,926 5,293 3,392 991 13,602 Income (loss) before taxes......... 2,102 3,425 1,314 (1,705) 5,136 Net income (loss).................. $ 1,293 $ 2,106 $ 808 $ (1,048) $ 3,159 Net income (loss) per share...... $ 0.12 $ 0.20 $ 0.08 $ (0.10) $ 0.30 Weighted average shares outstanding................... 10,692 10,565 10,381 10,199 10,452 Market price of common stock: (a) High............................. $ 8.38 $ 8.88 $ 7.00 $ 6.22 $ 8.88 Low.............................. 5.06 6.50 5.63 4.38 4.38
- --------------- (a) Represents high and low closing quotations as reported by NASDAQ. (b) Includes an asset impairment charge of $1,178. 34 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by Item 10 as to the Directors of the Registrant will be incorporated herein by reference to the information set forth under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive proxy statement for its April 30, 2001 Annual Meeting of Shareholders. ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 will be incorporated herein by reference to the information set forth under the caption "Executive Officers' Compensation" in the Registrant's definitive proxy statement for its April 30, 2001 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 will be incorporated herein by reference to the information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Registrant's definitive proxy statement for its April 30, 2001 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 will be incorporated herein by reference to the information set forth under the caption "Related Transactions" in the Registrant's definitive proxy statement for its April 30, 2001 Annual Meeting of Shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a)(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN PART II, ITEM 8: Report of Independent Public Accountants Consolidated Statements of Income for the Years Ended December 31, 2000, 1999, and 1998 Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements (a)(2) FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements including notes thereto. (a)(3) EXHIBITS. The Exhibits filed herewith are set forth on the Index to Exhibits filed as part of this report. (b) REPORTS ON FORM 8-K. No reports were filed on Form 8-K during the fourth quarter of 2000. 35 36 OLYMPIC STEEL, INC. INDEX TO EXHIBITS
SEQUENTIAL EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO. ------- ----------------------- ---------- 3.1(i) Amended and Restated Articles of Incorporation (a) 3.1(ii) Amended and Restated Code of Regulations (a) 4.1 Credit Agreement dated October 4, 1996 by and among the (b) Registrant, three banks and National City Bank, Agent 4.2 First Amendment to Credit Agreement dated January 24, 1997 (c) by and among the Registrant, three banks and National City Bank, Agent 4.3 Second Amendment to Credit Agreement, dated May 30, 1997 (d) 4.4 Third Amendment to Credit Agreement, dated July 14, 1997 (d) 4.5 Fourth Amendment to Credit Agreement, dated December 8, 1998 (e) 4.6 Fifth Amendment to Credit Agreement, dated March 10, 1999 (e) 4.7 Sixth Amendment to Credit Agreement, dated January 15, 2000 (f) 4.8 Receivables Purchase Agreement dated December 19, 1995 among (g) the Registrant, Olympic Steel Receivables LLC, Olympic Steel Receivables, Inc. and Clipper Receivables Corporation as Purchaser 4.9 Second Amendment to Receivables Purchase Agreement, dated (d) July 14, 1997 Information concerning certain of the Registrant's other long-term debt is set forth in Notes 8 through 11 of Notes to Consolidated Financial Statements. The Registrant hereby agrees to furnish copies of such instruments to the Commission upon request. 4.10 Rights Agreement (Including Form of Certificate of Adoption (h) of Amendment to Amended Articles of Incorporation as Exhibit A thereto, together with a Summary of Rights to Purchase Preferred Stock) 10.1 Olympic Steel, Inc. Stock Option Plan (a) 10.2 Lease, dated as of July 1, 1980, as amended, between S.M.S. (a) Realty Co., a lessor, and the Registrant, as lessee, relating to one of the Cleveland facilities 10.4 Lease, dated as of November 30, 1987, as amended, between (a) Tinicum Properties Associates L.P., as lessor, and the Registrant, as lessee, relating to Registrant's Lester, Pennsylvania facility 10.5 Operating Agreement of Trumark Steel & Processing, LLC, (i) dated December 12, 1997, by and among Michael J. Guthrie, Carlton L. Guthrie and Oly Steel Welding, Inc. 10.6 Carrier Contract Agreement for Transportation Services, (e) dated August 1, 1998, between Lincoln Trucking Company and the Registrant 10.7 Operating Agreement of OLP, LLC, dated April 4, 1997, by and (j) between the U.S. Steel Group of USX Corporation and Oly Steel Welding, Inc. 10.8 Form of Management Retention Agreement for Senior Executive (k) Officers of the Company 10.9 Form of Management Retention Agreement for Other Officers of (k) the Company 10.10 David A. Wolfort Employment Agreement dated January 1, 2001 39-52 10.11 Promissory Note and Stock Pledge Agreement between Olympic 53-59 Steel, Inc., and David A. Wolfort. 21 List of Subsidiaries 60
36 37
SEQUENTIAL EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO. ------- ----------------------- ---------- 23 Consent of Independent Public Accountants 61 24 Directors and Officers Powers of Attorney 62
- --------------- (a) Incorporated by reference to the Exhibit with the same exhibit number included in Registrant's Registration Statement on Form S-1 (No. 33-73992) filed with the Commission on January 12, 1994. (b) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission on November 4, 1996. (c) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission on March 7, 1997. (d) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission on August 5, 1997. (e) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission on March 12, 1999. (f) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission on March 20, 2000. (g) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission on March 29, 1996. (h) Incorporated by reference to an Exhibit included in Registrant's Form 8-K filed with the Commission on February 15, 2000. (i) Incorporated by reference to an Exhibit included in Registrant's Form 10-K filed with the Commission on March 9, 1998. (j) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission on May 2, 1997. (k) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q filed with the Commission on August 3, 2000. 37 38 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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. OLYMPIC STEEL, INC. March 28, 2001 By: /s/ RICHARD T. MARABITO ---------------------------------- Richard T. Marabito, Chief Financial Officer and Treasurer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED AND ON THE 28TH DAY OF MARCH, 2001. /s/ MICHAEL D. SIEGAL * March 28, 2001 - ----------------------------------------------------- Michael D. Siegal Chairman of the Board and Chief Executive Officer /s/ DAVID A. WOLFORT * March 28, 2001 - ----------------------------------------------------- David A. Wolfort President, Chief Operating Officer and Director /s/ RICHARD T. MARABITO * March 28, 2001 - ----------------------------------------------------- Richard T. Marabito Chief Financial Officer and Treasurer (Principal Accounting Officer) /s/ SUREN A. HOVSEPIAN * March 28, 2001 - ----------------------------------------------------- Suren A. Hovsepian Business Consultant and Director /s/ MARTIN H. ELRAD * March 28, 2001 - ----------------------------------------------------- Martin H. Elrad, Director /s/ THOMAS M. FORMAN * March 28, 2001 - ----------------------------------------------------- Thomas M. Forman, Director /s/ WILLIAM E. MACDONALD III * March 28, 2001 - ----------------------------------------------------- William E. MacDonald III, Director
* The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named officers and Directors of the Company and filed with the Securities and Exchange Commission on behalf of such officers and Directors. By: /s/ RICHARD T. MARABITO March 28, 2001 - ----------------------------------------------------- Richard T. Marabito, Attorney-in-Fact
38 EX-10.10 2 l86061aex10-10.txt EXHIBIT 10.10 1 Exhibit 10.10 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, effective as of January 1, 2001 (the "Effective Date"), by and between OLYMPIC STEEL, INC., an Ohio corporation, with its principal place of business at 5096 Richmond Road, Bedford, Ohio 44146 (hereinafter referred to as "Olympic"), and DAVID A. WOLFORT, an individual residing at 70 Ridgecreek Trail, Moreland Hills, Ohio 44022 (hereinafter referred to as "Wolfort"). WHEREAS, Wolfort has served for many years as an executive officer of Olympic, including since 1995 as Chief Operating Officer; WHEREAS, Olympic desires to assure itself of the continued employment of Wolfort; NOW, THEREFORE, the parties hereto agree as follows: 1. TERM. Olympic hereby employs Wolfort and Wolfort hereby accepts such employment, for an initial term commencing on the Effective Date and ending on December 31, 2005, unless sooner terminated in accordance with the provisions of Section 4 or Section 5; with such employment to continue in accordance with the terms of this Agreement from year to year thereafter (subject to termination as aforesaid) unless either party notifies the other party in writing prior to thirty (30) days before the expiration of the initial term and each annual renewal thereof (said initial term and any continuation thereof (but not after any such termination) being hereinafter referred to as the "Term"). Page 39 2 2. DUTIES. Wolfort shall serve as President and Chief Operating Officer and shall faithfully perform for Olympic the duties of an executive, managerial or administrative nature as shall be specified and designated from time to time by the Chief Executive Officer and/or the Board of Directors of Olympic. Wolfort shall devote substantially all of his business time and effort to the performance of his duties hereunder. 3. COMPENSATION. 3.1 SALARY. (a) Olympic shall pay Wolfort during the Term a salary at the rate of Three Hundred Eighty Five Thousand Dollars ($385,000) per annum (the "Annual Salary"), commencing January 1, 2001. The Annual Salary may be increased by an amount as the Compensation Committee of the Board of Directors shall determine in its sole discretion. The Annual Salary shall be payable in accordance with the Company's standard payroll practices. 3.2 BENEFITS. Wolfort shall be permitted during the Term to participate in all group life, hospitalization or disability insurance plans, health programs, retirement plans or similar benefits that are generally available to other senior executive officers of Olympic, on the same terms as such other executives, in each case to the extent that Wolfort is eligible under the terms of such plans or programs. 3.3 EXPENSES. Olympic shall pay or reimburse Wolfort for all reasonable out-of-pocket expenses actually incurred or paid by Wolfort during the Term in the performance of Wolfort's services under this Agreement; provided that Wolfort Page 40 3 submits proof of such expenses, with the properly completed forms as prescribed from time to time by Olympic. 3.4 ANNUAL BONUS. During the Term, Wolfort shall be entitled to participate in the Senior Management Compensation Program, in such amount and with such target levels as is determined by the Compensation Committee of the Board of Directors, provided, however, during the Term the Annual Bonus shall not be less than Twenty Thousand Dollars ($20,000) (the "Annual Bonus"). 3.5 STOCK OPTIONS. On the Effective Date, Wolfort shall be granted non-qualified stock options to purchase 300,000 shares of Olympic Common Stock. The Option Price shall be the last closing sale price of a share of Common Stock on the date of grant, or, if not a business day, the business day immediately preceding such date. The option shares shall vest in annual increments of 20% each year, commencing January 1, 2002. The options shall terminate on December 31, 2010, unless earlier terminated in accordance with the Notice of Grant attached hereto and the term of the Option Plan. In the event of a sale of Olympic and the consideration for the Olympic shares consists of cash or other consideration (excluding common stock of the acquiring company or its parent), then all non-vested options shall become fully vested as of the time immediately prior to the effective time of the sale. In the event of a sale of Olympic and the consideration for the Olympic shares consists of shares of the acquiring company or its parent, if Wolfort does not execute a new employment contract with the purchaser, then all non-vested options shall become fully vested as of the time immediately prior to the effective time of the sale. Page 41 4 4. DEATH OR DISABILITY. 4.1 TERMINATION OF EMPLOYMENT. If Wolfort dies during the Term, the obligations of Olympic to or with respect to Wolfort shall terminate in their entirety except as otherwise provided under this Section 4.1. If Wolfort by virtue of ill health or other physical or mental disability is unable to perform substantially and continuously any material portion of the duties assigned to him for one hundred eighty (180) days in the aggregate during any twelve (12) month period, or for any ninety (90) consecutive days, Olympic shall have the right to terminate the employment of Wolfort upon notice in writing to Wolfort; provided that (i) after receipt of notice from Olympic, Wolfort shall have the right within ten (10) days after such notice to dispute Olympic's ability to terminate him under this Section 4.1, (ii) within ten (10) days after exercising such right he shall submit to a physical examination by the Chief of Medicine of any major hospital in the metropolitan Cleveland, Ohio area, and (iii) unless such physician shall issue his written statement to the effect that in his opinion, based on his diagnosis, Wolfort is capable of resuming his employment and devoting his full time and energy to discharging his duties within ten (10) days after the date of such statement Olympic shall have the right to terminate Wolfort under this Section 4.1 without further dispute. Upon termination under this Section 4.1, Wolfort (or Wolfort's estate or beneficiaries in the case of the death of Wolfort) shall be entitled to receive any Annual Salary, Annual Bonus and other benefits earned and accrued under this Agreement, and reimbursement under this Agreement for expenses incurred, prior to the date of termination (for these purposes, if such termination occurs during a fiscal year, the Annual Bonus for such Page 42 5 fiscal year shall be prorated based upon the number of days in such fiscal year which elapsed before such termination and shall be paid at the time provided for in Section 3.4); thereafter, Olympic shall have no further liability to Wolfort. 4.2 CONTINUATION OF BENEFITS. In addition to the benefits payable under Section 4.1, Wolfort (or his estate in the case of his death) shall be entitled to one year's annual salary. Further, Wolfort's surviving spouse, if any, and minor children shall be eligible to continue to participate in Olympic's health insurance programs, at the expense of Olympic, for twelve (12) months after the death or disability of Wolfort. After such one-year period, Wolfort's dependents shall be entitled to participate in any insurance program of the Company to the extent required by federal or state law. No provision of this Agreement shall limit any of Wolfort's (or his beneficiaries') rights under any insurance, pension or other benefit programs of Olympic for which Wolfort shall be eligible at the time of such death or disability. 5. CERTAIN TERMINATIONS OF EMPLOYMENT. 5.1 TERMINATION FOR CAUSE. "CAUSE" shall be deemed to exist if Wolfort (i) is convicted of (or pleads nolo contendere to) a felony, a crime of moral turpitude or any crime involving Olympic (other than pursuant to actions taken at the direction or with the approval of the Board of Directors) (ii) is found by reasonable determination of the Board of Directors, made in good faith, to have engaged in (A) willful misconduct, (B) willful or gross neglect, (C) fraud, (D) misappropriation or (E) embezzlement in the performance of his duties hereunder, or (iii) breaches in any material respect the terms and provisions of this Agreement and fails to cure such breach within ten (10) days Page 43 6 following written notice from the Company specifying such breach. Olympic may terminate Wolfort's employment hereunder for Cause on written notice (which notice shall specify the reasons for such termination) given to Wolfort at any time following the occurrence of any of the events described in clauses (i) through (ii) above and or written notice given to the Employee at any time not less than 30 days following the occurrence of any of the events described in clause (iii) above. Upon such termination, Wolfort shall be entitled to receive any Annual Salary, Annual Bonus and other benefits earned and accrued under this Agreement, and reimbursement under this Agreement for expenses incurred, prior to the date of such termination (provided that, for these purposes and for all other purposes of this Agreement, if such termination occurs after the last day of a fiscal year then the unpaid Annual Bonus (if any) otherwise payable under Section 3.4) for such fiscal year shall be deemed to have been earned and accrued, but in no event shall any portion of any other subsequent Annual Bonus be deemed to have been earned or accrued); thereafter, Olympic shall have no further liability to Wolfort. 5.2 TERMINATION BY OLYMPIC WITHOUT CAUSE; CERTAIN TERMINATIONS BY WOLFORT. During the Term, Olympic may terminate Wolfort's employment hereunder for any reason on at least thirty (30) days' written notice given to Wolfort. If Olympic so terminates Wolfort during the Term, and such termination is not described in Section 4 or 5.1, then (I) the Employee shall be entitled to receive any Annual Salary, Annual Bonus and other benefits earned and accrued under this Agreement, Page 44 7 and reimbursement under this Agreement for expenses incurred, prior to the date of such termination; (II) during the period ending on the earlier of (i) the termination date of this Agreement or (ii) twenty-four (24) months following such termination, the Employee shall also be entitled to (A) continue to receive the Annual Salary payable in the amounts and at the times provided for in Section 3.1 as if such employment had not otherwise been so terminated; (B) continue to receive the Annual Bonus or, if applicable, Annual Bonuses (if any) payable at the times provided for in Section 3.4 as if such employment had not otherwise been so terminated. (C) continuation of any group life, health and automobile-related benefits to which Wolfort is otherwise entitled hereunder on substantially the same terms and conditions (including with respect to the cost, if any, to Wolfort, subject to generally applicable changes to the level (and cost) of coverage that may be made with respect to senior executives generally; provided that such continuation shall not be required hereunder to the extent that Wolfort is entitled (absent any individual waivers or other arrangements) to receive during such period the same type of coverage from another employer or recipient of Wolfort's services. Thereafter, Olympic shall have no further liability to Wolfort. Page 45 8 6. NON-COMPETITION. During a period ending one (1) year following the date of Wolfort's termination of employment, Employee shall not take a management, consultant or other position with (i) any steel service center or distributor within those portions of the United States wherein the Company is conducting business on the Termination Date, or (ii) a business engaged in direct competition with any other significant business carried on by the Company on the termination date, nor shall he become a principal of or assume control of a business which so engages in competition on or after the Termination Date; provided, however, that in no event shall ownership of less than five percent (5%) of the equity of a corporation, limited liability company or other business entity, standing alone, be deemed competition with the Company within the meaning of this paragraph 6. 7. WITHHOLDING. The Company may withhold from any amounts payable hereunder, all federal, state, city, or other taxes as may be required pursuant to any applicable law, or government regulation or ruling. 8. CONFIDENTIALITY. (a) During his employment and all periods thereafter, Wolfort shall keep secret and retain in strictest confidence, and shall not use for his benefit or the benefit of others, except in connection with the business and affairs of Olympic and its subsidiaries, all confidential matters relating to the business of Olympic and its subsidiaries learned by Wolfort during his employment by Olympic, including, without limitation, information with respect to (a) sales figures, (b) profit or loss figures, and (c) customers, clients, suppliers, sources of supply and customer lists (the "CONFIDENTIAL COMPANY INFORMATION") and shall not disclose the Confidential Company Page 46 9 Information to anyone outside of Olympic or its subsidiaries except with Olympic's express written consent and except for Confidential Company Information which (1) is at the time of receipt or thereafter becomes publicly known through no wrongful act of Wolfort, (2) is received from a third party not under an obligation to keep such information confidential and without breach of this Agreement or (3) was previously known by Wolfort before being employed by Olympic. (b) During the Restricted Period, Wolfort shall not, without Olympic's prior written consent, directly or indirectly, knowingly solicit or encourage to leave the employment of Olympic or its subsidiaries, any employee of Olympic or its subsidiaries or hire any employee who has left the employment of Olympic or its subsidiaries after the effective date of this Agreement within one year of the termination of such employee's employment with Olympic and its subsidiaries. (c) All memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Wolfort or made available to Wolfort concerning the business of Olympic and its subsidiaries shall be Olympic's property and shall be delivered to Olympic at any time on request, provided such property is then possessed by Wolfort and can be readily identified as such by him; provided that, notwithstanding the foregoing, Wolfort may retain a copy of his rolodex. 9. RIGHTS AND REMEDIES UPON BREACH. If Wolfort breaches, or threatens to commit a breach of, any of the provisions of Sections 6 and/or 8 (the "RESTRICTIVE COVENANTS"), Olympic and its subsidiaries shall have, in addition to any and all other rights at law, and equity, the right and remedy to have the Restrictive Covenants Page 47 10 specifically enforce (without posting bond) by any court having equity jurisdiction, including, without limitation, the right to an entry against Wolfort of restraining orders and injunctions (preliminary, mandatory, temporary and permanent) against violations, threatened or actual, and whether or not then continuing, of such covenants, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Olympic and that money damages will not provide an adequate remedy to Olympic. 10. OTHER PROVISIONS. 10.1 SEVERABILITY. Wolfort acknowledges and agrees that (i) he has had an opportunity to seek advice of counsel in connection with this Agreement and (ii) the Restrictive Covenants are reasonable in geographical and temporal scope and in all other respects. If it is determined that any of the provisions of this Agreement, including, without limitation, any of the Restrictive Covenants, it any part thereof, is invalid or unenforceable, the remainder of the provisions of this Agreement shall not thereby be affected and shall be given full effect, without regard to the invalid portions. 10.2 BLUE-PENCILING. If any court determines that any of the covenants contained in this Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, then, after such determination has become final and unappealable, the duration or scope of such provision, as the case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form, such provision shall then be enforceable and shall be enforced. Page 48 11 10.3 ENFORCEABILITY; JURISDICTIONS. Olympic and Wolfort intend to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of the Restrictive Covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of breadth of scope or otherwise, it is the intention of Olympic and Wolfort that such determination not bar or in any way affect Olympic's right or the right of its subsidiaries to the relief provided above in the courts of any other jurisdiction within the geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in such other respective jurisdictions, such Restrictive Covenants as they relate to each jurisdiction being, for this purpose, severable, diverse and independent covenants, subject, where appropriate, to the doctrine of RES JUDICATA. 10.4 NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails as follows: (i) If to Olympic, to: Olympic Steel, Inc. 5096 Richmond Road Bedford, Ohio 44146 Attention: Chief Executive Officer With a copy to: Marc H. Morgenstern, Esq. Page 49 12 Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. The Tower At Erieview 1301 East Ninth Street, Suite 2600 Cleveland, Ohio 44114-1824 (ii) If the Employee to: David A. Wolfort 70 Ridgecreek Trail Moreland Hills, Ohio 44022 Any such person may by notice given in accordance with this Section to the other parties hereto designate another address or person for receipt by such person of notices hereunder. 10.5 ENTIRE AGREEMENT.This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with the exception of the Management Retention Agreement entered into by and between Olympic and Wolfort on or about April 20, 2000 which shall remain in full force and effect. In the event of any conflict between the Agreement and the Management Retention Agreement, the terms of the Management Retention Agreement shall prevail. 10.6 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any part in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege nor any single or partial exercise of any such right, Page 50 13 power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. 10.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio without regard to principles of conflicts of law. 10.8 ASSIGNMENT. This Agreement, and Wolfort's rights and obligations hereunder, may not be assigned by Wolfort; any purported assignment by Wolfort in violation hereof shall be null and void. In the event of any sale, transfer or other disposition of all or substantially all of Olympic's assets or business, whether by merger, consolidation or otherwise, Olympic may assign this Agreement and its rights hereunder. 10.9 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns, heirs, executors and legal representatives. 10.10 COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original but all such counterparts together shall constitute one and the same instrument. Each counterpart may consist of two copies hereof each signed by one of the parties hereto. 10.11 HEADINGS. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have signed their names on the _____ day of ______________, 2001. Page 51 14 OLYMPIC STEEL, INC. By: _________________________________ Michael D. Siegal Its Chief Executive Officer _____________________________________ David A. Wolfort Page 52 EX-10.11 3 l86061aex10-11.txt EXHIBIT 10.11 1 Exhibit 10.11 PROMISSORY NOTE Original Principal Amount Cleveland, Ohio $675,000 February 22, 2001 FOR VALUE RECEIVED, DAVID A. WOLFORT ("Maker") promises to pay to the order of OLYMPIC STEEL, INC. ("Holder") the principal amount of Six Hundred Seventy Five Thousand Dollars ($675,000) together with interest thereon as hereinafter provided. 1. PRINCIPAL. The principal amount hereof shall be due and payable in full on January 1, 2006, or, if earlier, (i) six (6) months after Wolfort's termination of employment with Olympic Steel, Inc., for any reason other than death or disability, or (ii) twelve (12) months after his termination of employment due to death or disability (the "Maturity Date"). 2. INTEREST. The principal amount outstanding under this Promissory Note from time to time shall bear interest from and including the date hereof at the rate of five and 7/100ths percent (5.07%) per annum, compounded annually on each anniversary of February 22, 2001, until paid in full. Interest on this Promissory Note shall be computed on the basis of a 365 day year for the actual number of days elapsed. 3. PAYMENT IN FULL ON MATURITY DATE. Maker shall pay the full amount then due under this Promissory Note, both principal and interest (including compounded interest) in a single payment on the maturity Date. Payment of the principal of and interest on this Promissory Note shall be made in lawful money of the United States of America to Holder at 5096 Richmond Road, Bedford Heights, Ohio 44146 or to such other payee or at such other address as may be designated to Maker by Holder from time to time. 4. MANDATORY PREPAYMENT ON SALE OF SHARES. Maker has used the proceeds of the loan from Holder that is evidenced by this Promissory Note to fund the purchase of 300,000 Olympic Steel, Inc. Common Shares (the "Shares"). Upon any sale of any portion of the Shares, Maker shall promptly pay to Holder such amount, if any, as is necessary so that, immediately after that payment, the portion of the original principal on this Promissory Note that has been repaid, and as to which all accrued interest has been paid, is at least directly proportionate to the portion of the 300,000 Shares that have been sold by Maker through the date of that payment. For example, if, on a particular date Maker, having not previously sold any of the Shares and having not previously made any payment on this Promissory Note, sells 75,000 Shares (1/4 of the original number), Maker shall promptly pay to Holder at least $168,750 of principal (1/4 of the original principal), together with all accrued interest on that amount of principal. Page 53 2 5. WAIVER OF DEMAND, ETC. Maker waives demand, presentment, notice of dishonor, protest, notice of protest, and diligence in collection and bringing suit and agrees that Holder may extend the time for payment, accept partial payment, or take security therefor without discharging or releasing Maker. 6. GOVERNING LAW. This Promissory Note has been executed in Bedford Heights, Ohio. The construction, validity, and enforceability of this Promissory Note shall be governed by the laws of the State of Ohio applicable to promissory notes made and to be satisfied entirely within the State of Ohio. 7. COSTS OF ENFORCEMENT. Maker agrees to pay all costs and expenses (including reasonable attorneys' fees) incurred by Holder in the collection of this Promissory Note and in the enforcement of the rights under this Promissory Note. 8. WAIVER. MAKER, TO THE EXTENT NOT PROHIBITED BY LAW, WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN HOLDER AND MAKER ARISING OUT OF, IN CONNECTION WITH THIS PROMISSORY NOTE OR THE RELATED PLEDGE AGREEMENT. 9. PREPAYMENT. Maker may prepay all or any portion of the principal sum hereof at any time without penalty. All such prepayments shall be applied to the payment of the principal due hereon, and shall be accompanied by the payment of accrued interest on the amount of the prepayment to the date thereof. 10. OVERDUE PAYMENTS. Holder must receive any payment of principal and interest under this Promissory Note by 5:00 p.m., E.S.T., on a business day in order to be credited on such date. If Maker fails to make any payment of principal, interest, or other amount becoming due pursuant to the provisions of this Promissory Note within ten (10) business days of the date due and payable, Maker also shall pay to Holder a late charge equal to five percent (5%) of the amount of such payment. Such ten (10) day period shall not be construed in any way to extend the due date of any such or subsequent payment. 11. SECURITY. Security for repayment of this Note has been given in the form of a pledge on the 300,000 Shares, pursuant to a Pledge Agreement of even date herewith. ______________________________ David A. Wolfort Page 54 3 STOCK PLEDGE AGREEMENT ---------------------- THIS PLEDGE AGREEMENT made and entered into as of this 22 day of February, 2001, at Bedford Heights, Ohio, by and between Olympic Steel, Inc., an Ohio corporation ("Pledgee"), and David A. Wolfort ("Pledgor") evidence the following agreements and understandings: WITNESSETH: ---------- WHEREAS, Pledgee has loaned ("Loan") to Pledgor the sum of Six Hundred Seventy Five Thousand Dollars ($675,000) to fund the purchase of 300,000 Common Shares of the Company (the "Pledged Stock"); WHEREAS, Pledgor has executed a Promissory Note dated of even date herewith (the "Note") which evidences Pledgor's obligation to repay the Loan; WHEREAS, Pledgor's obligations under the Note are to be secured by a pledge of the Pledged Stock. NOW THEREFORE, in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEPOSIT OF COLLATERAL. Pledgor hereby deposits with Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. as Agent (the "Agent"), a stock certificate representing the Pledged Shares, and an Irrevocable Stock Power duly endorsed by Pledgor to transfer the Pledged Shares. Such stock certificate and stock power shall be held by the Agent, on behalf of Pledgee, subject to the terms and conditions of this Agreement in order to secure the payment obligations of Pledgor to Pledgee pursuant to the Note. Upon the payment in full of the Note, such certificate of stock and stock power shall be returned by the Agent to the Pledgor. 2. DEFAULT. (a) In the event that Pledgor fails to remedy a default by Pledgor under the terms of the Note within any applicable cure period, Pledgee shall be entitled to exercise concurrently or successively any one or more of the following rights and remedies as well as any other right or remedy which Pledgee may possess hereunder, at law or in equity: (i) Agent may exercise, on behalf of the Pledgee, all rights of a shareholder of record of Olympic Steel, Inc. (the "Company"), including, without limitation, the right, with or without effecting a transfer of the shares on the books Page 55 4 of the Company, to receive and collect for Pledgee's account any and all amounts which are payable to or on account of the Pledged Shares (including, without limitation, dividends and distributions), or may otherwise be considered proceeds of the Pledged Shares to the extent of the amount then owning on the Note; and (ii) Agent, on behalf of the Pledgee, may sell, assign, transfer or otherwise dispose of the Pledged Shares or any portion thereof, for cash, upon credit or upon such other commercially reasonable terms and conditions as Pledgee shall deem appropriate, PROVIDED, HOWEVER, that if the proceeds from such sale, transfer or disposition exceed the amount then due and owning from Pledgor to Pledgee under the Note, then such excess shall be promptly paid over to Pledgor; and PROVIDED FURTHER, that if such proceeds are not sufficient to pay the amounts due and owing from Pledgor to Pledgee, then Pledgor shall remain obligated for any amounts still owing under the Note. Nothing contained in this Section 2(a) shall prevent Pledgee from seeking a judgment against Pledgor pursuant to the Note or otherwise pursuing its other rights available at law or in equity. (b) Anything contained herein to the contrary notwithstanding, any funds, monies, proceeds or other property received by Agent, on behalf of Pledgee upon exercise of any right or remedy hereunder, may be retained by Pledgee only to the extent of actual damages suffered by Pledgee on account of a default by Pledgor hereunder, and the balance of such funds, monies, proceeds or other property shall be delivered promptly to Pledgor. (c) So long as there exists no default under the Note, (i) Pledgor shall be entitled to receive, retain and use any and all dividends or distributions made on account of the Pledged Shares, such dividends or distributions being and remaining the property of Pledgor, and (ii) as owner of the Pledged Shares, Pledgor shall be entitled to exercise all rights and privileges attendant thereto. 3. TERMINATION. This Pledge Agreement and all of its terms and conditions shall remain in full force and effect for so long as the Note remains unpaid, in whole or in part, or until the Pledged Shares are sold, liquidated or disposed of by Pledgee, as the case may be. At such time as the Note is paid in full, or deemed paid, this Pledge Agreement shall terminate and shall cease to be of further force and effect. At such time of termination, Agent shall deliver to Pledgor the certificates representing the Pledged Shares and the Irrevocable Stock Power, together with an instrument signed by Pledgee relinquishing all right, title and interest of Pledgee in and to the Pledged Shares. 4. TRANSFERS AND OTHER LIENS. Pledgor agrees that he will not (a) sell or otherwise dispose of or grant any option with respect to any of the Pledged Shares, (b) Page 56 5 create or permit to exist any other lien upon or with respect to any of the Pledged Shares or (c) enter into any obligations that may restrict or inhibit Pledgee's rights or ability to sell or otherwise dispose of the Pledged Shares or any part thereof after the occurrence and during the continuance of an event of default under the terms of the Note. 5. INDEMNIFICATION OF AGENT. Pledgor and Pledgee will indemnify, hold harmless and defend against any claim, loss, liability, or damage, incurred by Agent in connection with carrying out its duties under this Agreement. In the event that any legal action is instituted against Agent as such, Agent may implead or interplead the parties hereto in such action and may deposit with the court in which such action is pending the Pledged Shares which is the subject of this Agreement, and which is also the subject matter of such action. Agent shall thereupon be relieved and discharged from any and all obligations and liabilities under and pursuant to this Agreement and Pledgor and Pledgee shall thereupon release Agent from any and all further obligations and liabilities under and pursuant to this Agreement. In the event Agent impleads or interpleads Pledgor or Pledgee, such party or parties shall pay Agent's cost in connection therewith. 6. MISCELLANEOUS. (a) Any notice or other communications under this Agreement to any party will be adequately given when it is personally delivered or when it is sent by fax, with confirmation of receipt, or one day after it is sent by overnight courier, or three days after it is sent by certified mail, return receipt requested, addressed in any case as follows: to Pledgor: David A. Wolfort Olympic Steel, Inc. 5096 Richmond Road Bedford Heights, Ohio 44146 Facsimile No.: 216-292-3974 to Pledgee: Olympic Steel, Inc. 5096 Richmond Road Bedford Heights, Ohio 44146 Facsimile No.: 216-292-3974 Page 57 6 to Agent: Kahn, Kleinman, Yanowitz & Arnson Co., L.P.A. The Tower at Erieview, Suite 2600 1301 East Ninth Street Cleveland, Ohio 44114-1824 ATTN: Michael A. Ellis, Esq. Facsimile No.: 216-623-4912 (b) This Agreement, which shall be governed by and interpreted in accordance with the laws of the State of Ohio, shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (c) This Agreement, together with the Note, constitutes the entire agreement between the parties hereto with respect to the matters herein addressed. Any modification or amendment to this Agreement shall be effective only if in writing and executed by Pledgor and Pledgee. (d) All rights and remedies provided herein or otherwise existing at law or in equity are cumulative, and the exercise of one or more of such rights or remedies by Pledgee shall not preclude or waive its right to exercise any or all of the other rights and remedies. (e) The captions in this Agreement are included for convenience of reference only and shall be of no force and effect in construing the provisions hereof. (f) Any provisions contained in this Agreement which are contrary to, prohibited by, or invalid under applicable laws or regulations shall be modified and enforced to the greatest extent permitted by law and shall not invalidate the remaining provisions hereof. (g) This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one agreement. Page 58 7 IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement the day and year first above written. __________________________________________ David A. Wolfort "Pledgor" Olympic Steel, Inc. an Ohio corporation By: __________________________________ Michael D. Siegal, Chairman & Chief Executive Officer "Pledgee" Page 59 EX-21 4 l86061aex21.txt EXHIBIT 21 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF OLYMPIC STEEL, INC.
NAME OF SUBSIDIARY STATE OF ORGANIZATION % OWNERSHIP - ------------------ --------------------- ----------- Olympia International, Inc. U.S. Virgin Islands 100% Olympic Steel Lafayette, Inc. Ohio 100% Olympic Steel Minneapolis, Inc. Minnesota 100% Olympic Steel Receivables, Inc. Delaware 100% Olympic Steel Receivables LLC Delaware 100%(a) Olympic Steel Trading, Inc. Ohio 100% Oly Steel Welding, Inc. Michigan 100% Olympic Steel Iowa, Inc. Iowa 100%(b) OLP LLC Michigan 50%(c) Trumark Steel & Processing LLC Michigan 49%(d)
(a) Owned 100% by Olympic Steel, Inc. and Olympic Steel Receivables, Inc. (b) Owned 100% by Olympic Steel Minneapolis, Inc. (c) Owned 50% by Oly Steel Welding, Inc. (d) Owned 49% by Oly Steel Welding, Inc. PAGE 60 EX-23 5 l86061aex23.txt EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 26, 2001, included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement File No. 333-10679. Arthur Andersen LLP Cleveland, Ohio March 28, 2001. PAGE 61 EX-24 6 l86061aex24.txt EXHIBIT 24 1 EXHIBIT 24 POWERS OF ATTORNEY ------------------ OLYMPIC STEEL, INC. ------------------- KNOW ALL MEN BY THESE PRESENTS, that OLYMPIC STEEL, INC., an Ohio corporation, and each person whose name is signed below hereby constitute and appoint Michael D. Siegal and Richard T. Marabito their attorneys-in-fact and agents, with full power of substitution and resubstitution, for and on behalf of Olympic Steel, Inc. and the undersigned Directors and officers of Olympic Steel, Inc., and each of such Directors and officers, to sign Olympic Steel, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000, any or all amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary in connection with such matters and hereby ratifying and confirming all that such attorneys-in-fact and agents or their substitute or substitutes may do or cause to be done by virtue hereof. This Power of Attorney of Olympic Steel, Inc., and the Directors and officers of Olympic Steel, Inc. may be executed in multiple counterparts, each of which shall be deemed an original with respect to the person executing it. IN WITNESS WHEREOF, this Power of Attorney has been signed at Cleveland, Ohio this 28th day of March, 2001. OLYMPIC STEEL, INC. By: /s/ Richard T. Marabito ----------------------------- Richard T. Marabito, Chief Financial Officer and Treasurer DIRECTORS AND OFFICERS: /s/ Martin H. Elrad /s/ Michael D. Siegal - ------------------------------------ --------------------------------- Martin H. Elrad, Director Michael D. Siegal, Chairman of the Board and Chief Executive Officer /s/ Thomas M. Forman /s/ David A. Wolfort - ------------------------------------ --------------------------------- Thomas M. Forman, Director David A. Wolfort, President, Chief Operating Officer and Director /s/ Suren A. Hovsepian /s/ Richard T. Marabito - ------------------------------------ --------------------------------- Suren A. Hovsepian, Business Richard T. Marabito, Chief Financial Consultant and Director Officer and Treasurer (Principal Accounting Officer) /s/ William E. MacDonald III - ------------------------------------ William E. MacDonald III, Director PAGE 62 -----END PRIVACY-ENHANCED MESSAGE-----