OLYMPIC STEEL INC - 10-K Annual Report

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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, 2003

( ) 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
Identification
incorporation or organization) 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. ( )

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes ( ) No (X)

As of June 30, 2003, 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 National Market on such date approximated $30,990,870.
The number of shares of Common Stock outstanding as of March 22, 2004 was
9,709,115.

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,
2003, 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.

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PART I

ITEM 1. BUSINESS

THE COMPANY

The Company is a North American steel service center with 49 years of
experience in specialized processing and distribution of large volumes of
carbon, coated carbon and stainless steel, flat-rolled sheet, and coil and plate
products from 12 facilities in eight midwestern and eastern states. The Company
also participates in two joint ventures in Michigan. Net sales for the Company
totaled $473 million in 2003. 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, and shearing and higher value-added processes of
blanking, tempering, plate burning, laser welding, and precision machining of
steel parts. In 2002 the Company ceased providing roll forming services.

The Company operates as a single business segment and 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 customers primarily located throughout
the midwestern, eastern and southern United States. Its international sales
office is located in Florida and services customers primarily in Puerto Rico and
Mexico.

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, and its website address is
www.olysteel.com.

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 steel 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 benefits to customers
purchasing products from steel service centers include 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.

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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 his
career with the Company in the early 1970's and became CEO at the end of 1983.
David Wolfort (President and COO) joined the Company as General Manager in 1984.
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
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 AND OBJECTIVES

The Company believes that the steel service center and processing industry
is 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 focused on
achieving profitable growth through the start-up, acquisition, or joint venture
partnering of service centers, processors, and related businesses, and
investments in higher value-added processing equipment and services, while
continuing its commitment to expanding and improving its sales and servicing
efforts.

The Company is focused on specific operating objectives including: (i)
increasing tons sold; (ii) controlling operating expenses in relation to sales
volumes; (iii) generating positive cash flow to reduce debt; (iv) improving
safety awareness; (v) achieving specified on-time delivery and quality
directives; and (vi) maintaining inventory turnover of approximately five times
per year. These operating objectives are supported by:

(i) Flawless execution (Fe), which is an internal program that empowers
employees to achieve profitable growth by delivering superior customer
service and exceeding customer expectations.

(ii) A set of core values which is communicated and practiced throughout
the Company.

(iii) On-going business process enhancements and redesigns to improve
efficiencies and reduce costs.

(iv) Continued evolution of information and key metric reporting to focus
managers on achieving the specific operating objectives mentioned
above.

Olympic believes its depth of management, facilities locations, processing
capabilities, information systems, focus on quality and customer service,
extensive and experienced sales force, and supplier relationships provide a
strong foundation for implementation of its strategy and achievement of its
objectives. Certain elements of the Company's strategy are set forth in more
detail below.

INVESTMENT IN VALUE-ADDED PROCESSING EQUIPMENT. Olympic has invested in
processing equipment to support customer demand and to respond to the growing
trend among capital equipment manufacturers (its customers) to outsource
non-core production processes, such as plate processing, and to concentrate on
engineering, design and assembly. 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 equipment to satisfy that demand.
The Company also evaluates its existing equipment to ensure that it remains
productive, and upgrades, replaces, redeploys, or disposes equipment when
necessary.

Investments in laser welding lines, precision machining equipment,
blankers, plate processing equipment and two customized temper mills with heavy
gauge cut to length lines have allowed the Company to further increase its
higher value-added processing services.

In the past four years, the Company has invested in two new slitters, one
for its Detroit operation, which became operational in 2000, and the other in
its Minneapolis Coil facility in 2002. Additional plate processing equipment was
installed at the Company's Minneapolis Plate facility in 2002 and 2003. The
Company believes it is among the largest processors and distributors of steel
plate in the United States. As part of its continuous
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evaluation of non-productive equipment, this new equipment has replaced multiple
pieces of older, less efficient equipment.

SALES AND MARKETING. The Company believes that its commitment to quality,
service, just-in-time delivery and field sales personnel has enabled it to build
and maintain strong customer relationships. The Company continuously analyzes
its customer base 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 servicing multi-location customers from multi-location Olympic
facilities. In addition, the Company offers business solutions to its customers
through value-added and value-engineered services. The Company also provides
inventory stocking programs and in-plant employees located at customer locations
to help reduce customers' costs.

The Company has a "Flawless execution" program (Fe), which is a commitment
to provide superior customer service while striving to exceed customer
expectations. The Fe program includes tracking actual on-time delivery and
quality performance against objectives, and initiatives 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. The sales force makes 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, technical service personnel, and product specialists who have
specific expertise in carbon and stainless steel, alloy plate and steel
fabrication. 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.

ACQUISITIONS. Over the last several years, the Company has focused on its
internal operations. It has previously made acquisitions of other steel service
centers or processors, the most recent of which was the 1998 acquisition of JNT
Precision Machining (JNT), a machining center now integrated into the Company's
Chambersburg, Pennsylvania operation.

INVESTMENTS IN JOINT VENTURES. The Company has expanded its selling and
processing capabilities for its customers by participating in the following two
joint venture relationships:

Olympic Laser Processing (OLP), a 50% owned joint venture, was formed in
1997 with the United States Steel Corporation (USS) to produce laser welded
sheet steel blanks for the automotive industry. OLP's Michigan facility is
equipped with three automated and two manual-feed laser-welding lines. Demand
for laser-welded parts is expected to continue growing due to cost benefits and
reduced scrap and auto body weight.

The Company has a 49% ownership interest in G.S.P., LLC (GSP), a joint
venture in eastern Michigan to support the flat-rolled steel requirements of the
automotive industry as a Minority Business Enterprise. On April 1, 2002, Thomas
A. Goss and Gregory F. Goss, executive officers of the Goss Group, Inc., an
insurance enterprise, assumed 51% majority ownership interest from the venture's
previous majority owners. GSP is a certified member of the Michigan Minority
Business Development Council.

MANAGEMENT. The Company believes one of its strengths is the depth of its
management. In addition to its principal executive officers, the Company's
management team includes three Regional Vice Presidents, its Vice-Presidents of
Sales and Marketing, New Business Development, Operations Management, and Human
Resources, eight General Managers, its Directors of Materials Management and
Corporate Projects, 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 23 years of experience in the steel industry and 10 years
with the Company.

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.
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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, and shearing 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. 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. In 2002, the Company closed its tube
processing operation and ceased offering roll forming services to its customers.

The following table sets forth the major pieces of processing equipment in
operation by geographic region:

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(a) Consists of four facilities located in Connecticut, Pennsylvania and
Georgia.

(b) Consists of four facilities located in Illinois, Minnesota and Iowa.

(c) Consists of three adjacent facilities located in Ohio.

(d) Consists of one facility located in Michigan, primarily serving the
automotive industry.

(e) Consists of two facilities located in Michigan, primarily serving the
automotive industry.

(f) In addition to the temper mills located in Cleveland and Iowa, tempering
includes press brake equipment.

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. In addition, the
Philadelphia, Georgia, Detroit, and both Minneapolis operations are ISO 9002
certified. The Detroit operation has earned Ford's Q1 quality rating, and is
also QS-9000 certified. The GSP and OLP joint ventures are QS-9000 and ISO 9002
certified and OLP is ISO 14001 certified. The Cleveland operation earned ISO
9000-2000 certification in 2003. The Company has a quality testing lab adjacent
to its temper mill facility in Cleveland.

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CUSTOMERS AND DISTRIBUTION

The Company has a diversified customer and geographic base, which reduces
the inherent risk and cyclicality of its business. The concentration of net
sales to the Company's top 20 customers approximated 32% of net sales in 2003
compared to 26% in 2002. In addition, the Company's largest customer accounted
for approximately 5% of net sales in 2003 compared to 4% in 2002. The Company
serves customers in most carbon steel consuming industries, including
manufacturers and fabricators of transportation and material handling equipment,
automobiles, construction and farm machinery, storage tanks, environmental and
energy generation 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 14% and 11%, respectively, of the Company's
net sales in 2003, and 17% and 13% of net sales in 2002.

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. Products sold to foreign customers 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 larger customers commit to purchase on a regular
basis at agreed upon prices ranging from three to twelve months. To mitigate
price volatility risks, these fixed price commitments are generally matched with
corresponding supply arrangements. Customers notify 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 supply relationships with high-quality
steel producers, using a coordinated effort to be the customer of choice for
business critical suppliers. The Company employs sourcing strategies maximizing
the quality, production and transportation economies of a global supply base.
Olympic is an important 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, combined with
its long-standing and continuous prompt pay practices, will continue to be an
important factor in maintaining strong relationships with steel suppliers. The
Company purchases flat-rolled steel at regular intervals from a number of
domestic and foreign producers of primary steel. The steel producing supply base
has experienced significant consolidation, and the Company believes that its
relationships with its suppliers are good. The Company has no long-term
commitments with any of its suppliers. The Company purchased approximately 27%
and 11% of its total steel requirements from its single largest supplier in 2003
and 2002, respectively. The increased concentration is the result of domestic
steel mill consolidation in 2003.

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 more flexibility and greater financial and operating resources than the
Company.

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With the exception of certain Canadian operations, foreign-located steel
service centers are generally not a material competitive factor in the Company's
principal domestic markets.

MANAGEMENT INFORMATION SYSTEMS

Information systems are a critical component of Olympic's strategy. The
Company has invested in technologies and human resources required in this area.
The Company believes that its information systems provide it with an 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
and on-time delivery 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 has invested in various communications and
workgroup technologies which enable employees to remain effective and
responsive.

E-COMMERCE AND ADVANCED CUSTOMER INTERACTION. The Company is actively
involved in electronic commerce initiatives, including both Company-sponsored
initiatives and participation in customer e-procurement initiatives. Olympic has
implemented extranet sites for specific customers, which are integrated with the
Company's internal business systems to streamline the costs and time associated
with processing electronic transactions.

The Company continues to actively seek opportunities to utilize information
technologies to reduce costs and improve services within Olympic and across the
steel supply chain. This includes working with individual steel producers and
customers, and participating in industry sponsored groups to develop information
processing standards to benefit those in the supply chain.

In 2002, the Company suspended its project to implement a new internally
developed management information system. The project was initiated to integrate
the Company's existing three business systems into a common foundation. As a
result of this decision, the Company recorded $1.7 million of accelerated
depreciation in the fourth quarter of 2002.

EMPLOYEES

At December 31, 2003, the Company employed 812 people. Approximately 226 of
the Company's hourly plant personnel at its Minneapolis and Detroit facilities
are represented by four separate collective bargaining units. In April 2003, the
Company's collective bargaining agreement covering its Minneapolis plate
processing facility was renewed to March 31, 2006. In June 2003, the Company's
collective bargaining agreement covering its Detroit's hourly plant maintenance
personnel was renewed to June 30, 2007.

The collective bargaining agreements covering hourly plant employees at the
Company's Detroit and Minneapolis coil facilities expire on June 30, 2004 and
September 30, 2005, respectively. The Company has never experienced a work
stoppage and believes that its relationship with its employees is good. However,
any prolonged disruption in business arising from work stoppages by Company
personnel represented by collective bargaining units could have a material
adverse effect on the Company's results of operations.

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
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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."

In January 2004, the Company filed a trademark application for its
stainless steel sheet and plate product "Oly Flat-Brite", which has a unique
combination of surface finish and flatness.

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 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 and political
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 cost of steel 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 costed product result in lower selling prices and, as the Company uses
existing steel inventory, lower gross profits. Changing steel prices therefore
could adversely affect the Company's net sales, gross profit and net income.

Beginning in the second half of 2000 and continuing through the third
quarter of 2003, demand for steel was impacted by a cyclical downturn in the
U.S. economy, impacting the Company's business through decreasing volumes. In
the fourth quarter of 2003, the Company experienced an increase in demand for
its products. Since the beginning of 2004, steel producers have significantly
increased their prices due to the following factors: product demand, raw
material surcharges, producer consolidation, supply constraints and longer lead
times. During the first quarter of 2004, the Company has generally been able to
pass these increased prices and surcharges on to its customers. However, the
Company may not be able to continue to pass on material price increases in the
future. These factors could also lead to disruptions in the Company's ability to
meet its customers material requirements.

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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 14% and 17% of the Company's net sales in 2003 and
2002, 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 employee
wages and benefits, transportation services, processing equipment, purchased
steel, energy, and borrowings under the Company's credit facility. Inflation has
not had a material effect on the Company's financial results during the past
three years.

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 costed
product result in lower selling prices and, as the Company uses existing steel
inventory, lower gross profits. Declining steel prices have generally adversely
affected the Company's net sales and net income over the past three years.
However, since the fourth quarter of 2003, the Company has experienced an
increase in demand and prices for its products.

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,
economic and political conditions; competitive factors such as the availability
and pricing of steel and fluctuations in customer demand; layoffs or work
stoppages by the Company's, suppliers', or customers' personnel; equipment
malfunctions or installation delays; the adequacy of information technology and
business system software investment; the successes of its joint ventures; the
successes of the Company's strategic efforts and initiatives to increase sales
volumes, improve cash flows and reduce debt, maintain or improve inventory turns
and reduce its costs; and customer, supplier, and competitor consolidation or
insolvency. Should one or more of these or other 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.

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ITEM 2. PROPERTIES

The Company believes that its properties are strategically situated
relative to its domestic suppliers, 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 is 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:

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(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 lease on this facility expires on December 31, 2004. The Company is
evaluating its end of lease options.

The Company owns a 118,000 square foot facility in Cleveland, Ohio that
previously housed its roll forming operation, which was discontinued in 2002.
This facility is included in "Assets Held for Sale" on the accompanying
consolidated balance sheets.

The Company's international sales office is located in Jacksonville,
Florida. The Company also participates 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 the Company's debt agreements. Management believes
that the Company will be able to accommodate its capacity needs for the
immediate future at its existing facilities.

10

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 51, 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
Board of Directors of the Metals Service Center Institute (MSCI). He previously
served as National Chairman of Israel Bonds and presently serves as Vice
Chairman 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 51, has served as President since January 2001 and
Chief Operating Officer since 1995. He has been a director of the Company since
1987. He previously served as Vice President Commercial from 1987 to 1995, after
having joined the Company in 1984 as General Manager. 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 a director of the
MSCI and previously served as Past Chairman of MSCI's Political Action Committee
and Governmental Affairs Committee. He is also a member of the Northern Ohio
Regional Board of the Anti-Defamation League.

Richard T. Marabito, age 40, serves as the Company's Chief Financial
Officer (CFO). He also served as Treasurer from 1994 through 2002. He joined the
Company in 1994 as Corporate Controller and served in this capacity 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 department. Mr.
Marabito also serves as a director for the Company's OLP LLC joint venture, and
is a member of the Board of Trustees for the MSCI's Foundation for Continuing
Education.

Heber MacWilliams, age 60, serves as Chief Information Officer, 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. He is a member of
the MSCI Information Technology Committee, and is a member and past president of
the Northeast Ohio Chapter of the Society for Information Management. Mr.
MacWilliams is also a member of the faculty of the Weatherhead School of
Management at Case Western Reserve University in Cleveland, Ohio.

Richard A. Manson, age 35, has served as the Company's Treasurer since
January 2003, and has been employed by the Company since 1996. From 1996 through
2002, he served as Director of Taxes and Risk Management. Prior to joining the
Company, Mr. Manson was employed for seven years by Arthur Andersen LLP in its
tax department. Mr. Manson is a member of the Ohio Society of Certified Public
Accountants and the American Institute of Certified Public Accountants.

11

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 the Nasdaq National Market under the
symbol "ZEUS." The following table sets forth, for each quarter in the two year
period ended December 31, 2003, the high and low closing prices of the Company's
Common Stock as reported by the Nasdaq National Market:

HOLDERS OF RECORD

On March 12, 2004, the Company believed there were approximately 2,400
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 or upgrading of
its business. The Company 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 current restrictions under the Company's credit agreement.

12

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, 2003. 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.

- ---------------

(a) Net sales generated from toll tons sold represented less than 3% of
consolidated net sales for all years presented.

13

(b) In June 2002, the Company decided to close its unprofitable tube processing
operation (Tubing) in Cleveland, Ohio. In accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," Tubing has been accounted for as a
discontinued operation. As a result, Tubing's after-tax losses are shown
separate from the Company's results from continuing operations.

(c) As a result of the adoption of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," the Company wrote-off its
entire goodwill amount in 2002 as a cumulative effect of a change in
accounting principle.

(d) Calculated by dividing net income (loss) by weighted average shares
outstanding. There was no dilution for any of the periods presented.

(e) 2000 and 1999 reflect the sale of $48,000 and $52,000, respectively, of
accounts receivable under the Company's former accounts receivable
securitization program which was terminated in June 2001.

14

ITEM 7. 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 business, economic and political conditions, steel
pricing and availability, customer demand for steel, labor costs, production
levels, competition, steel import levels, import duties and tariffs, currency
exchange rates, and layoffs or work stoppages by suppliers' or customers'
personnel.

Olympic sells a broad range of products, many of which have different gross
profits. Products that have more value-added processing generally have a greater
gross profit. Accordingly, the Company's overall gross profit is affected by
product mix and the amount of processing performed, as well as volatility in
selling prices and material purchase costs. In 2003, gross profits declined
primarily as a result of competitive pressures attributable to weak demand for
steel during most of 2003 coupled with selling higher-priced steel purchased
during tight supply conditions experienced in 2002. During the first half of
2004 the Company anticipates higher gross profits, resulting from its use of
inventoried steel purchased prior to the recent increases in steel prices. As
the year continues and the Company replenishes its inventories, the Company
expects its gross profit to decrease from that anticipated during the first half
of the year.

The Company performs toll processing of customer-owned steel, the majority
of which is performed by its Detroit and Georgia operations. As of January 1,
2003, the Company reclassified internal processing costs for toll processing
sales from cost of materials sold to operating expenses. Prior year results have
been reclassified to conform to the current year presentation. Net sales dollars
generated from toll processing represented less than 3% of consolidated net
sales in each of the last 3 years.

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 G.S.P., LLC (GSP), a certified Minority Business Enterprise
company supporting the flat-rolled steel requirements of the automotive
industry. The Company's 50% interest in OLP and 49% interest in GSP 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, 2003, Olympic guaranteed 50% of OLP's $16.4
million and 49% of GSP's $1.7 million of outstanding debt on a several basis.

In 2002, the Company closed its unprofitable tube processing operation
(Tubing) in Cleveland, Ohio. In accordance with Statement of Financial
Accounting Standards No. 144 (SFAS No. 144), "Accounting for the Impairment or
Disposal of Long-Lived Assets," Tubing has been accounted for as a discontinued
operation. As a result, Tubing's after-tax operating losses of $1.0 million in
2002 and $559 thousand in 2001 are shown separate from the Company's results
from continuing operations. In addition, a $1.6 million after-tax charge for the
costs of the Tubing closure is included in the 2002 consolidated statement of
operations. This non-cash charge primarily relates to the write down of Tubing's
property and equipment to estimated fair value less costs to sell in accordance
with SFAS No. 144. The fair value of the Tubing property and equipment was
determined by independent appraisal. In December 2002, the Company sold the
Tubing equipment for $1.3 million (its approximate appraised and net book value)
and used the proceeds from the sale to reduce debt. The Tubing real estate is
recorded as "Assets Held for Sale" on the accompanying December 31, 2003
consolidated balance sheet for $637 thousand.

Because the Company conducts its operations generally on the basis of
short-term orders, backlog is not a meaningful indicator of future performance.

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from these estimates under different assumptions or conditions. On an

15

ongoing basis, the Company monitors and evaluates its estimates and assumptions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in preparation of its consolidated
financial statements:

Allowance for Doubtful Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The allowance is maintained at a level considered appropriate based on
historical experience and specific customer collection issues that the Company
has identified. Estimation of such losses requires adjusting historical loss
experience for current economic conditions and judgments about the probable
effects of economic conditions on certain customers. The Company can not
guarantee that the rate of future credit losses will be similar to past
experience. The Company considers all available information when assessing each
quarter the adequacy of its allowance for doubtful accounts.

Inventory Valuation

The Company's inventories are stated at the lower of cost or market and
include the costs of the purchased steel, internal and external processing, and
inbound freight. Cost is determined using the specific identification method.
The Company regularly reviews its inventory on hand and records provisions for
obsolete and slow-moving inventory based on historical and current sales trends.
Changes in product demand and the Company's customer base may affect the value
of inventory on hand, which may require higher provisions for obsolete or
slow-moving inventory.

Impairment of Long-Lived Assets

The Company evaluates the recoverability of long-lived assets and the
related estimated remaining lives whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Events or changes in
circumstances which could trigger an impairment review include significant
underperformance relative to the expected historical or projected future
operating results, significant changes in the manner of the use of the acquired
assets or the strategy for the overall business or significant negative industry
or economic trends. The Company records an impairment or change in useful life
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable or the useful life has changed.

Income Taxes

The Company records operating loss and tax credit carryforwards and the
estimated effect of temporary differences between the tax basis of assets and
liabilities and the reported amounts in its consolidated balance sheets. The
Company follows detailed guidelines in each tax jurisdiction when reviewing tax
assets recorded on the balance sheet and provides for valuation allowances as
required. Deferred tax assets are reviewed for recoverability based on
historical taxable income, the expected reversals of existing temporary
differences, tax planning strategies, and projections of future taxable income.
The projections of future taxable income require assumptions regarding volume,
selling prices, gross profits, expense levels and industry cyclicality. If the
Company is unable to generate sufficient future taxable income in certain tax
jurisdictions, the Company will be required to record a valuation allowance
against its deferred tax assets.

Revenue Recognition

Revenue is recognized in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition." For both
direct and toll shipments, 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 and are immaterial to the consolidated financial statements.

16

RESULTS OF OPERATIONS

The following table sets forth certain income statement data expressed as a
percentage of net sales:

2003 COMPARED TO 2002

Tons sold increased 2.0% to 1.18 million in 2003 from 1.16 million in 2002.
Tons sold in 2003 included 996 thousand from direct sales and 185 thousand from
toll processing, compared with 1.0 million from direct sales and 154 thousand
from toll processing in 2002. The Company experienced a significant increase in
customer demand in the fourth quarter of 2003, which has continued into the
first quarter of 2004.

Net sales increased $13.2 million, or 2.9%, to $472.5 million in 2003 from
$459.4 million in 2002. Average selling prices increased 0.9% in 2003 from 2002.

As a percentage of net sales, gross profit decreased to 21.1% in 2003 from
23.9% in 2002. The gross profit decline was primarily the result of competitive
pressures attributable to weak demand for steel during most of 2003 coupled with
selling higher-priced steel purchased during tight supply conditions experienced
in 2002.

Operating expenses decreased $4.2 million, or 4.1%, to $99.7 million in
2003 from $103.9 million in 2002. As a percentage of net sales, operating
expenses in 2003 decreased to 21.1% from 22.6% in 2002. On a per ton sold basis,
operating expenses in 2003 decreased to $84.39 from $89.73 in 2002. Operating
expenses in 2003 included $4.0 million of bad debt expense (recorded as a
component of "Selling" expense on the Consolidated Statements of Operations)
compared to $1.1 million of bad debt expense in 2002. The increase in bad debt
expense primarily related to a receivable from a customer that unexpectedly
filed for bankruptcy protection in December 2003, which was deemed
uncollectible. Operating expenses in 2002 included a $1.7 million accelerated
depreciation charge for previously capitalized software development costs
associated with suspension of the Company's internal business system development
project.

The Company's share of losses from its OLP and GSP joint ventures totaled
$1.0 million in 2003, compared to income of $606 thousand in 2002. The Company's
share of OLP's loss totaled $863 thousand in 2003, compared to income of $721
thousand in 2002. OLP's earnings declined in 2003 as a result of lower than
expected program sales, a decline in higher margin prototype sales, laser
equipment downtime and related additional labor costs. The Company's share of
GSP's loss totaled $149 thousand in 2003, compared to $115

17

thousand in 2002. GSP's loss increased as a result of higher priced inventory
which was not fully offset by price increases to customers.

Financing costs decreased $3.9 million, or 48.5%, to $4.2 million in 2003
from $8.1 million in 2002. The decrease is primarily the result of a $2.1
million charge recorded in 2002 to write-off deferred financing fees related to
the Company's refinancing. The Company's new credit facility, as well as a
decline in the federal funds rate, also contributed to the decreased financing
costs. The Company's average borrowing rate decreased to 4.6% in 2003 from 5.7%
in 2002. Average borrowing levels increased approximately $4.5 million between
years.

Loss from continuing operations before income taxes and cumulative effect
of a change in accounting principle totaled $5.0 million in 2003 compared to
$1.6 million in 2002. An income tax benefit of 34.8% and 38.5% was recorded in
2003 and 2002, respectively. The decline in the effective income tax rate was
primarily attributable to a lower federal statutory rate, expiration of certain
state tax credits, and the impact of non-deductible expenses on a lower taxable
loss base.

Loss from the discontinued Tubing operation, net of a 38.5% income tax
benefit, totaled $1.0 million in 2002. Loss on disposition of the discontinued
Tubing operation, net of a 38.5% income tax benefit, totaled $1.6 million in
2002. This non-cash charge primarily related to the write down of Tubing's
property and equipment to estimated fair value less costs to sell.

Included in the Company's 2002 net loss is an after-tax charge of $2.1
million from the Company's adoption of Financial Accounting Standards Board
Statement No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets."

Net loss totaled $3.3 million, or $.34 per share in 2003, compared to a net
loss of $5.8 million, or $.60 per share in 2002.

The 2002 net loss included the non-cash, after-tax effects of $1.0 million
for accelerated depreciation, $1.3 million for accelerated deferred financing
fee amortization, $1.6 million to write-down Tubing's property and equipment,
and $2.1 million to write-off goodwill.

Basic weighted average shares outstanding totaled 9.6 million in both 2003
and 2002.

2002 COMPARED TO 2001

Tons sold increased 8.6% to 1.16 million in 2002 from 1.07 million in 2001.
Tons sold in 2002 included 1.0 million from direct sales and 154 thousand from
toll processing, compared with 936 thousand from direct sales and 131 thousand
from toll processing in 2001. The increases in direct and toll tons sold were
primarily attributable to the Company's automotive customer base.

Net sales increased $54.6 million, or 13.5%, to $459.4 million in 2002 from
$404.8 million in 2001. Average selling prices increased 4.5% in 2002 from 2001.

As a percentage of net sales, gross profit decreased to 23.9% in 2002 from
25.4% in 2001. The gross profit decline was the result of significant increases
in the Company's material purchase costs experienced during the first 9 months
of 2002. Material costs increased as a result of tightening steel supply caused
by the idling or closure of domestic steel production facilities as well as U.S.
government imposed import restrictions placed on certain steel products.
Although the Company was generally successful in passing on price increases to
its customers, competitive pressures on pricing in its market segments resulted
in lower gross profits compared to 2001.

Operating expenses increased $4.1 million, or 4.1%, to $103.9 million in
2002 from $99.9 million in 2001. Operating expenses in 2002 included a $1.7
million accelerated depreciation charge for previously capitalized software
development costs associated with suspension of the Company's internal business
system development project. Excluding this charge, operating expenses in 2002
increased 2.4% from 2001, primarily as a result of increased sales volumes. As a
percentage of net sales, operating expenses in 2002 decreased to 22.6% from
24.7% in the comparable 2001 period. On a per ton sold basis, operating expenses
in 2002 decreased to $89.73

18

from $93.60 in 2001. Excluding the accelerated depreciation charge, operating
expenses totaled 22.3% of net sales or $88.30 per ton sold in 2002.

The Company's share of income from its OLP and GSP joint ventures totaled
$606 thousand in 2002, compared to a loss of $160 thousand in 2001. The
Company's share of OLP's income totaled $721 thousand in 2002, compared to a
loss of $192 thousand in 2001. The Company's share of GSP's loss totaled $115
thousand in 2002, compared to income of $32 thousand in 2001.

Financing costs increased $338 thousand, or 4.4%, to $8.1 million in 2002
from $7.7 million in 2001. During the third quarter of 2002, the Company's then
existing credit facility was amended to allow the Company to prepay and
permanently reduce $10.0 million of higher cost term debt. The Company borrowed
$10.0 million from the revolver component of its credit facility to pay down the
term debt. In connection with the prepayment, the agent bank waived $617
thousand of deferred pay interest, which the Company previously expensed. On
December 30, 2002, the Company completed a refinancing of its credit facility.
In connection with the refinancing, the prior agent bank waived an additional
$861 thousand of deferred pay interest, which the Company previously expensed.
Both of the waivers of deferred pay interest have been recorded as a reduction
to interest and other expense on debt in 2002, offset by $2.1 million of
accelerated non-cash deferred financing fee amortization related to the early
termination of the refinanced debt. The Company's average borrowing rate
decreased to 5.7% in 2002 from 8.8% in 2001. Average borrowings levels declined
approximately $5.4 million between years.

Loss from continuing operations before income taxes and cumulative effect
of a change in accounting principle totaled $1.6 million in 2002 compared to
$5.0 million in 2001. An income tax benefit of 38.5% was recorded for both 2002
and 2001.

Loss from the discontinued Tubing operation, net of a 38.5% income tax
benefit, totaled $1.0 million and $559 thousand for 2002 and 2001, respectively.
Loss on disposition of the discontinued Tubing operation, net of a 38.5% income
tax benefit, totaled $1.6 million in 2002. This non-cash charge primarily
related to the write down of Tubing's property and equipment to estimated fair
value less costs to sell.

Included in the Company's 2002 net loss is an after-tax charge of $2.1
million from the Company's adoption of Financial Accounting Standards Board
Statement No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets."

Net loss totaled $5.8 million, or $.60 per share in 2002, compared to a net
loss of $3.6 million, or $.38 per share in 2001.

The 2002 net loss included the non-cash, after-tax effects of $1.0 million
for accelerated depreciation, $1.3 million for accelerated deferred financing
fee amortization, $1.6 million to write-down Tubing's property and equipment,
and $2.1 million to write-off goodwill.

Basic weighted average shares outstanding totaled 9.6 million in both 2002
and 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements are to fund its working
capital needs, the purchase and upgrading of processing equipment and
facilities, and its investments in joint ventures. The Company uses cash
generated from operations, leasing transactions, and its credit facility to fund
these requirements.

Working capital at December 31, 2003 decreased $5.5 million from the end of
2002. The decrease is primarily attributable to a $9.1 million decrease in
inventory and a $4.0 million decrease in prepaid expenses offset by an $8.9
million increase in accounts receivable. The accounts receivable increase and
inventory decrease were primarily the result of increased sales levels
experienced during the last three months of 2003. Prepaid expenses declined due
to a $1.9 million reduction in the Company's deferred tax asset as a result of
an income tax refund, and a $1.6 million reimbursement of deposits made in 2002
for new equipment that was subsequently leased. Prepaid expenses and other on
the consolidated balance sheets declined an additional $2.6 million due to an
escrow deposit made in 2002 to prepay industrial revenue bonds, which was
applied to long-term debt in 2003.

19

This item is reflected under cash flows from financing activities on the
consolidated statements of cash flows in 2003 and 2002.

Net cash from operating activities primarily represents net losses plus
non-cash charges for depreciation, amortization and income or losses from joint
ventures, as well as changes in working capital. During 2003, $12.1 million of
net cash was generated from operating activities, consisting of $4.5 million of
cash generated from earnings and non-cash items and $7.6 million of cash from
working capital purposes.

Net cash used for investing activities in 2003 totaled $1.5 million,
consisting of $836 thousand of capital spending and $2.0 million of cash
contributed to OLP, offset by $1.3 million of proceeds from the disposition of
the Company's discontinued Tubing operation equipment. Capital spending in 2003
was limited to upgrades to the Company's existing buildings and equipment and
information technology. Capital spending for 2004 is expected to be less than $5
million.

Net cash used for financing activities totaled $9.2 million, and primarily
consisted of scheduled principal repayments under the Company's debt agreements
and paydowns on the Company's revolving credit agreement

On December 30, 2002, the Company refinanced its 3-year, $125 million
secured financing agreement (the Refinanced Credit Facility) with a new 3-year,
$132 million secured bank-financing agreement (the New Credit Facility). Funding
under the New Credit Facility occurred on January 2, 2003, and proceeds were
used to pay off outstanding borrowings under the Refinanced Credit Facility,
certain industrial revenue bonds and term debt.

The New Credit Facility is collateralized by the Company's accounts
receivable, inventories, and substantially all property and equipment. The New
Credit Facility expires on December 15, 2005, with two additional annual
extensions at the banks' option. Revolver borrowings are limited to the lesser
of a borrowing base, comprised of eligible receivables and inventories, or $90
million in the aggregate. The Company has the option to borrow based on the
agent bank's base rate or Eurodollar Rates (EURO) plus a Premium. Each quarter,
the Premiums may increase or decrease based on the Company's debt service
coverage performance.

The New Credit Facility includes a $12 million equipment term loan and a
$30 million real estate term loan. Monthly term loan principal payments of $367
thousand commenced in February 2003.

The New Credit Facility requires the Company to comply with various
covenants, the most significant of which include: (i) minimum excess
availability of $10 million, tested monthly, (ii) a minimum fixed charge
coverage ratio of 1.25, and maximum leverage ratio of 1.75, which are tested
quarterly, (iii) restrictions on additional indebtedness, and (iv) limitations
on capital expenditures. The Company obtained a waiver for non-compliance with
its fixed charge coverage ratio at December 31, 2003. The failure to comply was
primarily the result of a bad debt charge related to a receivable from a
customer that unexpectedly filed for bankruptcy protection in December 2003,
which was deemed uncollectible. The waiver allows the Company to exclude the bad
debt charge from all future fixed charge coverage tests. At December 31, 2003
availability under the New Credit Facility totaled $27.4 million.

The Company incurred $2.2 million of New Credit Facility closing fees and
expenses, which have been capitalized and included in "Deferred Financing Fees,
Net" on the Company's consolidated balance sheets. These costs are amortized to
interest and other expense on debt over the 3-year term of the agreement.

The Company believes that funds available under its New Credit Facility,
together with funds generated from operations, will be sufficient to provide the
Company with the liquidity necessary to fund its anticipated working capital
requirements, capital expenditure requirements, and scheduled debt maturities
over the next 12 months. Capital requirements are subject to change as business
conditions warrant and opportunities arise.

20

CONTRACTUAL OBLIGATIONS

The following table reflects the Company's contractual obligations as of
December 31, 2003. Open purchase orders for raw materials and supplies used in
the normal course of business have been excluded from the following table.

As of December 31, 2003, Olympic guaranteed 50% of OLP's $16.4 million and
49% of GSP's $1.7 million of outstanding debt on a several basis. These
guarantees were a requirement of the joint venture companies financing
agreements.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of long-
lived assets and discontinued operations. The Company adopted SFAS No. 144 on
January 1, 2002. See Note 2, "Discontinued Operations," for the impact of
adoption of SFAS No. 144 on the Company's financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 (SFAS No. 146), "Accounting for Exit or Disposal Activities." SFAS No.
146 addresses issues related to the recognition, measurement, and reporting of
costs associated with exit and disposal activities including restructuring
activities. SFAS No. 146 requires liabilities associated with exit or disposal
activities to be expensed as incurred and will impact the timing of recognition
for exit or disposal activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material impact on the Company's
financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Guarantees of Indebtedness of Others." The interpretation requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that obligation. The Company adopted
the disclosure provisions of FIN 45 effective for the year ended December 31,
2002. The provisions for initial recognition and measurement of guarantees
became effective for the Company beginning January 1, 2003. The adoption of the
recognition provision of FIN 45 did not have a material impact on the Company's
financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or in which equity investors do not bear the
residual economic risks. The interpretation was immediately applicable to
variable interest entities (VIE's) created after January 31, 2003, and to VIE's
in which an enterprise obtains an interest after that date. As originally
issued, it applied in the fiscal year or interim period beginning after June 15,
2003, to VIE's in which an enterprise holds a variable interest that was
acquired before February 1, 2003. In October 2003, the FASB issued FASB Staff
Position No. 46-6, which defers the effective date for FIN 46 to the first
interim or annual period ending after March 15, 2004 for non-special-purpose
entity VIE's created before February 1, 2003. The Company is evaluating the
impact of the adoption of FIN 46 on its financial statements.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's business has been impacted by decreasing volumes and
fluctuating prices starting in the second half of 2000 and continuing through
the third quarter of 2003, due to softening demand from customers in

21

the manufacturing sector of the U.S. economy and domestic steel mill
consolidation. Since the fourth quarter of 2003, the Company has experienced an
increase in demand and prices for its products. The Company is unable to predict
the duration of the current upturn in the economic cycle. Since the beginning of
2004, steel producers have significantly increased prices and have imposed
significant material surcharges, and there are indications of impending material
shortages. Although the Company has generally been successful in passing the
increased costs and surcharges on to its customers, it is possible that the
Company may not be able to obtain all the material required by its customers or
pass the increased material costs fully to its customers due to the competitive
nature of the business. The Company is working closely with both customers and
suppliers to minimize any negative impact.

The Company is exposed to the impact of interest rate changes and
fluctuating steel prices. The Company has not entered into any interest rate or
steel commodity hedge transactions for speculative purposes or otherwise.

Inflation generally affects the Company by increasing the cost of employee
wages and benefits, transportation services, processing equipment, purchased
steel, energy, and borrowings under the Company's credit facility. Inflation has
not had a material effect on the Company's financial results during the past
three years. 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 costed product result in lower selling prices. Declining steel prices have
generally adversely affected the Company's net sales and net income over the
past three years.

Olympic's primary interest rate risk exposure results from variable rate
debt. If interest rates were to increase 100 basis points (1.0%) from December
31, 2003 rates, and assuming no changes in debt from December 31, 2003 levels,
the additional annual interest expense to the Company would be approximately
$1.0 million. The Company currently does not hedge its exposure to variable
interest rate risk. However, the Company has the option to enter into 30 to 180
day fixed base rate EURO loans under the New Credit Facility.

22

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and
the Board of Directors of
Olympic Steel, Inc.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of
Olympic Steel, Inc. and its subsidiaries at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and the impairment and
disposal of long-lived assets effective January 1, 2002.

PricewaterhouseCoopers LLP

Cleveland, Ohio
February 9, 2004

23

ITEM 8. FINANCIAL STATEMENTS

OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(in thousands, except per share data)

The accompanying notes are an integral part of these statements.
24

OLYMPIC STEEL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND 2002
(in thousands)

The accompanying notes are an integral part of these balance sheets.
25

OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(in thousands)

The accompanying notes are an integral part of these statements.
26

OLYMPIC STEEL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(in thousands)

The accompanying notes are an integral part of these statements.
27

OLYMPIC STEEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
(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. Certain amounts in the 2002 and 2001 consolidated financial statements
have been reclassified to conform with the current year presentation with no
effect on net income or shareholders' equity.

NATURE OF BUSINESS

The Company is a North American steel service center with 49 years of
experience in specialized processing and distribution of large volumes of
carbon, coated carbon and stainless steel, flat-rolled sheet, and coil and plate
products from 12 facilities in eight midwestern and eastern states. The Company
operates as one business segment.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 27% and 11% of its total steel requirements from
its single largest supplier in 2003 and 2002, respectively. The increased
concentration is the result of domestic steel mill consolidation in 2003.

The Company has a diversified customer and geographic base, which reduces
the inherent risk and cyclicality of its business. The concentration of net
sales to the Company's top 20 customers approximated 32% of net sales in 2003
compared to 26% in 2002. In addition, the Company's largest customer accounted
for approximately 5% of net sales in 2003 and 4% in 2002. 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 14% and 11%, respectively, of the Company's net
sales in 2003, and 17% and 13% of net sales in 2002.

INVENTORIES

Inventories are stated at the lower of cost or market and include the costs
of purchased steel, inbound freight, external processing, and applicable labor
and overhead costs related to internal processing. 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 of the assets ranging
from 3 to 30 years (30 years for buildings and 10-15 years for machinery and
equipment). In the fourth quarter of 2002, the Company recorded $1,656 of
accelerated

28

depreciation of previously capitalized software development costs associated
with suspension of its internal business system development project.

INCOME TAXES

The Company records operating loss and tax credit carryforwards and the
estimated effect of temporary differences between the tax basis of assets and
liabilities and the reported amounts in its consolidated balance sheets. The
Company follows detailed guidelines in each tax jurisdiction when reviewing tax
assets recorded on the balance sheet and provides for valuation allowances as
required. If the Company were to continue to incur losses before taxes in 2004,
it would be necessary to reassess the need for a valuation allowance.

GOODWILL

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets," which
requires that the Company cease amortization of goodwill and conduct periodic
impairment tests of goodwill. The Company estimated the fair value of its
reporting units using a present value method that discounted future cash flows.
The cash flow estimates incorporate assumptions on future cash flow growth,
terminal values and discount rates. Any such valuation is sensitive to these
assumptions. Because the fair value of each reporting unit was below its
carrying value (including goodwill), application of SFAS No. 142 required the
Company to complete the second step of the goodwill impairment test and compare
the implied fair value of each reporting unit's goodwill with the carrying value
of that goodwill. As a result of this assessment, the Company recorded a
non-cash, before tax impairment charge of $3,415 ($2,117 after-tax) to write-off
the entire goodwill amount as a cumulative effect of a change in accounting
principle.

The following table presents a comparison of the 2003 results to 2002 and
2001 results adjusted to exclude goodwill amortization expense:

REVENUE RECOGNITION

Revenue is recognized in accordance with the Securities and Exchange
Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition." For both
direct and toll shipments, 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

29

are provided for based on historical experience and current estimates and are
immaterial to the consolidated financial statements.

SHIPPING AND HANDLING FEES AND COSTS

The Company classifies all amounts billed to a customer in a sales
transaction related to shipping and handling as revenue. Additionally, the
Company classifies costs incurred for shipping and handling to the customer as
"Distribution" expense in its consolidated statements of operations.

IMPAIRMENT

The Company evaluates the recoverability of long-lived assets, other than
goodwill, and the related estimated remaining lives whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. Events
or changes in circumstances which could trigger an impairment review include
significant underperformance relative to the expected historical or projected
future operating results, significant changes in the manner of the use of the
acquired assets or the strategy for the overall business or significant negative
industry or economic trends. The Company records an impairment or change in
useful life whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable or the useful life has changed in
accordance with Statement of Financial Accounting Standards No. 144 (SFAS No.
144), "Accounting for the Impairment or Disposal of Long-Lived Assets."

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The Company's stock-based employee compensation plans
are described more fully in Note 10.

If the Company had elected to recognize compensation cost based on the fair
value of the options granted at the grant date under SFAS No. 123, net loss and
net loss per share would have increased by the amounts shown below:

SHARES OUTSTANDING AND EARNINGS PER SHARE

Earnings per share for all periods presented have been calculated and
presented in accordance with Statement of Financial Accounting Standards No.
128, "Earnings Per Share." Basic earnings per share excludes any dilutive
effects of stock options and is calculated by dividing income available to
common shareholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share is calculated including the dilutive effects
of stock options. Basic and diluted weighted average shares outstanding were 9.6
million for all periods presented. Stock options to purchase 1,095,833 shares
for 2003, 982,833 shares for
30

2002, and 885,833 for 2001, were not dilutive and therefore were not included in
the computation of diluted net loss per share amounts.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides a
single, comprehensive accounting model for impairment and disposal of long-
lived assets and discontinued operations. The Company adopted SFAS No. 144 on
January 1, 2002. See Note 2, "Discontinued Operations," for the impact of
adoption of SFAS No. 144 on the Company's financial statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 (SFAS No. 146), "Accounting for Exit or Disposal Activities." SFAS No.
146 addresses issues related to the recognition, measurement, and reporting of
costs associated with exit and disposal activities including restructuring
activities. SFAS No. 146 requires liabilities associated with exit or disposal
activities to be expensed as incurred and will impact the timing of recognition
for exit or disposal activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material impact on the Company's
financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Guarantees of Indebtedness of Others." The interpretation requires that upon
issuance of a guarantee, the entity must recognize a liability for the fair
value of the obligation it assumes under that obligation. The Company adopted
the disclosure provisions of FIN 45 effective for the year ended December 31,
2002. The provisions for initial recognition and measurement of guarantees
became effective for the Company beginning January 1, 2003. The adoption of the
recognition provision of FIN 45 did not have a material impact on the Company's
financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or in which equity investors do not bear the
residual economic risks. The interpretation was immediately applicable to
variable interest entities (VIE's) created after January 31, 2003, and to VIE's
in which an enterprise obtains an interest after that date. As originally
issued, it applied in the fiscal year or interim period beginning after June 15,
2003, to VIE's in which an enterprise holds a variable interest that was
acquired before February 1, 2003. In October 2003, the FASB issued FASB Staff
Position No. 46-6, which defers the effective date for FIN 46 to the first
interim or annual period ending after March 15, 2004 for non-special-purpose
entity VIE's created before February 1, 2003. The Company is evaluating the
impact of the adoption of FIN 46 on its financial statements.

2. DISCONTINUED OPERATIONS:

In 2002, the Company closed its unprofitable tube processing operation
(Tubing) in Cleveland, Ohio. In accordance with SFAS No. 144, Tubing has been
accounted for as a discontinued operation. As a result, Tubing's after-tax
operating losses of $1,042 in 2002 and $559 in 2001 are shown separate from the
Company's results from continuing operations. In addition, a $1,599 after-tax
charge for the costs of the Tubing closure is included in the 2002 consolidated
statement of operations. This non-cash charge primarily relates to the write
down of Tubing's property and equipment to estimated fair value less costs to
sell in accordance with SFAS No. 144. The fair value of the Tubing property and
equipment was determined by independent appraisal. In December 2002, the Company
sold the Tubing equipment for $1,275 (its approximate appraised and net book
value) and used the proceeds from the sale to reduce debt. The Tubing real
estate is recorded as "Assets Held for Sale" on the accompanying December 31,
2003 consolidated balance sheet for $637.

Included in Tubing's 2002 operating loss is a before tax $700 charge ($431
after-tax) for liabilities primarily related to post-closure employee and
tenancy costs. Tubing had approximately 30 salaried and hourly employees. The
charge was recorded in accordance with EITF 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." The
reserve was fully utilized and all employees were

31

severed prior to December 31, 2003. Substantially all of Tubing's working
capital was liquidated prior to December 31, 2002.

Operating results of discontinued operations were as follows:

3. INVESTMENTS IN JOINT VENTURES:

The Company and the United States Steel Corporation (USS) each own 50% of
Olympic Laser Processing (OLP), a company that processes laser welded sheet
steel blanks for the automotive industry. OLP's Michigan facility is equipped
with three automated and two manual-feed laser-welding lines. The Company and
USS have each contributed $5,300 in cash to capitalize OLP, and each guarantees,
on a several basis, 50% of OLP's outstanding debt. OLP's credit facility is also
supported by a $3,000 letter of credit by USS. OLP bank debt outstanding at
December 31, 2003 totaled $16,359.

The Company has a 49% ownership interest in G.S.P., LLC (GSP), a joint
venture to support the flat-rolled steel requirements of the automotive industry
as a Minority Business Enterprise. The Company has contributed $603 in cash to
capitalize GSP. On April 1, 2002, Thomas A. Goss and Gregory F. Goss, executive
officers of the Goss Group, Inc., an insurance enterprise, assumed 51% majority
ownership interest from the venture's previous majority owners. GSP is a
certified member of the Michigan Minority Business Development Council. The
Company guarantees 49% of the outstanding debt under GSP's $3,880 demand note
bank loan agreement. GSP bank debt outstanding at December 31, 2003 totaled
$1,734.

The following table sets forth selected data for the Company's OLP and GSP
joint ventures:

The Company's investments in joint ventures, accounted for under the equity
method, totaled $1,625 and $637 December 31, 2003 and 2002, respectively.

32

4. ACCOUNTS RECEIVABLE:

Accounts receivable are presented net of allowances for doubtful accounts
of $4,428 and $940 as of December 31, 2003 and 2002, respectively. Bad debt
expense totaled $3,963 in 2003, $1,074 in 2002, and $979 in 2001. The increase
in bad debt expense in 2003 related to uncollectible receivables primarily from
a customer that unexpectedly filed for bankruptcy protection in December 2003.

From 1995 to June 2001, the Company operated under an agreement to sell, on
a revolving basis, through its wholly-owned subsidiary Olympic Steel Receivables
LLC, an undivided interest in a designated pool of its trade accounts
receivable. In connection with its June 2001 loan refinancing, the Company's
accounts receivable securitization program was terminated, resulting in the
repurchase of $42,000 of accounts receivable previously sold. In conjunction
with the termination of the receivable securitization program, the Company no
longer incurred receivable securitization expense on its consolidated statements
of operations.

The average receivable pool sold totaled $43,253 while the program was in
effect in 2001. Costs of the program, which primarily consisted of the
purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $1,260 in 2001 and have been classified as "Receivable
Securitization Expense" in the accompanying consolidated statements of
operations. The program costs were based on commercial paper rates plus 65 basis
points. The average program costs for 2001 were 5.9%.

5. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

Construction in progress at December 31, 2003 primarily consisted of
equipment upgrades. Construction in progress at December 31, 2002 primarily
consisted of expenditures related to the Company's business process improvement
project.

6. DEBT:

CREDIT FACILITY

On December 30, 2002, the Company refinanced its 3-year, $125,000 secured
financing agreement (the Refinanced Credit Facility) with a new 3-year, $132,000
secured bank-financing agreement (the New Credit Facility). Funding under the
New Credit Facility occurred on January 2, 2003, and proceeds were used to pay
off outstanding borrowings under the Refinanced Credit Facility, certain
industrial revenue bonds and term debt.

In connection with the refinancing, the prior agent bank waived $861 of
deferred pay term loan interest, which the Company previously expensed. Fourth
quarter 2002 earnings results reflect the waived amount as a reduction to
interest expense, offset by $2,082 of accelerated non-cash deferred financing
fee amortization related to the early termination of the Refinanced Credit
Facility. Deferred financing fees were being amortized to expense over the term
of the Refinanced Credit Facility, and amortization of these costs amounted to
$1,388 in 2002 and $687 in 2001.

33

The New Credit Facility is collateralized by the Company's accounts
receivable, inventories, and substantially all property and equipment. The New
Credit Facility expires on December 15, 2005, with two additional annual
extensions at the banks' option. Revolver borrowings are limited to the lesser
of a borrowing base, comprised of eligible receivables and inventories, or
$90,000 in the aggregate. The Company has the option to borrow based on the
agent bank's base rate or Eurodollar Rates (EURO) plus a Premium. Components and
interest rate options for the New Credit Facility were as follows at December
31, 2003:

A commitment fee is paid monthly on any unused portion of the New Credit
Facility. Each quarter, the commitment fee and Premiums may increase or decrease
based on the Company's debt service coverage performance. Interest on all
borrowing options is paid monthly. The revolver interest rate approximated 3.6%
on December 31, 2003.

The New Credit Facility requires the Company to comply with various
covenants, the most significant of which include: (i) minimum excess
availability of $10,000, tested monthly, (ii) a minimum fixed charge coverage
ratio of 1.25, and maximum leverage ratio of 1.75, which are tested quarterly,
(iii) restrictions on additional indebtedness, and (iv) limitations on capital
expenditures. The Company obtained a waiver for non-compliance with its fixed
charge coverage ratio at December 31, 2003. The failure to comply was primarily
the result of a bad debt charge related to a receivable from a customer that
unexpectedly filed for bankruptcy protection in December 2003, which was deemed
uncollectible. The waiver allows the Company to exclude the bad debt charge from
all future fixed charge coverage tests. At December 31, 2003 availability under
the New Credit Facility totaled $27,419.

The Company incurred $2,225 of New Credit Facility closing fees and
expenses, which have been capitalized and included in "Deferred Financing Fees,
Net" on the accompanying consolidated balance sheets. These costs are amortized
to interest and other expense on debt over the 3-year term of the agreement.

The credit facility revolver balance on the accompanying consolidated
balance sheets includes $1,716 and $2,065 of checks issued that have not cleared
the bank as of December 31, 2003 and 2002, respectively.

TERM LOANS

The long-term portion of term loans at December 31, 2003 and 2002,
consisted of the following:

INDUSTRIAL REVENUE BONDS

The long-term portion of industrial revenue bonds (IRB's) at December 31,
2003 and 2002, consisted of the following:

34

The accompanying December 31, 2002 consolidated balance sheet includes
$2,590 of IRB principal as current portion of long-term debt for IRB's that were
paid off in the first quarter of 2003 (prior to their due date). A corresponding
escrow deposit of $2,651 was included in prepaid expenses to fund the IRB
principal and interest payment.

7. SCHEDULED DEBT MATURITIES, INTEREST, DEBT CARRYING VALUES:

Scheduled maturities of all long-term debt for the years succeeding
December 31, 2003 are $4,877 in 2004, $34,058 in 2005, $513 in 2006, $539 in
2007, $567 in 2008, and $1,706 thereafter. The overall effective interest rate
for all debt amounted to 4.6% in 2003, 5.7% in 2002, and 8.8% in 2001. Interest
paid totaled $3,155, $6,067, and $5,116 for the years ended December 31, 2003,
2002, and 2001, respectively. Average total debt outstanding was $95,943,
$91,480, and $96,837 in 2003, 2002, and 2001, respectively. Amounts paid
relative to the accounts receivable securitization program, which was terminated
in June 2001, totaled $1,587 in 2001.

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, EURO, LIBOR, or
the short-term tax exempt revenue bond index.

The Company has not entered into interest rate transactions for speculative
purposes or otherwise. The Company does not hedge its exposure to floating
interest rate risk. However, the Company has the option to enter into 30 to 180
day fixed base rate EURO loans under the New Credit Facility.

8. INCOME TAXES:

The components of the Company's benefit for income taxes from continuing
operations were as follows:

The components of the Company's deferred income taxes at December 31 are as
follows:

35

The following table reconciles the U.S. federal statutory rate (34.0% for
2003 and 35% for 2002 and 2001) to the Company's effective tax rate:

Net refunds of income taxes totaled $1,222 and $3,559 in 2003 and 2002,
respectively. The Company has net operating loss carryforwards of $23,253, which
begin expiring in the year ended December 31, 2020. If the Company were to
continue to incur losses before taxes in 2004, it would be necessary to reassess
the need for a valuation allowance.

9. RETIREMENT PLANS:

The Company's retirement plans consist 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 to the non-union profit-sharing plan are
discretionary amounts as determined annually by the Board of Directors. No
profit sharing contributions were made in 2003, 2002, and 2001. 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.
The Company did not contribute to the non-union 401(k) retirement plan in 2003.
In 2002 and 2001, 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 $314, $1,132, and $1,066 for the years
ended December 31, 2003, 2002, and 2001, respectively.

10. 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 1,300,000 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 terminates on January 5, 2009. Termination of the Option Plan will
not affect outstanding options.

36

Transactions under the Option Plan are as follows:

The weighted average fair value of options granted during 2003, 2002 and
2001 was $3.50, $5.28, and $2.21, respectively.

The following table summarizes information about fixed-price stock options
outstanding at December 31, 2003:

In 1996, the Company adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation," as the Company utilizes the
intrinsic value method to account for stock-based employee compensation. SFAS
No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of FASB Statement No. 123" has amended SFAS No. 123,
and the required disclosures are included herein.

37

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:

11. COMMITMENTS AND CONTINGENCIES:

The Company leases certain warehouses, sales offices and machinery and
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 $1,527, $1,512, and $1,351 for the
years ended December 31, 2003, 2002, and 2001, respectively.

Future minimum lease payments as of December 31, 2003 are as follows:

2004........................................................ $1,362
2005........................................................ 757
2006........................................................ 687
2007........................................................ 576
2008........................................................ 449
Thereafter.................................................. 537
------
$4,368
======

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
position.

In the normal course of business, the Company periodically enters into
agreements that incorporate indemnification provisions. While the maximum amount
to which the Company may be exposed under such agreements can not be estimated,
it is the opinion of management that these guarantees and indemnifications are
not expected to have a material adverse effect on the Company's results of
operations or financial position.

As of December 31, 2003, Olympic guaranteed 50% of OLP's $16,359 and 49% of
GSP's $1,734 of outstanding debt on a several basis. These guarantees were a
requirement of the joint venture companies financing agreements.

Approximately 226 of the Company's hourly plant personnel at its
Minneapolis and Detroit facilities are represented by four separate collective
bargaining units. In April 2003, the Company's collective bargaining agreement
covering its Minneapolis plate processing facility was renewed to March 31,
2006. In June 2003, the Company's collective bargaining agreement covering its
Detroit's hourly plant maintenance personnel was renewed to June 30, 2007.

The collective bargaining agreements covering hourly plant employees at the
Company's Detroit and Minneapolis coil facilities expire on June 30, 2004 and
September 30, 2005, respectively. The Company has never experienced a work
stoppage and believes that its relationship with its employees is good. However,
any prolonged disruption in business arising from work stoppages by Company
personnel represented by collective bargaining units could have a material
adverse effect on the Company's results of operations.

12. RELATED PARTY TRANSACTIONS:

A related entity handles a portion of the freight activity for the
Company's Cleveland operation. Payments to this entity totaled $1,279, $1,458,
and $1,327 for the years ended December 31, 2003, 2002, and 2001,

38

respectively. There is no common ownership or management of this entity 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 Chief Operating Officer, 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, full recourse promissory note with
principal and all accrued interest due and payable to the Company on or before
January 1, 2006. The principal balance of $675 accrues interest at 5.07% per
annum, and is collateralized by a pledge of the underlying shares until the note
is paid in full. The note was fully collateralized at December 31, 2003 and
2002.

Michael D. Siegal, Chairman of the Board of Directors and Chief Executive
Officer, and David A. Wolfort, President and Chief Operating Officer, are
minority investors in a company that provides online services to Olympic's
employees with respect to their retirement plan accounts. Mr. Siegal also serves
as a director for that company.

13. 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.

39

SUPPLEMENTARY FINANCIAL INFORMATION
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share amounts)

- ---------------

(a) Represents high and low closing quotations as reported by the Nasdaq
National Market.

40

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluations required by Rule 13a-15 of the Securities Exchange Act of 1934
of the effectiveness of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the
end of the period covered by this Report have been carried out under the
supervision and with the participation of the Company's management, including
its Chief Executive Officer and Chief Financial Officer. Based upon such
evaluations, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective. There have
been no changes in the Company's internal controls over financial reporting
during the period covered by this report that were identified in connection with
the evaluation referred to above that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.

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 29, 2004 Annual Meeting of Shareholders.

Information required by Item 10 as to the Audit Committee Financial Expert
will be incorporated herein by reference to the information set forth under the
caption "Board of Directors Meetings and Committees" in the Registrant's
definitive proxy statement for its April 29, 2004 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 29, 2004 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," "Security Ownership of Management," and "Employee Benefit
Plans" in the Registrant's definitive proxy statement for its April 29, 2004
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 Party Transactions" in the
Registrant's definitive proxy statement for its April 29, 2004 Annual Meeting of
Shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by Item 14 will be incorporated herein by reference to
the information set forth under the caption "Independent Auditors" in the
Registrant's definitive proxy statement for its April 29, 2004 Annual Meeting of
Shareholders.

41

PART IV

ITEM 15. 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 Auditors

Consolidated Statements of Operations for the Years Ended December 31,
2003, 2002, and 2001

Consolidated Balance Sheets as of December 31, 2003 and 2002

Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002, and 2001

Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2003, 2002, and 2001

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. On February 12, 2004, the Company filed a Current
Report on Form 8-K announcing its results of operations for the fourth
quarter of 2003 and fiscal year 2003.

42

OLYMPIC STEEL, INC.

INDEX TO EXHIBITS

- ---------------

(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-K
filed with the Commission on March 28, 2003.

(c) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q
filed with the Commission on August 13, 2001.

(d) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q
filed with the Commission on May 13, 2002.

(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-Q
filed with the Commission on May 2, 1997.

(g) Incorporated by reference to an Exhibit included in Registrant's Form 10-Q
filed with the Commission on August 3, 2000.

(h) Incorporated by reference to an Exhibit included in Registrant's Form 10-K
filed with the Commission on March 28, 2001.

44

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 26, 2004 By: /s/ RICHARD T. MARABITO
------------------------------------
Richard T. Marabito,
Chief Financial Officer

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 26TH DAY OF MARCH, 2004.

/s/ MICHAEL D. SIEGAL * March 26, 2004
- -----------------------------------------------------
Michael D. Siegal
Chairman of the Board
and Chief Executive Officer

/s/ DAVID A. WOLFORT * March 26, 2004
- -----------------------------------------------------
David A. Wolfort
President, Chief Operating Officer
and Director

/s/ RICHARD T. MARABITO * March 26, 2004
- -----------------------------------------------------
Richard T. Marabito
Chief Financial Officer
(Principal Accounting Officer)

/s/ SUREN A. HOVSEPIAN * March 26, 2004
- -----------------------------------------------------
Suren A. Hovsepian, Director

/s/ MARTIN H. ELRAD * March 26, 2004
- -----------------------------------------------------
Martin H. Elrad, Director

/s/ THOMAS M. FORMAN * March 26, 2004
- -----------------------------------------------------
Thomas M. Forman, Director

/s/ JAMES B. MEATHE * March 26, 2004
- -----------------------------------------------------
James B. Meathe, Director

/s/ HOWARD L. GOLDSTEIN * March 26, 2004
- -----------------------------------------------------
Howard L. Goldstein, 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 26, 2004
- -----------------------------------------------------
Richard T. Marabito, Attorney-in-Fact