##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|                                     |  |                                                                                                 
|------------------------------------ |  | ------------------------------------------------------------------------------------------------
|þ                                    |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES
    EXCHANGE ACT OF 1934    
|For The Year Ended December 31, 2005
|o                                    |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES
    EXCHANGE ACT OF 1934



OLYMPIC STEEL, INC.




|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Ohio                                                               |  | 34-1245650                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|5096 Richmond Road, Bedford Heights, Ohio                          |  | 44146                                      
|(Address of principal executive offices)                           |  | (Zip Code)                                 



Securities registered pursuant to Section 12(b) of the
Act:




Securities registered pursuant to Section 12(g) of the
Act:






o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o þ o


12b-2 o þ




DOCUMENTS INCORPORATED BY REFERENCE


10-K










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TABLE OF CONTENTS


|         |  |                                                                                                                          |  |                                      |    |  |    | 
|-------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | -- |  | -- | 
|         |  |                                                                                                                          |  | Page                                 |   
|         |  |                                                                                                                          |  |                                      |   
|Part I   |  |                                                                                                                          |  |                                      |    | 
|Item 1.  |  | Business                                                                                                                 |  |                                      | 2  | 
|Item 1A. |  | Risk Factors                                                                                                             |  |                                      | 11 | 
|Item 1B. |  | Unresolved Staff Comments                                                                                                |  |                                      | 15 | 
|Item 2.  |  | Properties                                                                                                               |  |                                      | 15 | 
|Item 3.  |  | Legal Proceedings                                                                                                        |  |                                      | 16 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                                                  |  |                                      | 17 | 
|         |  |                                                                                                                          |  | Executive Officers of the Registrant |    |  | 17 | 
|        
|Part II  |  |                                                                                                                          |  |                                      |    | 
|Item 5.  |  | Market for the Registrants Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities |  |                                      | 18 | 
|Item 6.  |  | Selected Financial Data                                                                                                  |  |                                      | 19 | 
|Item 7.  |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |  |                                      | 20 | 
|Item 7A. |  | Qualitative and Quantitative Disclosures
    About Market Risk                                                           |  |                                      | 25 | 
|Item 8.  |  | Financial Statements and Supplementary
    Data                                                                          |  |                                      | 26 | 
|Item 9.  |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                                 |  |                                      | 46 | 
|Item 9A. |  | Controls and Procedures                                                                                                  |  |                                      | 46 | 
|Item 9B. |  | Other Information                                                                                                        |  |                                      | 46 | 
|        
|Part III |  |                                                                                                                          |  |                                      |    | 
|Item 10. |  | Directors and Executive Officers of the
    Registrant                                                                   |  |                                      | 46 | 
|Item 11. |  | Executive Compensation                                                                                                   |  |                                      | 46 | 
|Item 12. |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |  |                                      | 47 | 
|Item 13. |  | Certain Relationships and Related
    Transactions                                                                       |  |                                      | 47 | 
|Item 14. |  | Principal Accountant Fees and Services                                                                                   |  |                                      | 47 | 
|        
|Part IV  |  |                                                                                                                          |  |                                      |    | 
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                               |  |                                      | 47 | 
|         |  |                                                                                                                          |  | Index to Exhibits                    |    |  | 48 | 
|         |  |                                                                                                                          |  | Signatures                           |    |  | 51 | 



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PART I





ITEM 1.     BUSINESS


The Company


cutting-to






Industry Overview




cutting-to


just-in


2



---



##### 



Corporate History


start-up


Business Strategy and Objectives




start-up,






| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our flawless execution program (Fe), which is an
    internal program that empowers employees to achieve profitable
    growth by delivering superior customer service and exceeding
    customer expectations.
|
| |  | A set of core values which is communicated and practiced
    throughout the company.                                                                                                                             
|
| |  | On-going business process enhancements and redesigns to improve
    efficiencies and reduce costs.                                                                                                               
|
| |  | Continued evolution of information and key metric reporting to
    focus managers on achieving the specific operating objectives
    mentioned above.                                                            



Investment In Value-Added Processing Equipment.




3



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Sales And Marketing. just-in






e-commerce


Acquisitions.


Management.


Products, Processing Services, and Quality Standards






cutting-to Cutting-to


4



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|                        |       |         |    |    |         |  |    |            |  |  |       |   |  |  |    |    | 
|----------------------- | ----- | ------- | -- | -- | ------- |  | -- | ---------- |  |  | ----- | - |  |  | -- | -- | 
|                        |       | (a)     |    |    | (b)     |  |    | (c)        |  |  |      
|                        |       | Eastern |    |    | Central |  |    | Automotive |  |  |      
|Processing Equipment    |       | Region  |    |    | Region  |  |    | Region     |  |  | Total |  
|                        |       |         |    |    |         |  |    |            |  |  |       |  
|Cutting-to-length       |       |         | 8  |    |         |  | 5  |            |  |  | 2     |   |  |  | 15 |   
|Blanking                |       |         |    |    |         |  |    |            |  |  | 4     |   |  |  | 4  |   
|Tempering (d)           |       |         | 3  |    |         |  | 1  |            |  |  |       |   |  |  | 4  |   
|Plate processing        |       |         | 10 |    |         |  | 20 |            |  |  |       |   |  |  | 30 |   
|Slitting                |       |         | 4  |    |         |  | 2  |            |  |  | 3     |   |  |  | 9  |   
|Shearing                |       |         | 1  |    |         |  | 5  |            |  |  |       |   |  |  | 6  |   
|Machining               |       |         | 17 |    |         |  |    |            |  |  |       |   |  |  | 17 |   
|Shot blasting/ grinding |       |         | 1  |    |         |  | 2  |            |  |  |       |   |  |  | 3  |   
|                        |       |         |    |    |         |  |    |            |  |  |       |  
|                        | Total |         |    | 44 |         |  |    | 35         |  |  |       | 9 |  |  |    | 88 | 
|                        |       |         |    |    |         |  |    |            |  |  |       |  






|    |                                                                                              
|--- | ---------------------------------------------------------------------------------------------
|(a) | Consists of seven facilities located in Cleveland, Connecticut,
    Pennsylvania and Georgia.



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



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Consists of our Detroit facility and the GSP joint venture
    facility, both located in Michigan, primarily serving the
    automotive industry.



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

TS-16949


Customers and Distribution




250-mile


5



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just-in just-in




Raw Materials








Suppliers




6



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just-in


Competition






Management Information Systems








| |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventory Management. Our information systems
    track the status of inventories in all locations on a daily
    basis. This information is essential in allowing us to closely
    monitor and manage our inventory.                                                                                                                                                                                                                                  
|
| | Differentiated Services To Customers. Our
    information systems allow us 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. We believe that our
    ability to quickly and efficiently share information across our
    operations is critical to our success. We have invested in
    various communications and workgroup technologies which enable
    employees to remain effective and responsive.                                                                                                                                                    
|
| | E-Commerce and Advanced Customer Interaction. We
    are actively involved in electronic commerce initiatives,
    including both our own sponsored initiatives and participation
    in customer
    e-procurement
    initiatives. We have implemented extranet sites for specific
    customers, which are integrated with our internal business
    systems to streamline the costs and time associated with
    processing electronic transactions.



7



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Employees






Service Marks, Trade Names and Patents






Government Regulation




Environmental




Effects of Inflation




8



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Backlog




Available Information


1-800-SEC-0330.


10-K, 10-Q, 8-K


10-K.


Forward-Looking Information






| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general and global business, economic and political conditions;                                                                                                            
|
| |  | competitive factors such as the availability and pricing of
    steel, industry inventory levels and rapid fluctuations in
    customer demand and pricing;                
|
| |  | the cyclicality and volatility within the steel industry;                                                                                                                  
|
| |  | the ability of our customers (especially in the automotive
    industry) to maintain their credit availability;                                                            
|
| |  | layoffs or work stoppages by our own or our suppliers or
    customers personnel;                                                                                        
|
| |  | the availability of transportation and logistical services;                                                                                                                
|
| |  | equipment malfunctions or installation delays;                                                                                                                             
|
| |  | the successes of our strategic efforts and initiatives to
    increase sales volumes, maintain cash turnover, maintain or
    improve inventory turns and reduce our costs;
|
| |  | the adequacy of our information technology and business system
    software;                                                                                               

9



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##### 





| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the operating and financial results of our joint ventures,
    including the timing and outcome of OLPs efforts and
    ability to liquidate its assets and the impact of customer,
    supplier, and competitive factors on OLPs liquidation
    plans; and
|
| |  | customer, supplier, and competitor consolidation, bankruptcy or
    insolvency.                                                                                                                                                                               



10



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ITEM 1A.     RISK FACTORS


In addition to the other information in this report and our
other filings with the SEC, the following risk factors should be
carefully considered in evaluating us and our business before
investing in our common stock. The risks and uncertainties
described below are not the only ones facing us. Additional
risks and uncertainties, not presently known to us or otherwise,
may also impair our business. If any of the risks actually
occur, our business, financial condition or results of
operations could be materially and adversely affected. In that
case, the trading price of our common stock could decline, and
investors may lose all or part of their investment.


Risks Related to our Business


Volatile steel prices can cause significant fluctuations in
our operating results. Our sales and operating income could
decrease if we are unable to pass producer price increases on to
our customers.




just-in






11



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##### 



An interruption in the sources of our steel supply could have
a material adverse effect on our results of operations.


just-in


We service industries that are highly cyclical, and any
downturn in our customers industries could reduce our
sales, margins, and profitability.






Our success is dependent upon our relationships with certain
key customers.




Customer credit constraints and credit losses could have a
material adverse effect on our results of operations.




12



---



##### 



We depend on our senior management team and the loss of any
member could prevent us from implementing our business
strategy.




Labor disruptions at any of our facilities or those of major
customers could adversely affect our business, results of
operations and financial condition.






Risks associated with our growth strategy may adversely
impact our ability to sustain our growth and our stock price may
decline.




start-up start-up


day-to


The failure of our key computer-based systems could have a
material adverse effect on our business.




13



---



##### 







We may not be able to retain or expand our customer base if
the United States manufacturing industry continues to erode.




Our business is highly competitive, and increased competition
could reduce our market share and harm our financial
performance.




Increases in energy prices would increase our operating
costs, and we may be unable to pass all these increases on to
our customers in the form of higher prices.




14



---



##### 



We expect to finance our future growth through borrowings
under our bank credit facility. Increased leverage could
adversely impact our business and results of operations.






| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our vulnerability to adverse economic and industry
    conditions;                                                                                                                                                                             
|
| |  | require us to dedicate a substantial portion of cash from
    operations to the payment of debt service, thereby reducing the
    availability of cash to fund working capital, capital
    expenditures dividends and other general corporate purposes;
|
| |  | limit our ability to obtain additional financing for working
    capital, capital expenditures, general corporate purposes or
    acquisitions;                                                                                                         
|
| |  | place us at a disadvantage compared to our competitors that are
    less leveraged; and                                                                                                                                                                 
|
| |  | limit our flexibility in planning for, or reacting to, changes
    in our business and in the steel industry.                                                                                                                                           

Risks Related to Our Common Stock


The market price for our common stock may be volatile.






Our quarterly results may be volatile.




quarter-to





ITEM 1B.     UNRESOLVED STAFF
COMMENTS




15



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|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

250-mile


|             |  |  |                               |                               |      |         |         |          |                                                                        |                                                            |  |            |            | 
|------------ |  |  | ----------------------------- | ----------------------------- | ---- | ------- | ------- | -------- | ---------------------------------------------------------------------- | ---------------------------------------------------------- |  | ---------- | ---------- | 
|             |  |  |                               | Square                        |      |         |         |          | Owned or                                                               |                                                           
|Operation    |  |  | Location                      |                               | Feet |         |         | Function |                                                                        | Leased                                                     | 
|             |  |  |                               |                               |      |         |         |          |                                                                        |                                                            | 
|Cleveland    |  |  | Bedford Heights, Ohio
    (1) |                               |      | 127,000 |         |          | Corporate headquarters and coil processing and distribution
    center |                                                            |  | Owned      |           
|             |  |  |                               | Bedford Heights, Ohio
    (1) |      |         | 121,500 |          |                                                                        | Coil and plate processing, distribution center and offices |  |            | Owned      | 
|             |  |  |                               | Bedford Heights, Ohio
    (1) |      |         | 59,500  |          |                                                                        | Plate processing, distribution center and offices          |  |            | Leased (2) | 
|Minneapolis  |  |  | Plymouth, Minnesota           |                               |      | 196,800 |         |          | Coil and plate processing, distribution center and offices             |                                                            |  | Owned      |           
|             |  |  |                               | Plymouth, Minnesota           |      |         | 112,200 |          |                                                                        | Plate processing, distribution center and offices          |  |            | Owned      | 
|Detroit      |  |  | Detroit, Michigan             |                               |      | 256,000 |         |          | Coil processing, distribution center and offices                       |                                                            |  | Owned      |           
|South        |  |  | Winder, Georgia               |                               |      | 240,000 |         |          | Coil and plate processing, distribution center and offices             |                                                            |  | Owned      |           
|Iowa         |  |  | Bettendorf, Iowa              |                               |      | 190,000 |         |          | Coil and plate processing, distribution center and offices             |                                                            |  | Owned      |           
|Connecticut  |  |  | Milford, Connecticut          |                               |      | 134,000 |         |          | Coil processing, distribution center and offices                       |                                                            |  | Owned      |           
|Philadelphia |  |  | Lester, Pennsylvania          |                               |      | 92,500  |         |          | Plate processing, distribution center and offices                      |                                                            |  | Leased (3) |           
|Chambersburg |  |  | Chambersburg,                 |                               |      | 87,000  |         |          | Plate processing and machining,                                        |                                                            |  | Owned      |           
|             |  |  |                               | Pennsylvania                  |      |         | 150,000 |          |                                                                        | distribution center and offices                            |  |            | Owned (4)  | 
|Chicago      |  |  | Schaumburg, Illinois          |                               |      | 80,500  |         |          | Coil processing, distribution center and offices                       |                                                            |  | Owned      |           






|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 expires in June 2010, with one renewal option for an
    additional 10 years.    
|   
|(3) | The lease on this facility expires on December 31, 2006,
    with a 1 year renewal option.                                                                                                                         
|   
|(4) | In January 2006, we purchased a 150,000 square foot
    facility in Chambersburg, Pennsylvania which will allow us to
    further expand our plate processing and machining operations in
    that geographic area.








|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



16



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|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



EXECUTIVE OFFICERS OF THE REGISTRANT


S-K.












17



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PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock




|               |  |      |       |  |      |   |       |      |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | 2005 |       |  | 2004 |  
|               |  |      |       |  |      |  
|               |  | High |       |  | Low  |   |       | High |  |   | Low   | 
|               |  |      |       |  |      |   |       |      |  |   |       | 
|First quarter  |  | $    | 26.45 |  |      | $ | 17.88 |      |  | $ | 14.00 |  |  | $ | 7.24  | 
|Second quarter |  |      | 17.99 |  |      |   | 13.31 |      |  |   | 20.42 |  |  |   | 10.89 | 
|Third quarter  |  |      | 18.29 |  |      |   | 13.21 |      |  |   | 24.69 |  |  |   | 16.95 | 
|Fourth quarter |  |      | 25.23 |  |      |   | 15.27 |      |  |   | 29.90 |  |  |   | 16.93 | 

Holders of Record




Dividends






Issuer Purchases of Equity Securities




Recent Sales of Unregistered Securities




18



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##### 








|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA



|                                                                                                                           |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |         |       |       |   |         |     |       | 
|-------------------------------------------------------------------------------------------------------------------------- | -------- | ------------------------------------- | ------- | ----- | ----- | - | ------- | ----- | ----- | - | ------- | --- | ----- | ---- | ------- | ----- | ----- | - | ------- | --- | ----- | 
|                                                                                                                           |          | For the Years Ended December 31,      |        
|                                                                                                                           |          |                                       |        
|                                                                                                                           |          | 2005                                  |         |       | 2004  |   |         | 2003  |       |   | 2002    |     |       | 2001 |        
|                                                                                                                           |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |        
|                                                                                                                           |          | (In thousands, except per share data) |        
|Tons Sold Data:                                                                                                            |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |         |       |       |   |         |    
|                                                                                                                           | Direct   |                                       |         | 1,091 |       |   |         | 1,171 |       |   |         | 996 |       |      |         | 1,004 |       |   |         | 936 |      
|                                                                                                                           | Toll (a) |                                       |         | 189   |       |   |         | 184   |       |   |         | 185 |       |      |         | 154   |       |   |         | 131 |      
|                                                                                                                           |          | Total                                 |         |       | 1,280 |   |         |       | 1,355 |   |         |     | 1,181 |      |         |       | 1,158 |   |         |     | 1,067 | 
|Income Statement Data:                                                                                                     |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |         |       |       |   |         |    
|Net sales (a)                                                                                                              |          | $                                     | 939,210 |       |       | $ | 894,157 |       |       | $ | 472,548 |     |       | $    | 459,384 |       |       | $ | 404,803 |    
|Gross profit (b)                                                                                                           |          |                                       | 166,471 |       |       |   | 242,370 |       |       |   | 99,856  |     |       |      | 109,776 |       |       |   | 102,740 |    
|Operating expenses (c)                                                                                                     |          |                                       | 122,450 |       |       |   | 139,563 |       |       |   | 99,690  |     |       |      | 103,938 |       |       |   | 99,869  |    
|Operating income                                                                                                           |          |                                       | 44,021  |       |       |   | 102,807 |       |       |   | 166     |     |       |      | 5,838   |       |       |   | 2,871   |    
|Income (loss) from joint ventures (d)                                                                                      |          |                                       | (4,125  | )     |       |   | 741     |       |       |   | (1,012  | )   |       |      | 606     |       |       |   | (160    | )  
|Interest and other financing costs                                                                                         |          |                                       | 3,703   |       |       |   | 4,655   |       |       |   | 4,155   |     |       |      | 8,071   |       |       |   | 7,733   |    
|Income (loss) from continuing operations before income taxes and
    cumulative effect of a change in accounting principle |          |                                       | 36,193  |       |       |   | 98,893  |       |       |   | (5,001  | )   |       |      | (1,627  | )     |       |   | (5,022  | )  
|Net income (loss)                                                                                                          |          | $                                     | 22,092  |       |       | $ | 60,078  |       |       | $ | (3,260  | )   |       | $    | (5,759  | )     |       | $ | (3,648  | )  
|Earnings (Loss) Per Share Data:                                                                                            |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |         |       |       |   |         |    
|Basic (e)                                                                                                                  |          | $                                     | 2.18    |       |       | $ | 6.12    |       |       | $ | (0.34   | )   |       | $    | (0.60   | )     |       | $ | (0.38   | )  
|Diluted                                                                                                                    |          | $                                     | 2.11    |       |       | $ | 5.88    |       |       | $ | (0.34   | )   |       | $    | (0.60   | )     |       | $ | (0.38   | )  
|Weighted average shares  basic                                                                                            |          |                                       | 10,134  |       |       |   | 9,816   |       |       |   | 9,646   |     |       |      | 9,637   |       |       |   | 9,588   |    
|Weighted average shares  diluted                                                                                          |          |                                       | 10,457  |       |       |   | 10,222  |       |       |   | 9,646   |     |       |      | 9,637   |       |       |   | 9,588   |    
|Balance Sheet Data (end of period):                                                                                        |          |                                       |         |       |       |   |         |       |       |   |         |     |       |      |         |       |       |   |         |    
|Current assets                                                                                                             |          | $                                     | 227,655 |       |       | $ | 287,307 |       |       | $ | 155,794 |     |       | $    | 162,686 |       |       | $ | 117,240 |    
|Current liabilities                                                                                                        |          |                                       | 94,603  |       |       |   | 95,688  |       |       |   | 42,574  |     |       |      | 43,962  |       |       |   | 32,455  |    
|Working capital                                                                                                            |          |                                       | 133,052 |       |       |   | 191,619 |       |       |   | 113,220 |     |       |      | 118,724 |       |       |   | 84,785  |    
|Total assets                                                                                                               |          |                                       | 305,606 |       |       |   | 374,146 |       |       |   | 249,002 |     |       |      | 262,911 |       |       |   | 235,386 |    
|Total debt                                                                                                                 |          |                                       |        |       |       |   | 96,022  |       |       |   | 97,797  |     |       |      | 106,793 |       |       |   | 84,499  |    
|Shareholders equity                                                                                                       |          |                                       | 200,321 |       |       |   | 176,525 |       |       |   | 112,236 |     |       |      | 115,495 |       |       |   | 121,243 |    






|    |  |                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------
|(a) |  | Net sales generated from toll tons sold represented less than 3%
    of consolidated net sales for all years presented.
|   
|(b) |  | Gross profit is calculated as net sales less the cost of
    materials sold, exclusive of depreciation.                
|   
|(c) |  | Operating expenses are calculated as total costs and expenses
    less the cost of materials sold.                     
|   
|(d) |  | 2005 includes $3,500 loss on disposition of OLP joint venture.                                                         
|   
|(e) |  | Calculated by dividing net income (loss) by weighted average
    shares outstanding.                                   

19



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might
cause a difference include, but are not limited to, those
discussed under Item 1A. Risk Factors in this Annual Report
on Form 10-K. The
following section is qualified in its entirety by the more
detailed information, including our financial statements and the
notes thereto, which appears elsewhere in this Annual Report.


Overview














Critical Accounting Policies




20



---



##### 









| |                                           
| | ------------------------------------------
| | Allowance for Doubtful Accounts Receivable





| |                    
| | -------------------
| | Inventory Valuation





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |             
| | ------------
| | Income Taxes





| |                    
| | -------------------
| | Revenue Recognition



21



---



##### 



Results of Operations




|                       |  |      |         |          |       |  |       |      |          |   |         |  |  |          |       |   |       |   |         |  |  |  |       |  
|---------------------- |  | ---- | ------- | -------- | ----- |  | ----- | ---- | -------- | - | ------- |  |  | -------- | ----- | - | ----- | - | ------- |  |  |  | ----- | -
|                       |  | 2005 |         |          | 2004  |  |       | 2003 |         
|                       |  |      |         |          |       |  |       |      |         
|                       |  |      |         | % of net |       |  |       |      | % of net |   |         |  |  | % of net |      
|                       |  | $    |         |          | sales |  |       | $    |          |   | sales   |  |  | $        |       |   | sales |  
|                       |  |      |         |          |       |  |       |      |          |   |         |  |  |          |       |   |       |  
|Net sales              |  | $    | 939,210 |          |       |  | 100.0 | %    |          | $ | 894,157 |  |  |          | 100.0 | % |       | $ | 472,548 |  |  |  | 100.0 | %
|Gross profit (a)       |  |      | 166,471 |          |       |  | 17.7  | %    |          |   | 242,370 |  |  |          | 27.1  | % |       |   | 99,856  |  |  |  | 21.1  | %
|Operating expenses (b) |  |      | 122,450 |          |       |  | 13.0  | %    |          |   | 139,563 |  |  |          | 15.6  | % |       |   | 99,690  |  |  |  | 21.1  | %
|Operating income       |  | $    | 44,021  |          |       |  | 4.7   | %    |          | $ | 102,807 |  |  |          | 11.5  | % |       | $ | 166     |  |  |  | 0.0   | %






|    |  |                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------
|(a) |  | Gross profit is calculated as net sales less the cost of
    materials sold, exclusive of depreciation.
|   
|(b) |  | Operating expenses are calculated as total costs and expenses
    less the cost of materials sold.     

2005 Compared to 2004
















22



---



##### 





2004 Compared to 2003


















Liquidity and Capital Resources








23



---



##### 













Contractual Obligations




|                            |                               |       |       |           |        |   |       |           |  |   |           |       |  |         |     |     |  |   |     |     | 
|--------------------------- | ----------------------------- | ----- | ----- | --------- | ------ | - | ----- | --------- |  | - | --------- | ----- |  | ------- | --- | --- |  | - | --- | --- | 
|Contractual Obligations     |                               |       |       | Less than |        |   |       |           |  |   | More than |      
|(amounts in thousands)      |                               | Total |       |           | 1 year |   |       | 1-3 years |  |   | 3-5 years |       |  | 5 years |    
|                            |                               |       |       |           |        |   |       |           |  |   |           |       |  |         |    
|Long-term debt obligations  |                               | $     |      |           |        | $ |      |           |  | $ |          |       |  | $       |    |     |  | $ |    |    
|Loan guarantee obligations  |                               |       | 2,167 |           |        |   | 2,167 |           |  |   |          |       |  |         |    |     |  |   |    |    
|Other long-term liabilities |                               |       | 2,962 |           |        |   | 582   |           |  |   | 1,744     |       |  |         |    |     |  |   | 636 |    
|Operating leases            |                               |       | 7,365 |           |        |   | 1,907 |           |  |   | 4,938     |       |  |         | 520 |     |  |   |    |    
|                            |                               |       |       |           |        |   |       |           |  |   |           |       |  |         |    
|                            | Total contractual obligations |       | $     | 12,494    |        |   | $     | 4,656     |  |   | $         | 6,682 |  |         | $   | 520 |  |   | $   | 636 | 
|                            |                               |       |       |           |        |   |       |           |  |   |           |       |  |         |    

Off Balance Sheet Arrangements






24



---



##### 



Effects of Inflation




Impact of Recently Issued Accounting Pronouncements













|         |                                                          
|-------- | ---------------------------------------------------------
|ITEM 7A. | QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK











25



---



##### 








|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Olympic Steel, Inc.


Index to Consolidated Financial Statements


|                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                         |  | Page |   
|                                                                                                         |  |      |   
|Report of Independent Registered Public Accounting Firm                                                  |  |      | 27 | 
|Managements Report on Internal Control Over Financial
    Reporting                                     |  |      | 29 | 
|Consolidated Statements of Operations for the Years Ended
    December 31, 2005, 2004 and 2003           |  |      | 30 | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                             |  |      | 31 | 
|Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004 and 2003           |  |      | 32 | 
|Consolidated Statements of Shareholders Equity for the
    Years Ended December 31, 2005, 2004 and 2003 |  |      | 33 | 
|Notes to Consolidated Financial Statements                                                               |  |      | 34 | 

26



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







Consolidated financial statements




Internal control over financial reporting


Internal Control  Integrated Framework Internal Control 
Integrated Framework




27



---



##### 









| |                           
| | --------------------------
| | PricewaterhouseCoopers LLP





28



---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING




Internal Control  Integrated
Framework




29



---



##### 



Olympic Steel, Inc.


Consolidated Statements of Operations


For The Years Ended December 31, 2005, 2004, and 2003




|                                              |                                                                |                          |         |         |         |   |         |         |         |   |         |         |         | 
|--------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                              |                                                                | 2005                     |         |         | 2004    |   |         | 2003    |        
|                                              |                                                                |                          |         |         |         |   |         |         |        
|Net sales                                     |                                                                | $                        | 939,210 |         |         | $ | 894,157 |         |         | $ | 472,548 |        
|Costs and expenses                            |                                                                |                          |         |         |         |   |         |         |         |   |         |        
|                                              | Cost of materials sold (exclusive of depreciation shown below) |                          |         | 772,739 |         |   |         | 651,787 |         |   |         | 372,692 |        
|                                              | Warehouse and processing                                       |                          |         | 41,461  |         |   |         | 42,582  |         |   |         | 33,127  |        
|                                              | Administrative and general                                     |                          |         | 32,229  |         |   |         | 44,820  |         |   |         | 22,901  |        
|                                              | Distribution                                                   |                          |         | 21,171  |         |   |         | 18,775  |         |   |         | 16,538  |        
|                                              | Selling                                                        |                          |         | 14,838  |         |   |         | 19,792  |         |   |         | 14,867  |        
|                                              | Occupancy                                                      |                          |         | 4,728   |         |   |         | 4,898   |         |   |         | 3,936   |        
|                                              | Depreciation                                                   |                          |         | 8,023   |         |   |         | 8,209   |         |   |         | 8,321   |        
|                                              | Asset impairment charge                                        |                          |         |        |         |   |         | 487     |         |   |         |        |        
|                                              |                                                                |                          |         |         |         |   |         |         |        
|                                              |                                                                | Total costs and expenses |         |         | 895,189 |   |         |         | 791,350 |   |         |         | 472,382 | 
|                                              |                                                                |                          |         |         |         |   |         |         |        
|                                              | Operating income                                               |                          |         | 44,021  |         |   |         | 102,807 |         |   |         | 166     |        
|Income (loss) from joint ventures             |                                                                |                          | (625    | )       |         |   | 741     |         |         |   | (1,012  | )      
|Loss on disposition of joint venture          |                                                                |                          | (3,500  | )       |         |   |        |         |         |   |        |        
|                                              |                                                                |                          |         |         |         |   |         |         |        
|                                              | Income (loss) before financing costs and income taxes          |                          |         | 39,896  |         |   |         | 103,548 |         |   |         | (846    | )      
|Interest and other expense on debt            |                                                                |                          | 3,703   |         |         |   | 4,655   |         |         |   | 4,155   |        
|                                              |                                                                |                          |         |         |         |   |         |         |        
|                                              | Income (loss) before income taxes                              |                          |         | 36,193  |         |   |         | 98,893  |         |   |         | (5,001  | )      
|Income tax provision (benefit)                |                                                                |                          | 14,101  |         |         |   | 38,815  |         |         |   | (1,741  | )      
|                                              |                                                                |                          |         |         |         |   |         |         |        
|Net income (loss)                             |                                                                | $                        | 22,092  |         |         | $ | 60,078  |         |         | $ | (3,260  | )      
|                                              |                                                                |                          |         |         |         |   |         |         |        
|Net income (loss) per share  basic           |                                                                | $                        | 2.18    |         |         | $ | 6.12    |         |         | $ | (0.34   | )      
|                                              |                                                                |                          |         |         |         |   |         |         |        
|Weighted average shares outstanding  basic   |                                                                |                          | 10,134  |         |         |   | 9,816   |         |         |   | 9,646   |        
|Net income (loss) per share  diluted         |                                                                | $                        | 2.11    |         |         | $ | 5.88    |         |         | $ | (0.34   | )      
|                                              |                                                                |                          |         |         |         |   |         |         |        
|Weighted average shares outstanding  diluted |                                                                |                          | 10,457  |         |         |   | 10,222  |         |         |   | 9,646   |        

The accompanying notes are an integral part of these
statements.


30



---



##### 



Olympic Steel, Inc.


Consolidated Balance Sheets


As of December 31, 2005 and 2004




|                                                                                                                                                                                                           |                                            |      |         |         |      |   |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---- | ------- | ------- | ---- | - | ------- | ------- | 
|                                                                                                                                                                                                           |                                            | 2005 |         |         | 2004 |  
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Assets                                                                                                                                                                                                     |                                            |      |         |         |      |   |         |        
|Cash and cash equivalents                                                                                                                                                                                  |                                            | $    | 9,555   |         |      | $ | 4,684   |        
|Accounts receivable, net                                                                                                                                                                                   |                                            |      | 80,131  |         |      |   | 93,336  |        
|Inventories                                                                                                                                                                                                |                                            |      | 134,236 |         |      |   | 186,124 |        
|Prepaid expenses and other                                                                                                                                                                                 |                                            |      | 3,733   |         |      |   | 3,163   |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total current assets                       |      |         | 227,655 |      |   |         | 287,307 | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Property and equipment, at cost                                                                                                                                                                            |                                            |      | 155,231 |         |      |   | 153,235 |        
|Accumulated depreciation                                                                                                                                                                                   |                                            |      | (77,480 | )       |      |   | (69,664 | )      
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Net property and equipment                 |      |         | 77,751  |      |   |         | 83,571  | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Investments in joint ventures                                                                                                                                                                              |                                            |      | 200     |         |      |   | 2,311   |        
|Deferred financing fees, net                                                                                                                                                                               |                                            |      |        |         |      |   | 957     |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total assets                               |      | $       | 305,606 |      |   | $       | 374,146 | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                          
|Liabilities                                                                                                                                                                                                |                                            |      |         |         |      |   |         |        
|Current portion of long-term debt                                                                                                                                                                          |                                            | $    |        |         |      | $ | 4,892   |        
|Accounts payable                                                                                                                                                                                           |                                            |      | 77,412  |         |      |   | 63,680  |        
|Accrued payroll                                                                                                                                                                                            |                                            |      | 6,239   |         |      |   | 16,778  |        
|Other accrued liabilities                                                                                                                                                                                  |                                            |      | 10,952  |         |      |   | 10,338  |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total current liabilities                  |      |         | 94,603  |      |   |         | 95,688  | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Credit facility revolver                                                                                                                                                                                   |                                            |      |        |         |      |   | 58,638  |        
|Term loans                                                                                                                                                                                                 |                                            |      |        |         |      |   | 29,212  |        
|Industrial revenue bonds                                                                                                                                                                                   |                                            |      |        |         |      |   | 3,280   |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total long-term debt                       |      |         |        |      |   |         | 91,130  | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Other long-term liabilities                                                                                                                                                                                |                                            |      | 2,962   |         |      |   |        |        
|Deferred income taxes                                                                                                                                                                                      |                                            |      | 7,720   |         |      |   | 10,803  |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total liabilities                          |      |         | 105,285 |      |   |         | 197,621 | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|Shareholders Equity                                                                                                                                                                                       |                                            |      |         |         |      |   |         |        
|Preferred stock, without par value, 5,000 shares
    authorized, no shares issued or outstanding                                                                                                           |                                            |      |        |         |      |   |        |        
|Common stock, without par value, 20,000 shares authorized,
    10,154 and 10,039 issued and outstanding after deducting 538 and
    653 shares in treasury at December 31, 2005 and 2004,
    respectively |                                            |      | 104,956 |         |      |   | 103,252 |        
|Retained earnings                                                                                                                                                                                          |                                            |      | 95,365  |         |      |   | 73,273  |        
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total shareholders equity                 |      |         | 200,321 |      |   |         | 176,525 | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  
|                                                                                                                                                                                                           | Total liabilities and shareholders equity |      | $       | 305,606 |      |   | $       | 374,146 | 
|                                                                                                                                                                                                           |                                            |      |         |         |      |  

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


31



---



##### 



Olympic Steel, Inc.


Consolidated Statements of Cash Flows


For The Years Ended December 31, 2005, 2004 and 2003




|                                      |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |        |        |  
|------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | - | ------- | ------- | ------ | - | ----- | ------ | ------ | -
|                                      |                                                                                        | 2005                                                    |        |         | 2004    |   |         | 2003    |       
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|Cash flows from operating activities: |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |       
|                                      | Net income (loss)                                                                      |                                                         | $      | 22,092  |         |   | $       | 60,078  |        |   | $     | (3,260 | )     
|                                      | Adjustments to reconcile net income (loss) to net cash from
    operating activities  |                                                         |        |         |         |   |         |         |        |   |       |        |       
|                                      |                                                                                        | Depreciation and amortization                           |        |         | 8,980   |   |         |         | 9,753  |   |       |        | 9,060  |  
|                                      |                                                                                        | Loss (income) from joint ventures, net of distributions |        |         | 778     |   |         |         | (686   | ) |       |        | 1,012  |  
|                                      |                                                                                        | Loss on disposition of joint venture                    |        |         | 3,500   |   |         |         |       |   |       |        |       |  
|                                      |                                                                                        | Asset impairment charge                                 |        |         |        |   |         |         | 487    |   |       |        |       |  
|                                      |                                                                                        | Loss on disposition of property and equipment           |        |         | 27      |   |         |         | 58     |   |       |        | 38     |  
|                                      |                                                                                        | Tax benefit from exercise of stock options              |        |         | 652     |   |         |         | 1,622  |   |       |        |       |  
|                                      |                                                                                        | Other long-term liabilities                             |        |         | 2,962   |   |         |         |       |   |       |        |       |  
|                                      |                                                                                        | Long-term deferred income taxes                         |        |         | (3,083  | ) |         |         | 9,531  |   |       |        | (2,362 | )
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      |                                                                                        |                                                         | 35,908 |         |         |   | 80,843  |         |        |   | 4,488 |       
|Changes in working capital:           |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |       
|                                      | Accounts receivable                                                                    |                                                         |        | 13,205  |         |   |         | (36,761 | )      |   |       | (8,922 | )     
|                                      | Inventories                                                                            |                                                         |        | 51,888  |         |   |         | (93,349 | )      |   |       | 9,062  |       
|                                      | Prepaid expenses and other                                                             |                                                         |        | (570    | )       |   |         | (369    | )      |   |       | 4,015  |       
|                                      | Accounts payable                                                                       |                                                         |        | (1,296  | )       |   |         | 32,335  |        |   |       | 2,680  |       
|                                      | Accrued payroll and other accrued liabilities                                          |                                                         |        | (12,092 | )       |   |         | 20,764  |        |   |       | (1,771 | )     
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      |                                                                                        |                                                         | 51,135 |         |         |   | (77,380 | )       |        |   | 5,064 |       
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      |                                                                                        | Net cash from operating activities                      |        |         | 87,043  |   |         |         | 3,463  |   |       |        | 9,552  |  
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|Cash flows from investing activities: |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |       
|                                      | Capital expenditures                                                                   |                                                         |        | (2,230  | )       |   |         | (2,029  | )      |   |       | (836   | )     
|                                      | Proceeds from disposition of property and equipment                                    |                                                         |        |        |         |   |         | 123     |        |   |       | 1,292  |       
|                                      | Investments in joint ventures                                                          |                                                         |        |        |         |   |         |        |        |   |       | (2,000 | )     
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      |                                                                                        | Net cash used for investing activities                  |        |         | (2,230  | ) |         |         | (1,906 | ) |       |        | (1,544 | )
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|Cash flows from financing activities: |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |       
|                                      | Credit facility revolver borrowings (payments), net                                    |                                                         |        | (49,517 | )       |   |         | (4,304  | )      |   |       | (1,674 | )     
|                                      | Change in outstanding checks                                                           |                                                         |        | 5,907   |         |   |         | 7,405   |        |   |       | (349   | )     
|                                      | Debt repayments                                                                        |                                                         |        | (37,384 | )       |   |         | (4,876  | )      |   |       | (6,973 | )     
|                                      | Credit facility closing fees and expenses                                              |                                                         |        |        |         |   |         | (700    | )      |   |       | (275   | )     
|                                      | Repayment of officer note receivable                                                   |                                                         |        |        |         |   |         | 675     |        |   |       |       |       
|                                      | Proceeds from exercise of stock options and employee stock
    purchases               |                                                         |        | 1,052   |         |   |         | 1,840   |        |   |       | 24     |       
|                                      | Escrowed cash restricted for payment of debt                                           |                                                         |        |        |         |   |         |        |        |   |       | 2,590  |       
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      |                                                                                        | Net cash from (used for) financing activities           |        |         | (79,942 | ) |         |         | 40     |   |       |        | (6,657 | )
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|Cash and cash equivalents:            |                                                                                        |                                                         |        |         |         |   |         |         |        |   |       |       
|                                      | Net increase                                                                           |                                                         |        | 4,871   |         |   |         | 1,597   |        |   |       | 1,351  |       
|                                      | Beginning balance                                                                      |                                                         |        | 4,684   |         |   |         | 3,087   |        |   |       | 1,736  |       
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       
|                                      | Ending balance                                                                         |                                                         | $      | 9,555   |         |   | $       | 4,684   |        |   | $     | 3,087  |       
|                                      |                                                                                        |                                                         |        |         |         |   |         |         |       

The accompanying notes are an integral part of these
statements.


32



---



##### 



Olympic Steel, Inc.


Consolidated Statements of Shareholders Equity


For The Years Ended December 31, 2005, 2004 and 2003




|                             |                                                                         |        |         |       |              |   |      |          |   |   |        |        |  
|---------------------------- | ----------------------------------------------------------------------- | ------ | ------- | ----- | ------------ | - | ---- | -------- | - | - | ------ | ------ | -
|                             |                                                                         | Common |         |       | Officer Note |   |      | Retained |  
|                             |                                                                         | Stock  |         |       | Receivable   |   |      | Earnings |  
|                             |                                                                         |        |         |       |              |   |      |          |  
|Balance at December 31, 2002 |                                                                         | $      | 99,766  |       |              | $ | (726 | )        |   | $ | 16,455 |       
|                             | Net loss                                                                |        |         |      |              |   |      |         |   |   |        | (3,260 | )
|                             | Interest on officer note                                                |        |         |      |              |   |      | (35      | ) |   |        |       |  
|                             | Payment of interest on officer note                                     |        |         |      |              |   |      | 12       |   |   |        |       |  
|                             | Exercise of stock options and employee stock purchases
    (7 shares)   |        |         | 24    |              |   |      |         |   |   |        |       |  
|                             |                                                                         |        |         |       |              |   |      |          |  
|Balance at December 31, 2003 |                                                                         |        | 99,790  |       |              |   | (749 | )        |   |   | 13,195 |       
|                             | Net income                                                              |        |         |      |              |   |      |         |   |   |        | 60,078 |  
|                             | Interest on officer note                                                |        |         |      |              |   |      | (23      | ) |   |        |       |  
|                             | Payment of interest on officer note                                     |        |         |      |              |   |      | 97       |   |   |        |       |  
|                             | Repayment of officer note principal                                     |        |         |      |              |   |      | 675      |   |   |        |       |  
|                             | Exercise of stock options and employee stock purchases
    (389 shares) |        |         | 3,462 |              |   |      |         |   |   |        |       |  
|                             |                                                                         |        |         |       |              |   |      |          |  
|Balance at December 31, 2004 |                                                                         |        | 103,252 |       |              |   |     |          |   |   | 73,273 |       
|                             | Net income                                                              |        |         |      |              |   |      |         |   |   |        | 22,092 |  
|                             | Exercise of stock options and employee stock purchases
    (115 shares) |        |         | 1,704 |              |   |      |         |   |   |        |       |  
|                             |                                                                         |        |         |       |              |   |      |          |  
|Balance at December 31, 2005 |                                                                         | $      | 104,956 |       |              | $ |     |          |   | $ | 95,365 |       
|                             |                                                                         |        |         |       |              |   |      |          |  

The accompanying notes are an integral part of these
statements.


33



---



##### 



Olympic Steel, Inc.


Notes to Consolidated Financial Statements


For The Years Ended December 31, 2005, 2004, and 2003






|   |                                            
|-- | -------------------------------------------
|1. | Summary of Significant Accounting Policies:

Principles of Consolidation




Nature of Business




Accounting Estimates




Concentration Risks






Cash and Cash Equivalents




Accounts Receivable






34



---



##### 





Inventories




Property and Equipment, and Depreciation




Income Taxes




Revenue Recognition




Shipping and Handling Fees and Costs




Impairment




Stock-Based Compensation




35



---



##### 







|                                     |             |                                       |        |      |      |   |        |      |  |   |        |       |  
|------------------------------------ | ----------- | ------------------------------------- | ------ | ---- | ---- | - | ------ | ---- |  | - | ------ | ----- | -
|                                     |             | Years Ended December 31,              |       
|                                     |             |                                       |       
|                                     |             | 2005                                  |        |      | 2004 |   |        | 2003 | 
|                                     |             |                                       |        |      |      |   |        |      | 
|                                     |             | (In thousands, except per share data) |       
|Net income (loss), as reported       |             | $                                     | 22,092 |      |      | $ | 60,078 |      |  | $ | (3,260 | )    
|Pro forma expense, net of tax        |             |                                       | (348   | )    |      |   | (2,068 | )    |  |   | (239   | )    
|                                     |             |                                       |        |      |      |   |        |      | 
|Pro forma net income (loss)          |             | $                                     | 21,744 |      |      | $ | 58,010 |      |  | $ | (3,499 | )    
|                                     |             |                                       |        |      |      |   |        |      | 
|Basic net income (loss) per share:   |             |                                       |        |      |      |   |        |      |  |   |        |      
|                                     | As reported |                                       | $      | 2.18 |      |   | $      | 6.12 |  |   | $      | (0.34 | )
|                                     |             |                                       |        |      |      |   |        |      | 
|                                     | Pro forma   |                                       | $      | 2.15 |      |   | $      | 5.91 |  |   | $      | (0.36 | )
|                                     |             |                                       |        |      |      |   |        |      | 
|Diluted net income (loss) per share: |             |                                       |        |      |      |   |        |      |  |   |        |      
|                                     | As reported |                                       | $      | 2.11 |      |   | $      | 5.88 |  |   | $      | (0.34 | )
|                                     |             |                                       |        |      |      |   |        |      | 
|                                     | Pro forma   |                                       | $      | 2.08 |      |   | $      | 5.68 |  |   | $      | (0.36 | )
|                                     |             |                                       |        |      |      |   |        |      | 

Shares Outstanding and Earnings Per Share




|                                    |  |                                       |        |  |      |   |        |      |  |   |        |  
|----------------------------------- |  | ------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | -
|                                    |  | Years Ended December 31,              |       
|                                    |  |                                       |       
|                                    |  | 2005                                  |        |  | 2004 |   |        | 2003 | 
|                                    |  |                                       |        |  |      |   |        |      | 
|                                    |  | (In thousands, except per share data) |       
|Weighted average shares outstanding |  |                                       | 10,134 |  |      |   | 9,816  |      |  |   | 9,646  |  
|Assumed exercise of stock options   |  |                                       | 323    |  |      |   | 406    |      |  |   |       |  
|                                    |  |                                       |        |  |      |   |        |      | 
|Weighted average diluted shares     |  |                                       | 10,457 |  |      |   | 10,222 |      |  |   | 9,646  |  
|                                    |  |                                       |        |  |      |   |        |      | 
|Net income (loss)                   |  | $                                     | 22,092 |  |      | $ | 60,078 |      |  | $ | (3,260 | )
|Basic earnings (loss) per share     |  | $                                     | 2.18   |  |      | $ | 6.12   |      |  | $ | (0.34  | )
|                                    |  |                                       |        |  |      |   |        |      | 
|Diluted earnings (loss) per share   |  | $                                     | 2.11   |  |      | $ | 5.88   |      |  | $ | (0.34  | )
|                                    |  |                                       |        |  |      |   |        |      | 



Impact of Recently Issued Accounting Pronouncements




36



---



##### 











|   |                   
|-- | ------------------
|2. | Impairment Charge:





|   |                               
|-- | ------------------------------
|3. | Investments in Joint Ventures:





37



---



##### 





|                                         |  |                          |        |   |      |   |        |      |  |   |        |  
|---------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | Years Ended December 31, |       
|                                         |  |                          |       
|Income Statement Data:                   |  | 2005                     |        |   | 2004 |   |        | 2003 | 
|                                         |  |                          |        |   |      |   |        |      | 
|Net sales                                |  | $                        | 57,211 |   |      | $ | 46,947 |      |  | $ | 36,268 |  
|Gross profit                             |  |                          | 11,538 |   |      |   | 15,446 |      |  |   | 11,553 |  
|Operating income (loss)                  |  |                          | (284   | ) |      |   | 2,281  |      |  |   | (1,294 | )
|Loss on disposition of OLP joint venture |  |                          | (7,000 | ) |      |   |       |      |  |   |       |  
|Net income (loss)                        |  | $                        | (8,264 | ) |      | $ | 1,514  |      |  | $ | (2,031 | )

|                           |  |                    |        |  |      |   |        | 
|-------------------------- |  | ------------------ | ------ |  | ---- | - | ------ | 
|                           |  | As of December 31, |       
|                           |  |                    |       
|Balance Sheet Data:        |  | 2005               |        |  | 2004 |  
|                           |  |                    |        |  |      |  
|Current assets             |  | $                  | 18,510 |  |      | $ | 15,129 | 
|Net property and equipment |  |                    | 16,799 |  |      |   | 18,678 | 
|Current liabilities        |  |                    | 39,288 |  |      |   | 19,064 | 
|Long-term liabilities      |  | $                  |       |  |      | $ | 10,453 | 







|   |                        
|-- | -----------------------
|4. | Property and Equipment:



|                              |                            |             |       |                    |      |   |         |        |  |   |         |        | 
|----------------------------- | -------------------------- | ----------- | ----- | ------------------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                              |                            |             |       | As of December 31, |     
|                              |                            | Depreciable |       |                    |      |  
|                              |                            | Lives       |       |                    | 2005 |   |         | 2004   | 
|                              |                            |             |       |                    |      |   |         |        | 
|Land                          |                            |             |      |                    |      | $ | 8,842   |        |  | $ | 8,842   |       
|Land improvements             |                            |             | 10    |                    |      |   | 1,152   |        |  |   | 1,152   |       
|Buildings and improvements    |                            |             | 30    |                    |      |   | 54,752  |        |  |   | 54,664  |       
|Machinery and equipment       |                            |             | 10-15 |                    |      |   | 78,954  |        |  |   | 77,313  |       
|Furniture and fixtures        |                            |             | 7     |                    |      |   | 4,511   |        |  |   | 4,540   |       
|Computer equipment            |                            |             | 5     |                    |      |   | 6,634   |        |  |   | 6,497   |       
|Vehicles                      |                            |             | 5     |                    |      |   | 62      |        |  |   | 62      |       
|Construction in progress      |                            |             |      |                    |      |   | 324     |        |  |   | 165     |       
|                              |                            |             |       |                    |      |   |         |        | 
|                              |                            |             |       |                    |      | $ | 155,231 |        |  | $ | 153,235 |       
|Less accumulated depreciation |                            |             |       |                    |      |   | (77,480 | )      |  |   | (69,664 | )     
|                              |                            |             |       |                    |      |   |         |        | 
|                              | Net property and equipment |             |       |                    |      |   | $       | 77,751 |  |   | $       | 83,571 | 
|                              |                            |             |       |                    |      |   |         |        | 





|   |             
|-- | ------------
|5. | Inventories:



|                       |        |                    |        |         |      |   |         |         | 
|---------------------- | ------ | ------------------ | ------ | ------- | ---- | - | ------- | ------- | 
|                       |        | As of December 31, |       
|                       |        |                    |       
|                       |        | 2005               |        |         | 2004 |  
|                       |        |                    |        |         |      |  
|Unprocessed            |        | $                  | 98,939 |         |      | $ | 141,578 |        
|Processed and finished |        |                    | 35,297 |         |      |   | 44,546  |        
|                       |        |                    |        |         |      |  
|                       | Totals |                    | $      | 134,236 |      |   | $       | 186,124 | 
|                       |        |                    |        |         |      |  

38



---



##### 





|   |      
|-- | -----
|6. | Debt:

Credit Facility


3-year,










Term Loans




|                      |  |              |     |   |             |  |     |      |  |      |   |  |  |   |        | 
|--------------------- |  | ------------ | --- | - | ----------- |  | --- | ---- |  | ---- | - |  |  | - | ------ | 
|                      |  | Opening Rate |     |   | Rate        |  |     |      |  |     
|Description           |  | at 1/1/05    |     |   | at 12/31/05 |  |     | 2005 |  | 2004 |  
|                      |  |              |     |   |             |  |     |      |  |      |  
|Equipment Term Loan   |  |              | 4.1 | % |             |  | n/a |      |  | $    |  |  |  | $ | 5,000  | 
|Real Estate Term Loan |  |              | 4.1 | % |             |  | n/a |      |  |      |  |  |  |   | 24,167 | 
|Other                 |  |              | 4.0 | % |             |  | n/a |      |  |      |  |  |  |   | 45     | 
|                      |  |              |     |   |             |  |     |      |  |      |   | 
|                      |  |              |     |   |             |  |     |      |  | $    |  |  |  | $ | 29,212 | 
|                      |  |              |     |   |             |  |     |      |  |      |   | 

Industrial Revenue Bonds




|                                              |  |               |     |  |      |   |      |  |  |   |       | 
|--------------------------------------------- |  | ------------- | --- |  | ---- | - | ---- |  |  | - | ----- | 
|                                              |  | Interest Rate |     |  |      |   |     
|Description of Bonds                          |  | at 12/31/05   |     |  | 2005 |   | 2004 | 
|                                              |  |               |     |  |      |   |      | 
|$6,000 fixed rate bonds due 1999 through 2014 |  |               | n/a |  |      | $ |     |  |  | $ | 3,280 | 

Scheduled Debt Maturities, Interest, Debt Carrying
Values




39



---



##### 









|   |              
|-- | -------------
|7. | Income Taxes:



|         |                 |      |        |        |      |   |        |        |  |   |        |   | 
|-------- | --------------- | ---- | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | - | 
|         |                 | 2005 |        |        | 2004 |   |        | 2003   | 
|         |                 |      |        |        |      |   |        |        | 
|Current: |                 |      |        |        |      |   |        |        |  |   |        |  
|         | Federal         |      | $      | 14,557 |      |   | $      | 25,355 |  |   | $      |  | 
|         | State and local |      |        | 2,763  |      |   |        | 3,766  |  |   |        |  | 
|         |                 |      |        |        |      |   |        |        | 
|         |                 |      | 17,320 |        |      |   | 29,121 |        |  |   |       |  
|Deferred |                 |      | (3,219 | )      |      |   | 9,694  |        |  |   | (1,741 | )
|         |                 |      |        |        |      |   |        |        | 
|         |                 | $    | 14,101 |        |      | $ | 38,815 |        |  | $ | (1,741 | )
|         |                 |      |        |        |      |   |        |        | 



|                               |                                        |      |        |        |      |   |         |         |  
|------------------------------ | -------------------------------------- | ---- | ------ | ------ | ---- | - | ------- | ------- | -
|                               |                                        | 2005 |        |        | 2004 |  
|                               |                                        |      |        |        |      |  
|Deferred tax assets:           |                                        |      |        |        |      |   |         |        
|                               | Inventory                              |      | $      | 705    |      |   | $       | 635     |  
|                               | State net operating loss carryforwards |      |        | 1,066  |      |   |         | 1,368   |  
|                               | Intangibles                            |      |        | 52     |      |   |         | 480     |  
|                               | Allowance for doubtful accounts        |      |        | 824    |      |   |         | 830     |  
|                               | Accrued expenses                       |      |        | 2,747  |      |   |         | 1,214   |  
|                               |                                        |      |        |        |      |  
|                               |                                        |      | 5,394  |        |      |   | 4,527   |        
|                               | Valuation reserve                      |      |        | (989   | )    |   |         | (1,090  | )
|                               |                                        |      |        |        |      |  
|Total deferred tax assets      |                                        |      | 4,405  |        |      |   | 3,437   |        
|                               |                                        |      |        |        |      |  
|Deferred tax liabilities:      |                                        |      |        |        |      |   |         |        
|                               | Property and equipment                 |      |        | (9,168 | )    |   |         | (10,210 | )
|                               | Joint venture basis differences        |      |        | (142   | )    |   |         | (1,351  | )
|                               |                                        |      |        |        |      |  
|Total deferred tax liabilities |                                        |      | (9,310 | )      |      |   | (11,561 | )      
|                               |                                        |      |        |        |      |  
|Deferred tax liabilities, net  |                                        | $    | (4,905 | )      |      | $ | (8,124  | )      
|                               |                                        |      |        |        |      |  



|                                              |  |      |      |   |      |  |      |      |  |  |      |  
|--------------------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                              |  | 2005 |      |   | 2004 |  |      | 2003 | 
|                                              |  |      |      |   |      |  |      |      | 
|U.S. federal statutory rate                   |  |      | 35.0 | % |      |  | 35.0 | %    |  |  | 34.0 | %
|State and local taxes, net of federal benefit |  |      | 4.0  |   |      |  | 3.1  |      |  |  | 4.7  |  
|Sec. 199 manufacturing deduction              |  |      | (1.1 | ) |      |  |     |      |  |  |     |  
|All other, net                                |  |      | 1.1  |   |      |  | 1.1  |      |  |  | (3.9 | )
|                                              |  |      |      |   |      |  |      |      | 
|Effective income tax rate                     |  |      | 39.0 | % |      |  | 39.2 | %    |  |  | 34.8 | %
|                                              |  |      |      |   |      |  |      |      | 

40



---



##### 





8.     Retirement Plans:














|   |               
|-- | --------------
|9. | Stock Options:



41



---



##### 





|                                 |                                                          |        |           |                |           |   |      |       | 
|-------------------------------- | -------------------------------------------------------- | ------ | --------- | -------------- | --------- | - | ---- | ----- | 
|                                 |                                                          |        |           | Weighted       |          
|                                 |                                                          |        |           | Average        |          
|                                 |                                                          |        |           | Exercise Price |          
|                                 |                                                          | Shares |           |                | Per Share |  
|                                 |                                                          |        |           |                |           |  
|Outstanding at December 31, 2002 |                                                          |        | 982,833   |                |           | $ | 5.10 |      
|                                 | Granted (at exercise price of $3.50)                     |        |           | 136,000        |           |   |      | 3.50  | 
|                                 | Exercised                                                |        |           | (2,500         | )         |   |      | 2.63  | 
|                                 | Forfeited                                                |        |           | (20,500        | )         |   |      | 5.97  | 
|                                 |                                                          |        |           |                |           |  
|Outstanding at December 31, 2003 |                                                          |        | 1,095,833 |                |           |   | 4.89 |      
|                                 | Granted (at exercise prices of $7.97, $12.32 and $13.94) |        |           | 244,000        |           |   |      | 12.49 | 
|                                 | Exercised                                                |        |           | (388,329       | )         |   |      | 4.70  | 
|                                 | Forfeited                                                |        |           | (64,000        | )         |   |      | 15.14 | 
|                                 |                                                          |        |           |                |           |  
|Outstanding at December 31, 2004 |                                                          |        | 887,504   |                |           |   | 6.33 |      
|                                 | Granted                                                  |        |           |               |           |   |      |      | 
|                                 | Exercised                                                |        |           | (113,991       | )         |   |      | 9.05  | 
|                                 | Forfeited                                                |        |           | (19,668        | )         |   |      | 3.08  | 
|                                 |                                                          |        |           |                |           |  
|Outstanding at December 31, 2005 |                                                          |        | 753,845   |                |           | $ | 6.00 |      
|                                 |                                                          |        |           |                |           |  



|         |        |                     |           |                  |                     |                  |  |                  |  |          |           |  |  |                |         |  |  |  |        | 
|-------- | ------ | ------------------- | --------- | ---------------- | ------------------- | ---------------- |  | ---------------- |  | -------- | --------- |  |  | -------------- | ------- |  |  |  | ------ | 
|         |        | Options Outstanding |           |                  | Options Exercisable |                 
|         |        |                     |           |                  |                     |                 
|         |        |                     |           | Weighted Average |                     |                  |  |                  |  | Weighted |          
|Exercise |        |                     | Number of |                  |                     | Remaining        |  | Weighted Average |  |          | Number of |  |  | Average        |        
|Price    |        |                     | Shares    |                  |                     | Contractual Life |  | Exercise Price   |  |          | Shares    |  |  | Exercise Price |        
|         |        |                     |           |                  |                     |                  |  |                  |  |          |           |  |  |                |        
|         | $15.50 |                     |           |                  | 10,000              |                  |  | 0.3 years        |  |          | $15.50    |  |  |                | 10,000  |  |  |  | $15.50 | 
|         | 14.63  |                     |           |                  | 8,000               |                  |  | 1.3 years        |  |          | 14.63     |  |  |                | 8,000   |  |  |  | 14.63  | 
|         | 8.75   |                     |           |                  | 64,333              |                  |  | 3.3 years        |  |          | 8.75      |  |  |                | 64,333  |  |  |  | 8.75   | 
|         | 4.84   |                     |           |                  | 53,000              |                  |  | 4.3 years        |  |          | 4.84      |  |  |                | 53,000  |  |  |  | 4.84   | 
|         | 1.97   |                     |           |                  | 220,000             |                  |  | 5.0 years        |  |          | 1.97      |  |  |                | 160,000 |  |  |  | 1.97   | 
|         | 2.63   |                     |           |                  | 58,001              |                  |  | 5.3 years        |  |          | 2.63      |  |  |                | 56,001  |  |  |  | 2.63   | 
|         | 5.28   |                     |           |                  | 72,171              |                  |  | 6.3 years        |  |          | 5.28      |  |  |                | 72,171  |  |  |  | 5.28   | 
|         | 3.50   |                     |           |                  | 94,173              |                  |  | 7.4 years        |  |          | 3.50      |  |  |                | 54,173  |  |  |  | 3.50   | 
|         | 7.97   |                     |           |                  | 10,000              |                  |  | 8.1 years        |  |          | 7.97      |  |  |                | 2,000   |  |  |  | 7.97   | 
|         | 12.32  |                     |           |                  | 143,667             |                  |  | 8.3 years        |  |          | 12.32     |  |  |                | 135,667 |  |  |  | 12.32  | 
|         | 13.94  |                     |           |                  | 20,500              |                  |  | 8.4 years        |  |          | 13.94     |  |  |                | 20,500  |  |  |  | 13.94  | 
|         |        |                     |           |                  |                     |                  |  |                  |  |          |           |  |  |                |        
|         | Totals |                     |           |                  | 753,845             |                  |  |                  |  |          |           |  |  |                | 635,845 |  |  |  |        | 
|         |        |                     |           |                  |                     |                  |  |                  |  |          |           |  |  |                |        



|                        |  |      |     |  |      |  |      |      |  |  |      |  
|----------------------- |  | ---- | --- |  | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | 2005 |     |  | 2004 |  |      | 2003 | 
|                        |  |      |     |  |      |  |      |      | 
|Risk free interest rate |  |      | n/a |  |      |  | 4.48 | %    |  |  | 3.77 | %
|Expected life in years  |  |      | n/a |  |      |  | 10   |      |  |  | 10   |  
|Expected volatility     |  |      | n/a |  |      |  | .59  |      |  |  | .57  |  
|Expected dividend yield |  |      | n/a |  |      |  | 0    | %    |  |  | 0    | %

42



---



##### 





|    |                               
|--- | ------------------------------
|10. | Commitments and Contingencies:





|           |  |   |       | 
|---------- |  | - | ----- | 
|2006       |  | $ | 1,907 | 
|2007       |  |   | 1,756 | 
|2008       |  |   | 1,618 | 
|2009       |  |   | 1,564 | 
|2010       |  |   | 520   | 
|Thereafter |  |   |      | 
|           |  |   |      
|           |  | $ | 7,365 | 
|           |  |   |      













|    |                            
|--- | ---------------------------
|11. | Related Party Transactions:

10-year






5-year,


43



---



##### 









|    |                         
|--- | ------------------------
|12. | Shareholder Rights Plan:



44



---



##### 



SUPPLEMENTAL FINANCIAL INFORMATION


Unaudited Quarterly Results of Operations




|                                  |                                               |     |         |        |     |   |         |        |  |   |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------- | --------------------------------------------- | --- | ------- | ------ | --- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|2005                              |                                               | 1st |         |        | 2nd |   |         | 3rd    |  |   | 4th     |        |  | Year |        
|                                  |                                               |     |         |        |     |   |         |        |  |   |         |        |  |      |        
|Net sales                         |                                               | $   | 284,558 |        |     | $ | 241,482 |        |  | $ | 208,358 |        |  | $    | 204,812 |        |  | $ | 939,210 |       
|Operating income                  |                                               |     | 16,833  |        |     |   | 5,937   |        |  |   | 4,825   |        |  |      | 16,426  |        |  |   | 44,021  |       
|Income before income taxes        |                                               |     | 15,768  |        |     |   | 4,757   |        |  |   | 3,519   |        |  |      | 12,149  |        |  |   | 36,193  |       
|Net income                        |                                               | $   | 9,619   |        |     | $ | 3,004   |        |  | $ | 2,164   |        |  | $    | 7,305   |        |  | $ | 22,092  |       
|                                  | Basic net income per share                    |     | $       | 0.95   |     |   | $       | 0.30   |  |   | $       | 0.21   |  |      | $       | 0.72   |  |   | $       | 2.18   | 
|                                  | Weighted average shares outstanding  basic   |     |         | 10,080 |     |   |         | 10,148 |  |   |         | 10,153 |  |      |         | 10,153 |  |   |         | 10,134 | 
|                                  | Diluted net income per share                  |     | $       | 0.92   |     |   | $       | 0.29   |  |   | $       | 0.21   |  |      | $       | 0.70   |  |   | $       | 2.11   | 
|                                  | Weighted average shares outstanding  diluted |     |         | 10,455 |     |   |         | 10,436 |  |   |         | 10,445 |  |      |         | 10,479 |  |   |         | 10,457 | 
|Market price of common stock: (a) |                                               |     |         |        |     |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                  | High                                          |     | $       | 26.45  |     |   | $       | 17.99  |  |   | $       | 18.29  |  |      | $       | 25.23  |  |   | $       | 26.45  | 
|                                  | Low                                           |     |         | 17.88  |     |   |         | 13.31  |  |   |         | 13.21  |  |      |         | 15.27  |  |   |         | 13.21  | 

|                                  |                                               |     |         |       |     |   |         |        |  |   |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------- | --------------------------------------------- | --- | ------- | ----- | --- | - | ------- | ------ |  | - | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|2004                              |                                               | 1st |         |       | 2nd |   |         | 3rd    |  |   | 4th     |        |  | Year |        
|                                  |                                               |     |         |       |     |   |         |        |  |   |         |        |  |      |        
|Net sales                         |                                               | $   | 187,033 |       |     | $ | 222,773 |        |  | $ | 244,142 |        |  | $    | 240,209 |        |  | $ | 894,157 |       
|Operating income                  |                                               |     | 18,835  |       |     |   | 31,747  |        |  |   | 31,581  |        |  |      | 20,644  |        |  |   | 102,807 |       
|Income before income taxes        |                                               |     | 17,495  |       |     |   | 30,814  |        |  |   | 30,570  |        |  |      | 20,014  |        |  |   | 98,893  |       
|Net income                        |                                               | $   | 10,847  |       |     | $ | 18,500  |        |  | $ | 18,572  |        |  | $    | 12,159  |        |  | $ | 60,078  |       
|                                  | Basic net income per share                    |     | $       | 1.12  |     |   | $       | 1.89   |  |   | $       | 1.88   |  |      | $       | 1.22   |  |   | $       | 6.12   | 
|                                  | Weighted average shares outstanding  basic   |     |         | 9,675 |     |   |         | 9,794  |  |   |         | 9,904  |  |      |         | 9,997  |  |   |         | 9,816  | 
|                                  | Diluted net income per share                  |     | $       | 1.09  |     |   | $       | 1.82   |  |   | $       | 1.80   |  |      | $       | 1.17   |  |   | $       | 5.88   | 
|                                  | Weighted average shares outstanding  diluted |     |         | 9,959 |     |   |         | 10,182 |  |   |         | 10,341 |  |      |         | 10,394 |  |   |         | 10,222 | 
|Market price of common stock: (a) |                                               |     |         |       |     |   |         |        |  |   |         |        |  |      |         |        |  |   |         |       
|                                  | High                                          |     | $       | 14.00 |     |   | $       | 20.42  |  |   | $       | 24.69  |  |      | $       | 29.90  |  |   | $       | 29.90  | 
|                                  | Low                                           |     |         | 7.24  |     |   |         | 10.89  |  |   |         | 16.95  |  |      |         | 16.93  |  |   |         | 7.24   | 






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

45



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##### 








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures


13a-15 13a-15(e)


MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING


10-K.


Changes in Internal Control Over Financial Reporting







ITEM 9B.     OTHER INFORMATION







PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION



46



---



##### 








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED SHAREHOLDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | (a)(1) The following financial statements are included
    in Part II, Item 8:                           
|
| | Report of Independent Registered Public Accounting Firm                                                  
|
| | Consolidated Statements of Operations for the Years Ended
    December 31, 2005, 2004, and 2003          
|
| | Consolidated Balance Sheets as of December 31, 2005 and 2004                                             
|
| | Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004, and 2003          
|
| | Consolidated Statements of Shareholders Equity for the
    Years Ended December 31, 2005, 2004, and 2003





| |                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.                                                                                                                                                                                               

47



---



##### 



OLYMPIC STEEL, INC.





INDEX TO EXHIBITS


|        |         |  |                         |                                                                                                                                                                                                                                             |           |                                                                                                                                                                                                            
|------- | ------- |  | ----------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  | Description of Document |                                                                                                                                                                                                                                             | Reference
|        |         |  |                         |                                                                                                                                                                                                                                             |          
|        | 3.1(i)  |  |                         | Amended and Restated Articles of Incorporation                                                                                                                                                                                              |           | Incorporated by reference to Exhibit 3.1(i) to
    Registrants Registration Statement on Form S-1 (No.
    33-73992) (the S-1 Registration Statement) filed
    with the Commission on January 12, 1994.
|        | 3.1(ii) |  |                         | Amended and Restated Code of Regulations                                                                                                                                                                                                    |           | Incorporated by reference to Exhibit 3.1(ii) to
    the S-1 Registration Statement filed with the Commission on
    January 12, 1994.                                                                      
|        | 4.1     |  |                         | Amended and Restated Credit Agreement dated December 30,
    2002 by and among the Registrant, three banks and Comerica Bank,
    as Administrative Agent                                                                                   |           | Incorporated by reference to Exhibit 4.1 to Olympic Steel,
    Inc.s (SEC File No. 000-23320) (the
    Registrant) Form 10-K filed with the Commission
    on March 28, 2003.                           
|        | 4.2     |  |                         | Amendment No. 1 to Amended and Restated Credit Agreement
    dated February 6, 2003 by and among the Registrant, five
    banks and Comerica Bank, as Administrative Agent                                                                  |           | Incorporated by reference to Exhibit 4.2 to
    Registrants Form 10-K filed with the Commission on
    March 28, 2003.                                                                                    
|        | 4.3     |  |                         | Amendment No. 2 to Amended and Restated Credit Agreement
    dated March 15, 2003 by and among the Registrant, five
    banks and Comerica Bank, as Administrative Agent                                                                    |           | Incorporated by reference to Exhibit 4.3 to
    Registrants Form 10-K filed with the Commission on
    March 30, 2004.                                                                                    
|        | 4.4     |  |                         | Amendment No. 3 to Amended and Restated Credit Agreement
    dated June 30, 2003 by and among the Registrant, five banks
    and Comerica Bank, as Administrative Agent                                                                     |           | Incorporated by reference to Exhibit 4.4 to
    Registrants Form 10-K filed with the Commission on
    March 30, 2004.                                                                                    
|        | 4.5     |  |                         | Amendment No. 4 to Amended and Restated Credit Agreement
    dated December 26, 2003 by and among the Registrant, five
    banks and Comerica Bank, as Administrative Agent                                                                 |           | Incorporated by reference to Exhibit 4.5 to
    Registrants Form 10-K filed with the Commission on
    March 30, 2004.                                                                                    
|        | 4.6     |  |                         | Amendment No. 5 to Amended and Restated Credit Agreement
    and Waiver dated February 9, 2004 by and among the
    Registrant, five banks and Comerica Bank, as Administrative Agent                                                       |           | Incorporated by reference to Exhibit 4.6 to
    Registrants Form 10-K filed with the Commission on
    March 30, 2004.                                                                                    
|        | 4.7     |  |                         | Rights Agreement dated as of January 31, 2000 (Including
    Form of Certificate of Adoption of Amendment to Amended Articles
    of Incorporation as Exhibit A thereto, together with a
    Summary of Rights to Purchase Preferred Stock) |           | Incorporated by reference to Exhibit 4.1 to
    Registrants Form 8-K filed with the Commission on
    February 15, 2000.                                                                                  
|        | 4.8     |  |                         | Amendment No. 6 to Amended and Restated Credit Agreement
    and Waiver dated May 21, 2004 by and among the Registrant,
    five banks and Comerica Bank, as Administrative Agent                                                           |           | Incorporated by reference to Exhibit 4.8 to
    Registrants Form 10-Q filed with the Commission on
    August 16, 2004.                                                                                   
|        | 4.9     |  |                         | Amendment No. 7 to Amended and Restated Credit Agreement
    and Waiver dated August 26, 2004 by and among the
    Registrant, five banks and Comerica Bank, as Administrative Agent                                                        |           | Incorporated by reference to Exhibit 4.9 to
    Registrants Form 10-K filed with the Commission on
    March 14, 2005.                                                                                    

48



---



##### 



|        |        |  |                         |                                                                                                                                                                                                            |           |                                                                                                                                   
|------- | ------ |  | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  | Description of Document |                                                                                                                                                                                                            | Reference
|        |        |  |                         |                                                                                                                                                                                                            |          
|        | 4.10   |  |                         | Amendment No. 8 to Amended and Restated Credit Agreement
    and Waiver dated February 25, 2005 by and among the
    Registrant, five banks and Comerica Bank, as Administrative Agent                     |           | Incorporated by reference to Exhibit 4.10 to
    Registrants Form 10-K filed with the Commission on
    March 14, 2005.          
|        | 4.11   |  |                         | Amendment No. 9 to Amended and Restated Credit Agreement
    and Waiver dated March 31, 2005 by and among the
    Registrant, five banks and Comerica Bank, as Administrative Agent                        |           | Incorporated by reference to Exhibit 4.11 to
    Registrants Form 8-K filed with the Commission on
    April 1, 2005.            
|        | 4.12   |  |                         | Amendment No. 10 to Amended and Restated Credit Agreement
    and Waiver dated June 24, 2005 by and among the Registrant,
    five banks and Comerica Bank, as Administrative Agent                        |           | Incorporated by reference to Exhibit 4.12 to
    Registrants Form 8-K filed with the Commission on
    June 24, 2005.            
|        | 10.1*  |  |                         | Olympic Steel, Inc. Stock Option Plan                                                                                                                                                                      |           | Incorporated by reference to Exhibit 10.1 to the S-1
    Registration Statement filed with the Commission on
    January 12, 1994.
|        | 10.2   |  |                         | Lease, dated as of July 1, 1980, as amended, between S.M.S.
    Realty Co., a lessor, and the Registrant, as lessee, relating to
    one of the Cleveland facilities                                       |           | Incorporated by reference to Exhibit 10.3 to the S-1
    Registration Statement filed with the Commission on
    January 12, 1994.
|        | 10.3   |  |                         | Not used                                                                                                                                                                                                   |           |                                                                                                                                   
|        | 10.4   |  |                         | Lease, dated as of November 30, 1987, as amended, between
    Tinicum Properties Associates L.P., as lessor, and the
    Registrant, as lessee, relating to Registrants Lester,
    Pennsylvania facility |           | Incorporated by reference to Exhibit 10.4 to the S-1
    Registration Statement filed with the Commission on
    January 12, 1994.
|        | 10.5   |  |                         | Operating Agreement of Trumark Steel & Processing, LLC,
    dated April 1, 2002, by and among The Goss Group, Inc., and
    Oly Steel Welding, Inc.                                                        |           | Incorporated by reference to Exhibit 10.5 to
    Registrants Form 10-Q filed with the Commission on
    May 15, 2002.            
|        | 10.6   |  |                         | Carrier Contract Agreement for Transportation Services, dated
    August 1, 1998, between Lincoln Trucking Company and the
    Registrant                                                                  |           | Incorporated by reference to Exhibit 10.7 to
    Registrants Form 10-K filed with the Commission on
    March 19, 1999.          
|        | 10.7   |  |                         | Operating Agreement of OLP, LLC, dated April 4, 1997, by
    and between the U.S. Steel Group of USX Corporation and Oly
    Steel Welding, Inc.                                                           |           | Incorporated by reference to Exhibit 10.9 to
    Registrants Form 10-Q filed with the Commission on
    May 5, 1997.             
|        | 10.8*  |  |                         | Form of Management Retention Agreement for Senior Executive
    Officers of the Company                                                                                                                    |           | Incorporated by reference to Exhibit 10.8 to
    Registrants Form 10-Q filed with the Commission on
    August 7, 2000.          
|        | 10.9*  |  |                         | Form of Management Retention Agreement for Other Officers of the
    Company                                                                                                                               |           | Incorporated by reference to Exhibit 10.9 to
    Registrants Form 10-Q filed with the Commission on
    August 7, 2000.          
|        | 10.10* |  |                         | David A. Wolfort Employment Agreement effective as of
    January 1, 2006                                                                                                                                  |           | Incorporated by reference to Exhibit 10.10 to
    Registrants Form 8-K filed with the Commission on
    December 23, 2005.       
|        | 10.11  |  |                         | Not used                                                                                                                                                                                                   |           |                                                                                                                                   
|        | 10.12* |  |                         | Michael D. Siegal Employment Agreement dated July 1, 2004                                                                                                                                                  |           | Incorporated by reference to Exhibit 10.12 to
    Registrants Form 10-Q filed with the Commission on
    August 16, 2004.        

49



---



##### 



|        |        |  |                         |                                                                                                                                                                                                                  |           |                                                                                                                           
|------- | ------ |  | ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  | Description of Document |                                                                                                                                                                                                                  | Reference
|        |        |  |                         |                                                                                                                                                                                                                  |          
|        | 10.13* |  |                         | Richard T. Marabito Employment Agreement dated July 1, 2004                                                                                                                                                      |           | Incorporated by reference to Exhibit 10.13 to
    Registrants Form 10-Q filed with the Commission on
    August 16, 2004.
|        | 10.14* |  |                         | Olympic Steel, Inc. Executive Deferred Compensation Plan dated
    December 15, 2004                                                                                                                             |           | Incorporated by reference to Exhibit 10.14 to
    Registrants Form 10-K filed with the Commission on
    March 14, 2005. 
|        | 10.15* |  |                         | Non-Solicitation Agreements for Heber MacWilliams and Richard A.
    Manson                                                                                                                                      |           | Incorporated by reference to Exhibit 10.15 to
    Registrants Form 8-K filed with the Commission on
    March 4, 2005.   
|        | 10.16* |  |                         | Form of Management Retention Agreement for Richard A. Manson and
    Heber MacWilliams                                                                                                                           |           | Incorporated by reference to Exhibit 10.16 to
    Registrants Form 10-Q filed with the Commission on
    August 8, 2005. 
|        | 10.17* |  |                         | Form of Supplemental Executive Retirement Plan term sheet                                                                                                                                                        |           | Incorporated by reference to Exhibit 99.1 to
    Registrants Form 8-K filed with the Commission on
    January 5, 2006.  
|        | 10.18* |  |                         | Summary of Non-Employee Director Compensation                                                                                                                                                                    |           | Filed herewith                                                                                                            
|        | 10.19* |  |                         | Summary of Senior Management Compensation Plan                                                                                                                                                                   |           | Filed herewith                                                                                                            
|        | 21     |  |                         | List of Subsidiaries                                                                                                                                                                                             |           | Filed herewith                                                                                                            
|        | 23     |  |                         | Consent of Independent Registered Public Accounting Firm                                                                                                                                                         |           | Filed herewith                                                                                                            
|        | 24     |  |                         | Directors and Officers Powers of Attorney                                                                                                                                                                        |           | Filed herewith                                                                                                            
|        | 31.1   |  |                         | Certification of the Principal Executive Officer of the Company,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                   |           | Filed herewith                                                                                                            
|        | 31.2   |  |                         | Certification of the Principal Financial Officer of the Company,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                   |           | Filed herewith                                                                                                            
|        | 32.1   |  |                         | Written Statement of Michael D. Siegal, Chairman and Chief
    Executive Officer of the Company pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002 |           | Furnished herewith                                                                                                        
|        | 32.2   |  |                         | Written Statement of Richard T. Marabito, Chief Financial
    Officer of the Company pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002            |           | Furnished herewith                                                                                                        






|  |                                                                               
|- | ------------------------------------------------------------------------------
|* | This exhibit is a management contract or compensatory plan or
    arrangement.

50



---



##### 






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.



| |     |                        
| | --- | -----------------------
| | 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 14th day of
March, 2006.


|                                                                                                                                                |  |               
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|/s/ Michael D.
    Siegal *Michael D. Siegal
    Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)            |  | March 14, 2006
|                                                                                                                                               
|/s/ David A.
    Wolfort *David A. Wolfort
    President, Chief Operating Officer and Director                                                  |  | March 14, 2006
|                                                                                                                                               
|/s/ Richard T.
    Marabito *Richard T. Marabito
    Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer) |  | March 14, 2006
|                                                                                                                                               
|/s/ Ralph M. Della
    Ratta, Jr. *Ralph M. Della Ratta, Jr.,
    Director                                                                      |  | March 14, 2006
|                                                                                                                                               
|/s/ Martin H.
    Elrad *Martin H. Elrad, Director                                                                                              |  | March 14, 2006
|                                                                                                                                               
|/s/ Thomas M.
    Forman *Thomas M. Forman, Director                                                                                            |  | March 14, 2006
|                                                                                                                                               
|/s/ James B.
    Meathe *James B. Meathe, Director                                                                                              |  | March 14, 2006
|                                                                                                                                               
|/s/ Howard L.
    Goldstein *Howard L. Goldstein, Director                                                                                      |  | March 14, 2006



|  |                                                                                                                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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.



| |               
| | --------------
| | March 14, 2006

|    |                         | 
|--- | ----------------------- | 
|By: | /s/ Richard T. Marabito | 

|                                          | 
|----------------------------------------- | 
|                                          | 
|Richard T. Marabito,
    Attorney-in-Fact | 

51