Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Olympic Steel, Inc.

Consolidated Balance Sheets

(in thousands)

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

Olympic Steel, Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the Three and Nine Months Ended September 30,

(in thousands, except per share data)

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

Olympic Steel, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31,

(in thousands, except per share data)

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

Olympic Steel, Inc.

Consolidated Statements of Cash Flows

For the NineThree Months Ended September 30,

March 31,

(in thousands)

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

Olympic Steel, Inc.

Supplemental Disclosures of Cash Flow Information

For the NineThree Months Ended September 30,

March 31,

(in thousands)

The Company incurred a nominal amount of new financing lease obligations of $1.0 million during the ninethree months ended September 30, 2020. There wereMarch 31, 2022. The Company incurred no new financing lease obligations during the ninethree months ended September 30,March 31, 2021. ThisThese non-cash transaction hastransactions have been excluded from the Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2020.March 31, 2022 and March 31, 2021.

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

Olympic Steel, Inc.

Consolidated Statements of Shareholders’ Equity

(in thousands)

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

Olympic Steel, Inc.

Consolidated Statements of Shareholders’ Equity

For the Three Months Ended March 31,

(in thousands)

(unaudited)

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

Olympic Steel, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2021March 31, 2022

The accompanying consolidated financial statements have been prepared from the financial records of Olympic Steel, Inc. and its wholly-owned subsidiaries (collectively, Olympic or the Company), without audit and reflect all normal and recurring adjustments which are, in the opinion of management, necessary to fairly state the results of the interim periods covered by this report. Year-to-date results are not necessarily indicative of 20212022 annual results and these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021. All intercompany transactions and balances have been eliminated in consolidation.

The Company operates in three reportable segments: carbonsegments; specialty metals flat products, specialty metalscarbon flat products, and tubular and pipe products. The specialty metals flat products segment and the carbon flat products segment are at times consolidated and referred to as the flat products segments. CertainSome of the flat products segments’ assets and resources are shared by the specialty metals and carbon flat products segments, and both segments’ products are stored in the shared facilities and, in some locations, processed on shared equipment. As such, total assets and capital expenditures are reported in the aggregate for the flat products segments. Due to the shared assets and resources, certain of the flat products segment expenses are allocated between the specialty metals flat products segment and carbon the carbon flat products segment based upon an established allocation methodology.

The primary focus of our specialty metals flat products segment sellsis on the direct sale and distributesdistribution of processed aluminumstainless and stainlessaluminum flat-rolled sheet and coil products, flat bar products and fabricated parts.  Through the acquisition of Shaw Stainless & Alloys, Inc. (Shaw) on October 1, 2021 and Action Stainless & Alloys, Inc. (Action Stainless) on December 14, 2020, theour specialty metals flat products segment expanded its geographic footprint and enhanced its product offerings in stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tubing and pipe.  Action Stainless offers a rangeThrough the acquisition of processing capabilities, including plasma, laser and waterjet cutting and computer numerical control (CNC) machining.  OnBerlin Metals, LLC (Berlin Metals) on October 1, 2021,April 2, 2018, the Company acquired all of the net assets of Shaw Stainless & Alloy, Inc. (Shaw), based in Powder Springs, Georgia.  Shaw is a full-line distributorspecialty metals flat products segment expanded its product offerings to include differing types of stainless steelflat-rolled sheet pipe, tube, bar and angles. Shaw also manufacturescoil and distributes stainless steel bollards and water treatment systems. prime tin mill products. 

The acquisition includes Shaw's stainless-steel distribution and fabrication businesses as well as its architectural and barrier defense businesses.  Theprimary focus of our carbon flat products segment sellsis on the direct sale and distributesdistribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products, and fabricated parts.  Through the acquisitionsWe act as an intermediary between metals producers and manufacturers that require processed metal for their operations.  We serve customers in most metals consuming industries, including manufacturers and fabricators of McCullough Industries (McCullough)transportation and certain assets related to the manufacturing of the EZ Dumper® hydraulic dump inserts (EZ Dumper) in 2019,material handling equipment, construction and farm machinery, storage tanks, environmental and energy generation equipment, automobiles, military vehicles and equipment, as well as general and plate fabricators and metal service centers.  We distribute these products primarily through a direct sales force.  Combined, the carbon and specialty metals flat products segment expanded its product offeringssegments have 33 strategically-located processing and distribution facilities in the United States and one in Monterrey, Mexico.    Our geographic footprint allows us to include self-dumping metal hoppersfocus on regional customers and steellarger national and stainless-steel dump inserts for pickup truckmulti-national accounts, primarily located throughout the midwestern, eastern and service truck beds.southern United States.  On September 17, 2021, the Companywe sold substantially all of the assets related to itsour Detroit, operation.Michigan operation to Venture Steel (U.S.).  The Detroit operation was primarily focused on the distribution of carbon flat-rolled steel to domestic automotive manufacturers and their suppliers. 

The tubular and pipe products segment which consists of the Chicago Tube and Iron subsidiary (CTI), distributes business, acquired in 2011.   Through our tubular and pipe products segment, we distribute metal tubing, pipe, bar, valves and fittings and fabricatesfabricated pressure parts supplied to various industrial markets.  Founded in 1914, CTI operates from seven locations in the Midwestern and southeastern United States.  The tubular and pipe products segment distributes its products primarily through a direct sales force.

Corporate expenses are reported as a separate line item for segment reporting purposes. Corporate expenses include the unallocated expenses related to managing the entire Company (i.e., all three segments), including payroll expenses for certain personnel, expenses related to being a publicly traded entity such as board of directors’ expenses, audit expenses, and various other professional fees.

On

Impact of Recently Issued Accounting Pronouncements

There were no recently issued accounting pronouncements that would have a material impact on the Company’s Consolidated Financial Statements.

The Company provides metals processing, distribution and delivery of large volumes of processed carbon, coated flat-rolled sheet, coil and plate products, aluminum, and stainless flat-rolled products, prime tin mill products, flat bar products, metal tubing, pipe, bar, valves, fittings, and fabricated parts. The Company's contracts with customers are comprised of purchase orders with standard terms and conditions. Occasionally the Company may also have longer-term agreements with customers. Substantially all of the contracts with customers require the delivery of metals, which represent single performance obligations that are satisfied at a point in time upon transfer of control of the product to the customer.

Transfer of control is assessed based on the use of the product distributed and rights to payment for performance under the contract terms. Transfer of control and revenue recognition for substantially all of the Company’s sales occur upon shipment or delivery of the product, which is when title, ownership and risk of loss pass to the customer and is based on the applicable shipping terms. The shipping terms depend on the customer contract. An invoice for payment is issued at time of shipment and terms are generally net 30 days. The Company has certain fabrication contracts in one business unit for which revenue is recognized over time as performance obligations are achieved. This fabrication business is not material to the Company's consolidated results.

Within the metals industry, revenue is frequently disaggregated by products sold. The table below disaggregates the Company’s revenues by segment and products sold.

Accounts receivable are presented net of allowances for credit losses and unissued credits of $4.4 million and $3.6 millionboth as of September 30, 2021March 31, 2022 and December 31, 2020,2021. respectively. The allowance for credit losses is maintained at a level considered appropriate based on historical experience, specific customer collection issues that have been identified, current market conditions and estimates for supportable forecasts when appropriate. Estimations are based upon a calculated percentage of accounts receivable, which remains fairly level from year to year, and judgments about the probable effects of economic conditions on certain customers, which can fluctuate significantly from year to year. The Company cannot guarantee that the rate of future credit losses will be similar to past experience. The Company considers all available information when assessing the adequacy of its allowance for credit losses and unissued credits.

Inventories consisted of the following:

The Company values certain of its tubular and pipe products inventory at the last-in, first-out (LIFO) method. At September 30, 2021March 31, 2022 and December 31, 2020,2021, approximately $55.4$57.7 million, or 13.3%12.1% of consolidated inventory, and $50.3$55.4 million, or 21.0%11.4% of consolidated inventory, respectively, was reported under the LIFO method of accounting. The cost of the remainder of the tubular and pipe products inventory is determined using a weighted average rolling first-in, first-out (FIFO) method.

The Company did not record any LIFO expense or income for the three months ended March 31, 2022 as current inventory price and volume projections anticipate no material change to the LIFO reserve by December 31, 2022. During the three and ninemonths ended September 30,March 31, 2021, the Company recorded $7.0 million and $12.0$1.0 million of LIFO expense, respectively, as current projections anticipate increased metals prices by December 31, 2021 compared to December 31, 2020. During the three and nine months ended September 30, 2020, the Company recorded $0.1 million and $1.1 million of LIFO income, respectively.expense.

If the FIFO method had been in use, inventories would have been $9.9$19.7 million higher and $2.1 million lower than reported at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.

The Company’s intangible assets were recorded in connection with its acquisitions that occurred between 2011 and 2020.2021.  The intangible assets were evaluated on the premise of highest and best use to a market participant, primarily utilizing the income approach valuation methodology.  The useful life of the customer relationships was determined to be fifteenbetween 10 and 15 years, based primarily on the consistent and predictable revenue source associated with the existing customer base, the present value of which extends through the ten to fifteen-year amortization period.periods.  The useful life of the non-compete agreements was determined to be the length of the non-compete agreements, which range from one to five years.  The useful life of the trade names was determined to be indefinite primarily due to their history and reputation in the marketplace, the Company’s expectation that the trade names will continue to be used, and the conclusion that there are currently no other factors identified that would limit their useful life.  The Company will continue to evaluate the useful life assigned to its amortizable customer relationships and noncompete agreements in future periods.

Goodwill, by reportable unit, was as follows as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The goodwill is deductible for tax purposes. The change in goodwill during 2021 is related to adjustments to the preliminary purchase price allocation of the fair market values of the assets acquired and liabilities assumed for Action Stainless.

Intangible assets consisted of the following as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively:

The Company estimates that amortization expense for its intangible assets subject to amortization will be approximately $1.5$1.6 million per year for the next two years and $1.4 million, $1.0 million and $0.5 million per year for the three years, thereafter, respectively.$1.2 million the following year and then $0.7 million for the next year after.

The components of lease expense were as follows:

Supplemental cash flow information related to leases was as follows:

Supplemental balance sheet information related to leases was as follows:

Maturities of lease liabilities were as follows:

The Company’s debt is comprised of the following components:

On June 16, 2021, the Company entered into a Fourth Amendment to Third Amended and Restated Loan and Security AgreementThe Company’s asset-based credit facility (the “ABLABL Credit Facility”), which amended and extendedFacility) is collateralized by the Company’s existing ABL Credit Facility.accounts receivable, inventory and personal property. The $475 million ABL Credit Facility consists of: (i) a revolving credit facility of up to $445 million, including a $20 million sub-limit for letters of credit, and (ii) a first in, last out revolving credit facility of up to $30 million. Under the terms of the ABL Credit Facility, the Company may, subject to the satisfaction of certain conditions, request additional commitments under the revolving credit facility in the aggregate principal amount of up to $200 million to the extent that existing or new lenders agree to provide such additional commitments, and add real estate as collateral at the Company’s discretion. The ABL Credit Facility matures on June 16, 2026.

The ABL Credit Facility contains customary representations and warranties and certain covenants that limit the ability of the Company to, among other things: (i) incur or guarantee additional indebtedness; (ii) pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt; (iii) make investments; (iv) sell assets; (v) enter into agreements that restrict distributions or other payments from restricted subsidiaries to the Company; (vi) incur or suffer to exist liens securing indebtedness; (vii) consolidate, merge or transfer all or substantially all of theirthe Company’s assets; and (viii) engage in transactions with affiliates. In addition, the ABL Credit Facility contains a financial covenant which provides that: (i)requires if any commitments or obligations are outstanding and the Company’s availability is less than the greater of $30 million or 10.0% of the aggregate amount of revolver commitments ($47.5 million at September 30, 2021)March 31, 2022) or 10.0% of the aggregate borrowing base ($47.5 million at September 30, 2021)March 31, 2022), then the Company must maintain a ratio of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) minus certain capital expenditures and cash taxes paid to fixed charges of at least 1.00 to 1.00 for the most recent twelve fiscal month period.