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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23320
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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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of November 9, 1999
- -------------------------------------- ------------------------------------
Common stock, without par value 10,124,200
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<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
INDEX TO FORM 10-Q
PAGE NO.
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Part I. FINANCIAL INFORMATION
<S> <C> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 1999 and 3
December 31, 1998
Consolidated Statements of Income - for the three and nine
months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows - for the nine
months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-16
Part II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
OLYMPIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1999 1998
--------- ---------
(unaudited)
Assets
<S> <C> <C>
Cash $ 541 $ 1,825
Accounts receivable 21,417 3,096
Inventories 119,022 121,407
Prepaid expenses and other 4,676 5,752
--------- ---------
Total current assets 145,656 132,080
--------- ---------
Property and equipment 153,456 144,762
Accumulated depreciation (30,771) (25,450)
--------- ---------
Net property and equipment 122,685 119,312
--------- ---------
Unexpended industrial revenue bond funds 5,824 --
Goodwill 3,648 3,726
Investments in joint ventures 289 990
--------- ---------
Total assets $ 278,102 $ 256,108
========= =========
Liabilities
Current portion of long-term debt $ 5,474 $ 4,888
Accounts payable 26,692 28,911
Accrued payroll 4,043 2,977
Other accrued liabilities 7,601 6,449
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Total current liabilities 43,810 43,225
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Revolving credit agreement 49,330 37,450
Term loans 28,619 28,097
Industrial revenue bonds 11,741 6,085
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Total long-term debt 89,690 71,632
--------- ---------
Deferred income taxes 5,239 3,508
--------- ---------
Total liabilities 138,739 118,365
--------- ---------
Shareholders' Equity
Preferred stock -- --
Common stock 103,732 106,319
Retained earnings 35,631 31,424
--------- ---------
Total shareholders' equity 139,363 137,743
--------- ---------
Total liabilities and shareholders' equity $ 278,102 $ 256,108
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and tonnage data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- ---------------- --------------- ---------------
(unaudited)
Tons sold
<S> <C> <C> <C> <C>
Direct 259,808 244,365 781,470 816,567
Toll 46,287 51,236 157,224 172,175
---------------- ---------------- --------------- ---------------
306,095 295,601 938,694 988,742
---------------- ---------------- --------------- ---------------
Net sales $ 125,168 $ 132,035 $ 387,863 $ 439,996
Cost of sales 94,563 104,208 294,592 347,862
---------------- ---------------- --------------- ---------------
Gross margin 30,605 27,827 93,271 92,134
Operating expenses
Warehouse and processing 8,849 9,221 25,760 26,730
Administrative and general 7,365 6,496 21,414 20,366
Distribution 4,363 4,295 13,089 13,513
Selling 3,673 3,522 11,315 10,830
Occupancy 1,086 1,035 3,438 3,196
Depreciation and amortization 1,877 1,761 5,644 5,115
---------------- ---------------- --------------- ---------------
Total operating expenses 27,213 26,330 80,660 79,750
---------------- ---------------- --------------- ---------------
Operating income 3,392 1,497 12,611 12,384
Loss from joint ventures (303) (46) (700) (251)
---------------- ---------------- --------------- ---------------
Income before financing costs and taxes 3,089 1,451 11,911 12,133
Interest expense 1,006 1,030 2,825 2,807
Receivable securitization expense 769 903 2,245 2,872
---------------- ---------------- --------------- ---------------
Income (loss) before taxes 1,314 (482) 6,841 6,454
Income taxes 506 (183) 2,634 2,453
---------------- ---------------- --------------- ---------------
Net income (loss) $ 808 $ (299) $ 4,207 $ 4,001
================ ================ =============== ===============
Net income (loss) per share $ 0.08 $ (0.03) $ 0.40 $ 0.37
================ ================ =============== ===============
Weighted average shares outstanding 10,381 10,692 10,543 10,692
================ ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(in thousands)
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,207 $ 4,001
Adjustments to reconcile net income to net
cash from (used for) operating activities-
Depreciation and amortization 5,644 5,115
Loss on sale of fixed assets -- 370
Loss from joint ventures 700 251
Long-term deferred income taxes 1,731 1,288
-------- --------
12,282 11,025
Changes in working capital:
Accounts receivable (18,321) (8,887)
Inventories 2,385 (9,339)
Prepaid expenses and other 1,027 176
Accounts payable (2,219) 2,582
Accrued payroll and other accrued liabilities 2,218 (628)
-------- --------
(14,910) (16,096)
-------- --------
Net cash used for operating activities (2,628) (5,071)
-------- --------
Cash flows from investing activities:
Facility construction and improvements (4,017) (7,329)
Equipment purchases and deposits (3,431) (10,317)
Other capital expenditures, net (1,441) (1,657)
Acquisition of JNT (net of working capital of $113) -- (755)
-------- --------
Net cash used for investing activities (8,889) (20,058)
-------- --------
Cash flows from financing activities:
Proceeds from IRB issuance 5,973 --
Unexpended IRB funds (5,824) --
Repurchase of common stock (2,587) --
Revolving credit agreement 11,880 15,744
Term loans and IRB's 791 8,556
-------- --------
Net cash from financing activities 10,233 24,300
-------- --------
Cash:
Decrease (1,284) (829)
Beginning balance 1,825 1,748
-------- --------
Ending balance $ 541 $ 919
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The accompanying consolidated financial statements have been prepared from the
financial records of Olympic Steel, Inc. (Olympic or the Company) and its
wholly-owned subsidiaries, without audit and reflect all adjustments which are,
in the opinion of management, necessary to fairly present the results of the
interim periods covered by this report. All significant intercompany
transactions and balances have been eliminated in consolidation. Investments in
the Company's joint ventures are accounted for under the equity method. Certain
amounts in the 1998 consolidated financial statements have been reclassified to
conform to the 1999 presentation.
(1) 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. The Company has
repurchased 317,800 shares at an average price of $8.12 per share through
September 30, 1999. Repurchased shares are held in treasury and are available
for general corporate purposes.
Earnings per share have been calculated based on the weighted average number of
shares outstanding. Basic and diluted earnings per share are the same, as the
effect of outstanding stock options is not dilutive.
(2) ACCOUNTS RECEIVABLE:
As of September 30, 1999, and December 31, 1998, $51 million and $57 million,
respectively, of receivables were sold under the Company's accounts receivable
securitization program. Receivables sold are reflected as a reduction of
accounts receivable in the accompanying consolidated balance sheets. In July
1999, the receivables securitization agreement was amended to extend the
agreement termination date to December 19, 2002.
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(3) LONG -TERM DEBT:
Interest rates under the Company's various credit agreements are primarily based
on LIBOR plus a premium determined quarterly, which varies with the Company's
operating performance and financial leverage. Since March 1, 1999, the LIBOR
premium has been 1.5%. The overall effective interest rate for all debt for both
the three and nine month periods ended September 30, 1999 was 6.8%, compared to
7.0% and 6.9%, for the respective periods in 1998.
The Company's bank credit agreement includes a secured $21 million term loan
component which financed the construction and equipping of the Company's temper
mill and plate processing facility in Iowa (the Iowa Term Loan). On May 30, 1999
the first annual 10% principal repayment of $2.1 million was made.
The Company did not meet a required interest coverage covenant contained in its
bank credit agreement at September 30, 1999. However, the Company and its bank
group have agreed to amend the interest coverage requirement effective September
30, 1999.
Included in the revolving credit balances on the accompanying consolidated
balance sheets are $11.7 million and $2.4 million of checks issued that have not
cleared the bank as of September 30, 1999 and December 31, 1998, respectively.
In April 1999, the Company entered into a $6 million, 5.1% fixed rate tax-exempt
industrial development bond financing agreement. Proceeds from the bonds, which
have been deposited into an escrow account and are invested in commercial paper
funds, are being used for the construction and equipping of a new $7 million,
87,000 square foot plate processing and machining facility in Chambersburg,
Pennsylvania. The loan agreement includes a 15-year, $3.1 million real estate
component, and a 10-year, $2.9 million equipment component. Quarterly repayments
commenced October 1, 1999. The Chambersburg land, building and equipment secure
the outstanding debt. Capitalized interest associated with the Chambersburg
project has totaled $158 thousand in 1999. Interest will be expensed commencing
in the fourth quarter of 1999.
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STOCK OPTIONS:
On April 23, 1999, additional non-qualified options to purchase 184,333 shares
of common stock were issued to the Company's outside directors, executive
officers and senior managers at an option price of $8.75, the market value of a
share of common stock at the grant date. As of September 30, 1999, options to
purchase 306,833 shares were outstanding, of which 101,600 were exercisable at
prices ranging from $14.63 to $15.50 per share.
(4) JOINT VENTURE:
In December 1998, the Company wrote-down its entire 45% joint venture investment
in Olympic Continental Resources LLC (OCR), a broker of scrap metal and
alternate iron products. Effective April 30, 1999, Atlas Iron Processors, Inc.
(Atlas) ownership interest in the OCR joint venture ceased, and all OCR business
transactions with Atlas also ceased.
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 $4.7
million of OCR outstanding bank debt, and simultaneously assumed all remaining
OCR receivables, inventory, and accounts payable, which are included in the
September 30, 1999, consolidated financial statements of the Company.
(5) SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the nine months ended September 30, 1999 and 1998 totaled
$2.9 million and $3.6 million, respectively. Income taxes paid during the first
nine months of 1999 and 1998 totaled $224 thousand and $3.2 million,
respectively.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's results of operations are affected by numerous external
factors, such as general economic and political conditions, competition, steel
pricing and availability, 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 Lafayette Steel and Southern 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 1999 results include the results of its JNT machining
operation, the net assets of which were acquired effective June 26, 1998. In
September 1999, the JNT operation was relocated, and is now operating from a
newly constructed 87,000 square foot plate processing and machining facility in
Chambersburg, Pennsylvania.
The Company's two joint ventures include: Olympic Laser Processing
(OLP), a company formed in April 1997 to process laser welded sheet steel blanks
for the automotive industry; and Trumark Steel & Processing (TSP), a company
formed in December 1997, to support the flat-rolled steel requirements of the
automotive industry as a Minority Business Enterprise (MBE). The Company's 50%
interest in OLP and 49% interest in TSP are accounted for under the equity
method. The Company guarantees portions of outstanding debt under both of the
joint venture companies' bank credit facilities. As of September 30, 1999,
Olympic guaranteed 50% of OLP's $17.6 million and 49% of TSP's $3.0 million of
outstanding debt on a several basis.
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OLP has constructed a new facility and has initially equipped it with
two laser-welding lines. Prototyping has begun on both welding lines and
production has begun on one line. The Company expects OLP start-up costs to
continue until both welding lines are operating at full capacity, which is not
expected to occur until the second half of 2000. TSP obtained certification as
an MBE from the Michigan Minority Business Development Council in December 1998,
and has been operating profitably since the second quarter of 1999.
Start-up costs for joint ventures have been expensed as incurred.
In December 1998, the Company wrote-down its entire 45% joint venture
investment in Olympic Continental Resources (OCR), a company formed in January
1997 to buy, sell and trade ferrous and non-ferrous metals and alternate iron
products to steel mills and scrap processors. Effective April 30, 1999, Atlas
Iron Processors, Inc. (Atlas) 45% ownership interest in the OCR joint venture
ceased, and all OCR business transactions with Atlas also ceased. 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 $4.7 million of
OCR outstanding bank debt, and simultaneously assumed all remaining OCR
receivables, inventory, and accounts payable, which are included in the
September 30, 1999, consolidated financial statements of the Company.
Financing costs include interest expense on debt and costs associated
with the Company's accounts receivable securitization program (the Financing
Costs). Interest rates paid by the Company under its credit agreement are based
on 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.
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RESULTS OF OPERATIONS
Tons sold increased 3.6% to 306 thousand in the third quarter of 1999
from 296 thousand for the third quarter of 1998, but decreased 5.1% in the first
nine months of 1999 to 939 thousand from 989 thousand in the same period of
1998. Tons sold in the third quarter of 1999 included 260 thousand from direct
sales and 46 thousand from toll processing, compared with 245 thousand direct
tons and 51 thousand tolling tons in the third quarter of last year. Tons sold
in the first nine months of 1999 included 782 thousand from direct sales and 157
thousand from toll processing, compared with 817 thousand direct tons and 172
thousand tolling tons last year. The year-to-date decrease in direct tons sold
is primarily attributable to continued weak demand from agricultural equipment
manufacturers, especially for unprocessed steel plate products, and a decline in
sales to the Company's automotive customers and other service centers. The
Company anticipates demand from agricultural-related customers to remain weak
for the foreseeable future.
Net sales decreased 5.2% to $125.2 million for the third quarter of
1999 from $132 million for 1998. For the first nine months, net sales decreased
11.8% to $387.9 million from $440 million in the prior year period. Average
selling prices declined 8.5% and 7.1% for the three and nine-month periods,
respectively, resulting from continued excessive supply and price instability in
certain product lines.
As a percentage of net sales, gross margin increased to 24.5% for the
third quarter of 1999 from 21.1% for 1998, and to 24.0% for the first nine
months of 1999 from 20.9% last year. The increases reflect the continued impact
of selling a larger proportion of processed, higher value-added steel, and
elimination of certain lower margin automotive sales. During the next several
quarters, anticipated supply-side steel price increases may pressure gross
margins, as the Company potentially may not be able to pass all such increases
to customers.
Operating expense increased 3.4% to $27.2 million from $26.3 million in
the third quarter of 1999 versus the same period last year. For the first nine
months, operating expenses increased 1.1% to $80.7 million from $79.8 million.
Due to the decline in average selling prices, operating expenses for the third
quarter increased to 21.7% of net sales, from 19.9% of net sales in 1998, but
decreased to $88.90 per ton sold from $89.07, last year. For the first nine
months of 1999, operating expenses increased to $85.93 per ton or 20.8% of net
sales, compared to $80.66 per ton or 18.1% of net sales in 1998.
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Operating expenses in 1999 include approximately $3.9 million of
incremental costs associated with the Iowa temper mill and plate processing
facility start-up, and the JNT operation, the assets of which were acquired in
June 1998. The Iowa facility is not expected to reach production capacity and
profitability until 2000 due to the continued weak demand from agricultural
equipment manufacturers. The newly constructed Chambersburg facility, which now
houses the JNT operation, is expected to incur additional start-up costs through
the remainder of 1999.
The Company engaged a strategic planning consulting firm during the
third quarter of 1999. An initial component of the strategic effort will focus
on reducing the Company's operating expenses by 7% to 10% in the year 2000, as
compared to 1999. Third and fourth quarter 1999 operating expenses include
approximately $400 thousand of costs associated with the strategic consulting
process.
Losses from joint ventures totaled $303 thousand in the third quarter
of 1999, compared to $46 thousand in 1998. For the first nine months of 1999,
losses from joint ventures totaled $700 thousand compared to $251 thousand in
1998. OLP has incurred higher start-up costs in 1999, as a result of the
facility and equipment becoming operational.
Financing Costs for the third quarter of 1999 decreased to $1.8 million
from $1.9 million in 1998. For the first nine months of 1999, Financing Costs
declined to $5.1 million from $5.7 million in 1998. Average borrowings
outstanding in the 1999 periods decreased primarily as a result of lower
inventory levels. Receivable securitization expense declined due to lower 1999
sales, resulting in less accounts receivables sold than in the comparable
periods of 1998. The Company's effective bank borrowing rate for both the third
quarter and first nine months of 1999 declined to 6.8% from 7.0% and 6.9% for
the respective periods in 1998. The Company's Premium has been 1.5% over LIBOR
since March 1, 1999. The Company's Premium is expected to increase by 25 basis
points, commencing December 1, 1999.
Pretax income for the third quarter of 1999 totaled $1.3 million
compared to a loss of $0.5 million for 1998. For the first nine months of 1999,
pretax income increased to $6.8 million from $6.5 million in 1998. Income taxes
approximated 38.5% of pretax income for the 1999 periods compared to 38% for
1998.
Net income for the third quarter of 1999 totaled $0.8 million, or $.08
per share, compared to a net loss of $0.3 million, or $.03 per share for 1998.
For the first nine months of 1999, net income totaled $4.2 million, or $.40 per
share, compared to $4.0 million, or $.37 per share in 1998.
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During the third quarter of 1999, the Company repurchased 25,000
additional shares of its Common Stock, resulting in 317,800 total shares
repurchased through September 30, 1999. Average shares outstanding totaled
10.381 million and 10.543 million for the three and nine month periods of 1999,
compared to 10.692 million for both periods of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including strategic acquisitions and joint ventures, the purchase and upgrading
of processing equipment and services, the construction and upgrading of related
facilities, and additional working capital requirements. The Company uses cash
generated from operations, long-term debt obligations, proceeds from the
Company's accounts receivable securitization program, equity offerings, and
leasing transactions to fund these requirements. Historically, the Company has
used revolving credit borrowings under its bank credit facility to finance
working capital requirements.
Net cash from operating activities primarily represents net income plus
non-cash charges for depreciation, amortization and losses from joint ventures,
as well as changes in working capital. During the first nine months of 1999,
$2.6 million of net cash was used for operating activities, consisting of $12.3
million of cash generated from net income and non-cash charges offset by $14.9
million of cash used for working capital purposes.
Working capital at September 30, 1999 increased by $13 million since
December 31, 1998. The most significant component of the working capital change
include an $18.3 million increase in accounts receivable, which is the result of
including $3.4 million of OCR's accounts receivable in the Company's
consolidated balance sheet at September 30, 1999, and traditionally stronger
September sales as compared to December sales. December historically represents
the lowest sales period of each year for the Company.
As of September 30, 1999, and December 31, 1998, $51 million and $57
million, respectively, of eligible receivables were sold under the Company's
accounts receivable securitization program. 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.
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During the first nine months of 1999, net cash used for investing
activities totaled $8.9 million, primarily consisting of $4.7 million of
progress payments spent on the new $7 million plate processing and machining
facility constructed in Chambersburg, Pennsylvania. The Company has committed to
purchase a new $4.2 million slitting and packaging line for its Detroit
operation. The equipment is expected to be installed and operational during the
second half of 2000.
Cash flows from financing activities totaled $10.2 million, and
primarily consisted of $11.9 million of net borrowings under its credit
agreement, offset by $2.6 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). The cost of purchasing such shares has been funded from the Company's
revolving credit facility. Also in April 1999, the Company entered into a $6
million, 5.1% fixed rate tax-exempt industrial development bond financing
agreement (IDB) to finance the Chambersburg project. Quarterly IDB repayments
commenced October 1, 1999.
The Company did not meet a required interest coverage covenant
contained in its bank credit agreement at September 30, 1999. However, the
Company and its bank group have agreed to amend the interest coverage
requirement effective September 30, 1999.
As of September 30, 1999, approximately $37.7 million in unused
availability existed under the Company's revolving credit and accounts
receivable securitization facilities. The Company believes that funds available
under its revolving credit facility, other credit and financing agreements and
funds generated from operations will be sufficient to provide the Company with
the liquidity necessary to fund its anticipated working capital, capital
expenditure requirements, and any additional Stock Purchases 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, acquisitions and significant improvements to
processing equipment to respond to customers' demands.
YEAR 2000 COMPLIANCE
The year 2000 (Y2K) problem refers to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or
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create erroneous results if they recognize "00" as the year 1900 rather than the
year 2000, or if they will not recognize "00" as a legitimate year value.
The Company has had a project in place since the second half of 1996 to
deal with these issues. Olympic has expensed approximately $1 million to
remediate or replace its affected systems. The project has been staffed by
in-house MIS and other personnel, with the exception of plant equipment
assessments, which were performed by outside experts.
In addressing Y2K issues, Olympic has taken initiatives in three
general areas: (i) information technology (IT) and communication systems, (ii)
non-IT systems and (iii) related third party issues. The Company remains on
budget and on schedule for the project as described in its "Year 2000
Compliance" disclosure made in its 1998 Form 10-K. Specifically, all business
application software systems have been remediated, tested, and are in use. The
Company's new Y2K compliant payroll and human resources system has been
operational since October 1, 1999. As of October 31, 1999, Olympic's only known
exception to Y2K compliance is its voice mail system. The Company has purchased
a new, Y2K compliant voice mail system, which is expected to be operational in
the fourth quarter of 1999.
The Company has also established a detailed assessment and contingency
plan for the January 1, 2000 weekend to identify and act upon any Y2K issues
that may arise.
Olympic's description of its Y2K compliance issue is based upon
information obtained by Olympic through evaluations of its IT and communication
systems, and customer and supplier Y2K compliance assurances. No assurance can
be given that the Company will be able to address the Y2K issues for all of its
software and applications in a timely manner or that it will not encounter
unexpected difficulties or significant expenses relating to adequately
addressing the Y2K issue. If Olympic or the major customers or suppliers with
whom Olympic does business fail to address adequately the Y2K issues, or Olympic
fails to successfully integrate or convert its computer systems generally,
Olympic's business or results of operations could be materially adversely
affected. The Company is unable to provide assurances for eventualities not
known in advance, or for multiple or simultaneous occurrences beyond its
capability to handle with the resources available. The Y2K disclosures presented
in this section are considered to be a "Year 2000 Readiness Disclosure" under
the provisions of the "Year 2000 Information and Readiness Disclosure Act" of
1998. For additional disclosure of the Company's Y2K program, refer to the
Company's 1998 Form 10-K, filed with the Securities and Exchange Commission on
March 19, 1999.
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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 "expect," "believe," "anticipate," "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 and agricultural
markets; work stoppages by automotive or steel manufacturers; potential
equipment malfunction; equipment installation and facility construction delays;
ramp up rates for the OLP joint venture and new Iowa and Chambersburg
facilities; Y2K issues; and the successes of its joint ventures. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected, believed, anticipated 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
16 of 17
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
OLYMPIC STEEL, INC.
(Registrant)
Date: November 12, 1999 By: /s/ R. Louis Schneeberger
-------------------------------------
R. Louis Schneeberger
Chief Financial Officer
By: /s/ Richard T. Marabito
------------------------------------
Richard T. Marabito
Treasurer and Corporate Controller
(Principal Accounting Officer)
17 of 17
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 541
<SECURITIES> 0
<RECEIVABLES> 21,417
<ALLOWANCES> 0
<INVENTORY> 119,022
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<PP&E> 153,456
<DEPRECIATION> (30,771)
<TOTAL-ASSETS> 278,102
<CURRENT-LIABILITIES> 43,810
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0
0
<COMMON> 103,732
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<SALES> 125,168
<TOTAL-REVENUES> 125,168
<CGS> 94,563
<TOTAL-COSTS> 94,563
<OTHER-EXPENSES> 27,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,006
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<EXTRAORDINARY> 0
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<NET-INCOME> 808
<EPS-BASIC> .08
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</TABLE>
