<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File #1-10459
GENEVA STEEL COMPANY
(Exact name of registrant as specified in its charter)
UTAH 93-0942346
(State of Incorporation) (I.R.S. Employer Identification No.)
10 South Geneva Road
Vineyard, Utah
(Address of principal executive offices)
84058
(Zip Code)
Registrant's telephone number, including area code: (801) 227-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each class of the issuer's common
stock, as of the latest practicable date.
13,007,599 and 21,339,688 shares of Class A and Class B common stock,
respectively, outstanding as of April 25, 1994.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
--------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,013 $ 64,267
Accounts receivable, net 38,767 46,257
Inventories 68,417 63,230
Prepaid expenses and other 7,611 1,426
Deferred income taxes 6,555 --
-------- ---------
Total current assets 176,363 175,180
-------- --------
Property, plant and equipment:
Land 1,931 1,931
Buildings 3,725 3,725
Machinery and equipment 468,006 369,490
Mineral property and development
costs 8,425 8,425
-------- --------
482,087 383,571
Less accumulated depreciation (80,240) (68,981)
-------- --------
Net property, plant and equipment 401,847 314,590
-------- --------
Other assets 11,441 8,614
-------- --------
$589,651 $498,384
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 2 of 18
<PAGE> 3
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 52,528 $ 52,982
Accrued payroll and related taxes 9,819 8,578
Accrued liabilities 13,463 11,810
Production prepayments 10,000 10,000
Accrued interest payable 3,668 1,533
Accrued pension and profit
sharing costs 1,263 1,110
-------- --------
Total current liabilities 90,741 86,013
-------- --------
Long-term debt 325,000 224,991
-------- --------
Deferred income taxes 13,712 15,619
-------- --------
Redeemable preferred stock 39,398 35,986
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock:
Class A 86,765 86,094
Class B 11,266 11,929
Warrants to purchase Class A
common stock 5,360 5,360
Retained earnings 36,902 52,542
Class A common stock held in
treasury, at cost (19,493) (20,150)
-------- --------
Total stockholders' equity 120,800 135,775
-------- --------
$589,651 $498,384
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 3 of 18
<PAGE> 4
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1994 and 1993
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $121,115 $115,542
Cost of sales 119,216 113,840
-------- --------
Gross margin 1,899 1,702
Selling, general and administrative
expenses 5,644 4,914
-------- --------
Loss from operations (3,745) (3,212)
-------- --------
Other income (expense):
Interest and other income 707 198
Interest expense (4,515) (4,475)
-------- --------
(3,808) (4,277)
-------- --------
Loss before benefit for income taxes and
extraordinary item (7,553) (7,489)
Benefit for income taxes (2,873) (2,921)
-------- --------
Loss before extraordinary item (4,680) (4,568)
Loss on early extinguishment of debt (net
of benefit for income taxes of $5,675) 9,258 --
-------- --------
Net loss (13,938) (4,568)
Less redeemable preferred stock
dividends and accretion for
original issue discount 1,733 261
-------- --------
Net loss applicable to common shares $(15,671) $ (4,829)
======== ========
Loss per common share before
extraordinary item $ (.43) $ (.32)
Extraordinary item per common share (.61) --
-------- ---------
Net loss per common share $ (1.04) $ (.32)
======== ========
Weighted average shares outstanding 15,121 15,053
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 4 of 18
<PAGE> 5
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED MARCH 31, 1994 and 1993
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $248,214 $216,691
Cost of sales 234,842 213,308
-------- --------
Gross margin 13,372 3,383
Selling, general and administrative
expenses 11,326 9,549
-------- --------
Income (loss) from operations 2,046 (6,166)
-------- --------
Other income (expense):
Interest and other income 1,140 268
Interest expense (7,987) (8,045)
-------- --------
(6,847) (7,777)
-------- --------
Loss before benefit for income taxes and
extraordinary item (4,801) (13,943)
Benefit for income taxes (1,831) (5,438)
-------- --------
Loss before extraordinary item (2,970) (8,505)
Loss on early extinguishment of debt (net
of benefit for income taxes of $5,675) 9,258 --
-------- ---------
Net loss (12,228) (8,505)
Less redeemable preferred stock dividends
and accretion for original issue discount 3,412 261
-------- --------
Net loss applicable to common shares $(15,640) $ (8,766)
======== ========
Loss per common share before
extraordinary item $ (.43) $ (.58)
Extraordinary item per common share (.61) --
-------- --------
Net loss per common share $ (1.04) $ (.58)
======== ========
Weighted average shares outstanding 15,108 15,045
======== ========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 5 of 18
<PAGE> 6
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,228) $(8,505)
Adjustments to reconcile net
loss to net cash provided by
(used for) operating activities:
Depreciation and amortization 13,978 11,807
Deferred income taxes (8,462) 4,560
Loss on sale of Equipment 44 --
(Increase) decrease in current
assets--
Accounts receivable, net 7,490 2,348
Inventories (5,187) (2,125)
Income taxes receivable -- 11,186
Prepaid expenses and other (6,185) 1,381
Increase (decrease) in current
liabilities--
Accounts payable (454) 10,870
Accrued payroll and related taxes 1,241 768
Accrued liabilities 1,653 (109)
Production prepayments -- 4,001
Accrued interest payable 2,135 (34)
Accrued pension and profit
sharing costs 153 34
-------- --------
Net cash provided by (used for)
operating activities (5,822) 36,182
-------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (98,704) (21,591)
Proceeds from sale of property, plant
and equipment 40 --
-------- ---------
Net cash used for investing activities $(98,664) $(21,591)
-------- --------
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 6 of 18
<PAGE> 7
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $190,000 $325,313
Payments on long-term debt (89,991) (278,504)
Proceeds from issuance of redeemable
preferred stock, net of offering costs -- 32,521
Proceeds from issuance of warrants to purchase
common stock, net of offering costs -- 5,360
Payments for deferred loan costs (5,443) (6,011)
Proceeds from exercise of options to purchase
Class A common stock 274 --
Issuance of Class A common stock to
employee savings plan 392 289
-------- --------
Net cash provided by financing activities 95,232 78,968
-------- --------
Net increase (decrease) in cash and cash
equivalents (9,254) 93,559
Cash and cash equivalents at beginning
of period 64,267 3,122
-------- --------
Cash and cash equivalents at end
of period $ 55,013 $ 96,681
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 12,593 $ 6,547
Income taxes 1,600 --
</TABLE>
Supplemental schedule of noncash financing activities:
For the six months ended March 31, 1994 and 1993, the Company increased the
redeemable preferred stock liquidation preference by $3,070 and $233,
respectively, in lieu of paying a cash dividend. In addition, for the same
periods, redeemable preferred stock was increased by $342 and $28,
respectively, for the accretion required over time to amortize the original
issue discount on the redeemable preferred stock incurred at the time of
issuance.
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 7 of 18
<PAGE> 8
GENEVA STEEL COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements of Geneva Steel Company
(the "Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The unaudited condensed financial statements as of
March 31, 1994 and 1993 and for the three and six-month periods ended March 31,
1994 and 1993, reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the financial position and results of operations as of such dates and
for such periods.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
(2) INVENTORIES
Inventories are comprised of the following components:
<TABLE>
<CAPTION>
March 31, September 30,
1994 1993
-------- --------
<S> <C> <C>
Raw materials $28,779 $20,138
Semi-finished and finished goods 31,197 34,462
Operating materials 8,441 8,630
------- -------
$68,417 $63,230
======= =======
</TABLE>
(3) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated based upon the weighted
average number of common and common equivalent shares outstanding during the
periods. Common equivalent shares consist of warrants and options to purchase
Class A common stock which have a dilutive effect when applying the treasury
stock method. Class B common stock is included in the weighted average number
of common shares outstanding at one share for every ten shares outstanding as
the Class B common stock is convertible to Class A common stock at this same
rate.
The net loss for the three and six-month periods ended March 31, 1994 and
1993 was adjusted for redeemable preferred stock dividends and the accretion
required over time to amortize the original issue discount on the redeemable
preferred stock incurred at the time of issuance.
Page 8 of 18
<PAGE> 9
(4) PUBLIC DEBT OFFERING
On February 1, 1994, the Company completed a public offering of $190
million aggregate principal amount of 9 1/2% senior notes (the "9 1/2% Senior
Notes"). The 9 1/2% Senior Notes mature in 2004, are unsecured and require
interest payments semi-annually on January 15 and July 15. On or after January
15, 1999, the 9 1/2% Senior Notes are redeemable, in whole or in part, at the
option of the Company, subject to certain redemption premiums plus accrued
interest. In the event of a change of control, the Company must offer to
purchase all 9 1/2% Senior Notes then outstanding at a premium plus accrued
interest. The 9 1/2% Senior Notes were issued under an indenture dated as of
January 15, 1994 between the Company and Bankers Trust Company, as trustee, and
are governed by the terms and conditions contained therein. A portion of the
net proceeds from the offering was used to repay an aggregate of approximately
$90 million principal amount of privately-placed senior and subordinated term
debt bearing a weighted average interest rate of 11.24%, plus contractual
prepayment premiums and accrued interest. The balance of the net proceeds will
be used for capital expenditures and general corporate purposes.
Page 9 of 18
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain cost and
expense items to net sales for the periods indicated with respect to the
Company:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 98.4 98.5 94.6 98.4
----- ----- ----- -----
Gross margin 1.6 1.5 5.4 1.6
Selling, general and administrative
expenses 4.7 4.3 4.6 4.4
----- ----- ----- -----
Income (loss) from operations (3.1) (2.8) 0.8 (2.8)
----- ----- ----- -----
Other income (expense):
Interest and other income 0.6 0.1 0.5 0.1
Interest expense (3.7) (3.8) (3.2) (3.7)
----- ----- ------ ------
(3.1) (3.7) (2.7) (3.6)
----- ----- ------ ------
Loss before benefit for income taxes (6.2) (6.5) (1.9) (6.4)
Benefit for income taxes (2.4) (2.5) (0.7) (2.5)
----- ----- ------ ------
Net loss before extraordinary item (3.8)% (4.0)% (1.2)% (3.9)%
===== ===== ====== =====
</TABLE>
The following table sets forth the sales product mix as a percentage of net
sales for the periods indicated with respect to the Company:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sheet 73.0% 56.1% 68.5% 53.2%
Plate 16.9 32.5 21.3 32.8
Pipe 6.5 8.4 6.7 10.9
Non-Steel 3.6 3.0 3.5 3.1
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Page 10 of 18
<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1993
The steel industry is cyclical in nature and generally characterized
by overcapacity. Beginning late in fiscal year 1989 and continuing through
December 1992, the industry experienced declining prices due to, among other
things, reduced demand for steel products and significant price competition.
Since early calendar year 1993, the industry has experienced increasing steel
prices resulting from increased demand. Beginning in the first quarter of
calendar year 1993, the Company has announced several price increases for
various steel products. In addition, various producers have recently announced
future price increases which the Company intends to follow as justified by
market conditions. The Company sells substantially all of its products in the
spot market at prevailing market prices. The Company believes its percentage
of such sales is significantly higher than that of most of the other domestic
integrated producers. Consequently, the Company may be affected by price
decreases and increases more quickly than many of its competitors. Industry
experience has shown, however, that announced price increases may not be
immediately realized, if at all, due to the competitive environment within the
industry. The Company has phased in price increases as new orders have been
accepted, subject to adjustments as necessary in response to market conditions.
Net sales increased 4.8% on decreased shipments of approximately
12,700 tons, or 3.3%, for the three months ended March 31, 1994 as compared to
the same quarter of the previous fiscal year. The increased sales resulted
from increased average selling prices. The weighted average sales price (net
of transportation costs) per ton of sheet, plate and pipe products increased in
the three months ended March 31, 1994 compared to the same quarter of the
previous fiscal year by 16.6%, 1.8% and 3.6%, respectively. The overall
average selling price realization per ton also increased between the periods;
however, this increase was offset, in part, by a shift in product mix to lower
priced sheet products from higher priced plate and pipe products. Shipped
tonnage of sheet increased approximately 42,000 tons or 16.9%, while shipped
tonnage of plate and pipe decreased approximately 52,400 tons or 46.6% and
5,700 tons or 21.7%, respectively, between the two periods.
During the three months ended March 31, 1994, the Company increased
its percentage of sheet products sold. This shift in product mix reflected a
continued emphasis on sheet products, which have, under recent market
conditions and prior to the completion of various modernization projects,
contributed to higher operating margins. This shift also resulted from the
suspension of production of certain plate products while upgrades to various
processing equipment are implemented. The suspension of production of certain
plate products is expected to continue through approximately two months of the
third fiscal quarter.
Cost of sales includes raw materials, labor costs, energy costs
(consisting primarily of oxygen, electricity and natural gas), depreciation,
and other operating and support costs associated with the production process.
The Company's cost of sales, as a percentage of net sales, decreased slightly
to 98.4% for the three months ended March 31, 1994 from 98.5% for the same
quarter of the previous fiscal year as a result of higher average selling
prices offset by increased operating costs. The average cost of sales per ton
shipped increased approximately $24 per ton between the two periods. Costs
increased primarily as a result of production inefficiencies associated with
construction of various modernization and other capital projects, increased
ironmaking costs due to reconditioning work at the blast furnace operation and
increased coke costs as a result of purchasing coke to supplement internal coke
production.
Page 11 of 18
<PAGE> 12
In addition, costs increased as a result of increased depreciation expense
resulting from additional capital expenditures, increased wages and benefits as
required by the union labor agreement, increased costs of purchased scrap and
certain other increased operating costs. These increased costs were offset, in
part, by a shift in product mix to lower cost sheet products. The Company
believes that ironmaking costs will decline as reconditioning work is
completed, throughput increases and the Company moves to a lower-cost coal
blend.
The Company has completed construction of its new continuous casting
facility. The Company produced the first continuously cast steel slabs from
the caster on April 24, 1994 and expects the start-up period for the continuous
caster to be approximately six months. The Company has incurred and is
incurring significant start-up and transition costs associated with the
continuous caster and other capital projects, which costs have adversely
affected the Company's operating results. These costs are expected to continue
through the current quarter and decline as the continuous caster and other
capital projects are fully implemented. Although the Company has implemented
measures designed to minimize such costs and other start-up difficulties, there
can be no assurance that such conditions will not be greater than currently
expected or not extend beyond the anticipated start-up periods.
Depreciation costs included in cost of sales increased approximately
$0.5 million in the three months ended March 31, 1994 compared with the same
quarter of the previous fiscal year. This increase was due to increases in the
asset base resulting from capital expenditures. Depreciation expense will
increase substantially as the various capital improvements contemplated by the
Company's capital maintenance and modernization program become operational.
Selling, general and administrative expenses for the three months
ended March 31, 1994 increased approximately $0.7 million as compared to the
same quarter of the previous fiscal year. The higher expenses resulted
primarily from increased wages and salaries and increased outside services.
Interest and other income increased by approximately $0.5 million
during the three months ended March 31, 1994 as compared to the same period in
the previous fiscal year as a result of an increase in the amount of invested
cash and cash equivalents.
Interest expense remained relatively constant during the three months
ended March 31, 1994 as compared to the same quarter of the previous fiscal
year. Increased interest expense due to higher levels of borrowing during the
second quarter of fiscal year 1994 was offset by an increase in interest
capitalized.
SIX MONTHS ENDED MARCH 31, 1994 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1993
Net sales increased 14.5% on increased shipments of approximately
36,900 tons, or 5.1%, for the six months ended March 31, 1994 as compared to
the same period in the previous fiscal year. The increased sales resulted from
higher shipments and increased average selling prices on all products. The
weighted average sales price per ton of sheet, plate and pipe products
increased in the six months ended March 31, 1994 compared to the same period in
the previous fiscal year by 17.9%, 4.4% and 2.6%, respectively. The overall
average selling price realization per ton also increased between the periods,
however, this increase was offset, in part, by a shift in product mix to lower
priced sheet products from higher priced plate and pipe products. Shipped
tonnage of sheet increased approximately 112,700 tons or 25.3%, while shipped
tonnage of plate
Page 12 of 18
<PAGE> 13
and pipe decreased approximately 62,300 tons or 28.9% and 19,800 tons or 31.4%,
respectively, between the two periods.
During the six months ended March 31, 1994, the Company increased its
percentage of sheet products sold. The shift in product mix reflected a
continued emphasis on sheet products, which have, under recent market
conditions and prior to the completion of various modernization projects,
contributed to higher operating margins. This shift also resulted from the
suspension of production of certain plate products while upgrades to various
processing equipment are implemented.
The Company's costs of sales as a percentage of net sales decreased to
94.6% for the six months ended March 31, 1994 from 98.4% for the same period in
the previous fiscal year as a result of higher average selling prices, offset,
in part, by higher operating costs. The average cost of sales per ton shipped
increased approximately $14 per ton between the two periods. Costs increased
primarily as a result of production inefficiencies associated with construction
of various modernization and other capital projects, an equipment failure that
temporarily interrupted operation of one of the Company's blast furnaces,
increased ironmaking costs due to reconditioning work at the blast furnace
operation and increased coke costs as a result of purchasing coke to supplement
internal coke production. In addition, costs increased as a result of
increased depreciation expense resulting from additional capital expenditures,
increased wages and benefits as required by the union labor agreement,
increased costs of purchased scrap and increases in certain other operating
costs. These increased costs were offset, in part, by a shift in product
mix to lower cost sheet products.
Depreciation costs included in cost of sales increased approximately
$1.0 million in the six month period ended March 31, 1994 compared with the
same period in the previous fiscal year. This increase was due to increases in
the asset base resulting from capital expenditures.
Selling, general and administrative expenses for the six months ended
March 31, 1994 increased approximately $1.8 million as compared to the same
period in fiscal year 1993. The higher expenses resulted primarily from
increased wages and salaries and increased outside services in fiscal year
1994.
Interest and other income increased approximately $0.9 million during
the first six months of fiscal year 1994 as compared to the same period in the
previous fiscal year as a result of an increase in the amount of invested cash
and cash equivalents.
Interest expense remained relatively constant during the first six
months of fiscal year 1994 as compared to the same period of fiscal year 1993.
Increased interest expense due to higher levels of borrowing in fiscal year
1994 was offset by an increase in interest capitalized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from capital expenditures
and working capital requirements, including interest payments. The Company has
met these requirements over the last three years principally from the
incurrence of additional long-term indebtedness and cash provided by
operations.
In April 1992, the Company obtained its existing revolving credit
facility in the amount of $50 million from a syndicate of banks led by Citicorp
USA, Inc., as agent (the "Revolving Credit Facility"), for the working capital
and
Page 13 of 18
<PAGE> 14
capital expenditure needs of the Company. The Revolving Credit Facility is
secured by the Company's inventories, accounts receivable, certain general
intangibles and proceeds thereof, and expires on February 28, 1995. At such
time, management believes it will be necessary to obtain new or replacement
credit arrangements. The Company currently has access to $25 million in
borrowings under such facility. The Company's ability to borrow funds in
excess of $25 million under the Revolving Credit Facility is subject to certain
conditions. Moreover, the Company's access to any borrowings under the
Revolving Credit Facility is subject to compliance with various other financial
covenants and tests contained therein. The indentures governing the Company's
11 1/8% senior notes (the "11 1/8% Senior Notes") and its recently issued 9
1/2% senior notes (the "9 1/2% Senior Notes" and, together with the 11 1/8%
Senior Notes, the "Senior Notes") also contain certain restrictions on the
Company's ability to borrow additional funds.
On February 1, 1994, the Company completed a public offering of $190
million aggregate principal amount of 9 1/2% Senior Notes (the "Public
Offering"). The 9 1/2% Senior Notes mature in 2004, are unsecured and require
interest payments semi-annually on January 15 and July 15. On or after January
15, 1999, the 9 1/2% Senior Notes are redeemable, in whole or in part, at the
option of the Company, subject to certain redemption premiums plus accrued
interest. In the event of a change of control, the Company must offer to
purchase all 9 1/2% Senior Notes then outstanding at a premium plus accrued
interest. The 9 1/2% Senior Notes were issued under an indenture dated as of
January 15, 1994 between the Company and Bankers Trust Company, as trustee, and
are governed by the terms and conditions contained therein. A portion of the
net proceeds from the offering was used to repay an aggregate of approximately
$90 million principal amount of privately-placed senior and subordinated term
debt bearing a weighted average interest rate of 11.24%, plus contractual
prepayment premiums and accrued interest. The balance of the net proceeds will
be used for capital expenditures and general corporate purposes.
The debt instruments governing the Revolving Credit Facility and the
Senior Notes contain cross default or acceleration and other customary
provisions. Financial covenants contained in the Revolving Credit Facility
and/or the Senior Notes also include, among other things, a limitation on
dividends and distributions on capital stock of the Company, a tangible net
worth maintenance requirement, a leverage ratio maintenance requirement, an
interest coverage requirement, a cumulative cash flow requirement, a cumulative
capital expenditure limitation, a limitation on the incurrence of additional
indebtedness unless certain financial tests are satisfied, a limitation on
mergers, consolidations and dispositions of assets and a limitation on liens.
The Company has from time to time entered into amendments relaxing certain of
the covenants and tests contained in the Revolving Credit Facility and may be
required to seek additional amendments in the future.
Besides these and other financing activities, the Company's major
source of liquidity has been cash provided by operations. Net cash provided by
(used for) operating activities was $(5.8) million for the six months ended
March 31, 1994 compared with $36.2 million for the same period of the previous
fiscal year. The $5.8 million used for operating activities during the six
months ended March 31, 1994 included approximately $20.7 million resulting from
a net loss of $12.2 million and a change in deferred income taxes of $8.5
million, offset, in part, by depreciation and amortization of approximately
$14.0 million.
Page 14 of 18
<PAGE> 15
The Company expects its modernization program and capital maintenance
and other expenditures to require significant cash resources over the next
several years. Modernization program expenditures were approximately $299
million from the inception of the program through March 31, 1994. The
modernization program currently provides for capital expenditures totaling
approximately $122 million during fiscal years 1994 and 1995, which includes
approximately $63 million spent during the first two quarters of fiscal year
1994. In addition, the Company has budgeted approximately $60 million for
capital maintenance and other projects during these years. The Company may,
however, increase its capital spending during these years as other capital
projects are evaluated and undertaken.
The Company is pursuing the rolling mill finishing stand improvements,
the final remaining project included in the modernization program. These
improvements are expected to be completed in June 1995. The Company will
continue to incur substantial capital expenditures after completion of the
modernization program. Moreover, the Company may also pursue other capital
projects in addition to those presently included in the Company's capital
budget. There can be no assurance that the costs of modernization or capital
maintenance and other projects will not exceed those currently anticipated by
the Company.
The Company will be required to make substantial interest and dividend
payments on the Senior Notes, the redeemable preferred stock (or the debentures
exchangeable therefor), and any outstanding balances under the Revolving Credit
Facility, together with interest on any additional funding necessary for the
expected and future capital expenditures and other working capital needs. The
Company's annual debt interest expense on currently outstanding amounts will be
approximately $33 million and its annual redeemable preferred stock dividends
will be approximately $6 million. Dividends not paid in cash before April 1996
will be added to the liquidation preference of the redeemable preferred stock.
As of March 31, 1994, the Company had approximately $55 million in cash and
cash equivalents. Although the Company believes that the cash and cash
equivalents on hand, together with anticipated cash from future operations and
potential borrowings under the Revolving Credit Facility, will provide
sufficient liquidity for the Company to meet its debt service requirements and
to complete the remaining modernization and planned capital maintenance and
other projects, there can be no assurance that these sources will be adequate
to fund completion of these projects. The Company continues to focus on cost
control, revenue enhancement and cash flow management.
The short-term and long-term liquidity of the Company is dependent
upon several factors, including the Company's ongoing operations, availability
of financing, foreign currency fluctuations, competitive and market forces,
modernization and environmental expenditures and general economic conditions.
Similarly, the United States steel market is subject to cyclical fluctuations
that may affect the amount of cash internally generated by the Company and the
ability of the Company to obtain external financing. Consequently, there can
be no assurance that the Company will have sufficient resources to fund all of
its planned and future modernization requirements and capital maintenance and
other projects or to satisfy other working capital and cash needs. In such
event, the Company may defer certain capital projects and/or pursue alternative
financing strategies, which may include additional borrowings or the sale of
equity securities. Should the Company determine to proceed with any such
financing strategies in the future, there can be no assurance that the Company
Page 15 of 18
<PAGE> 16
can obtain any consents or approvals that may be required from existing lenders
or stockholders or that such financing could be consummated on terms favorable
to the Company or at all.
Inflation can be expected to have an effect on many of the Company's
operating costs and expenses. Due to worldwide competition in the steel
industry, the Company may not be able to pass through such increased costs to
its customers.
Page 16 of 18
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant held its Annual Meeting of Shareholders on February 2,
1994. The shareholders elected the following Directors to serve until the next
annual meeting of shareholders: Joseph A. Cannon, Robert J. Grow, Richard D.
Clayton, A. Blaine Huntsman, A. Thurl Jacobsen, Arch L. Madsen, and R.J. Shopf.
The shareholders also ratified the appointment of Arthur Andersen &
Co. as independent auditors for the fiscal year 1994 by a vote of 30,559,138
shares for, 18,530 shares against, 15,061 shares abstained and 34,191 shares as
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------ ------- ---------
<S> <C> <C>
10 Amendment dated as of December 28, X
1993 to the Agreement for the Sale
and Purchase of Coke between the
Company and Mitsubishi International
Corporation dated November 9, 1993.
</TABLE>
(b) Reports on Form 8-K.
The Company has not filed any reports on Form 8-K during the three
months ended March 31, 1994.
Page 17 of 18
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENEVA STEEL COMPANY
By: /s/ Dennis L. Wanlass
Vice President, Treasurer and
Chief Financial Officer
Dated: April 29, 1994
Page 18 of 18
<PAGE> 1
EXHIBIT 10
FIRST AMENDMENT
TO
AGREEMENT FOR SALE AND PURCHASE OF COKE
THIS FIRST AMENDMENT TO AGREEMENT FOR SALE AND PURCHASE OF COKE (the
"Amendment") is entered into this 28th day of December, 1993, between GENEVA
STEEL COMPANY, a Utah corporation ("Buyer") and MITSUBISHI INTERNATIONAL
CORPORATION, a New York corporation ("Seller").
RECITALS:
A. On or about November 9, 1993, Buyer and Seller entered into a certain
Agreement for Sale and Purchase of Coke effective January 12, 1993 (the
"Agreement") wherein Seller agreed to sell and Buyer agreed to purchase certain
Coke.
B. Buyer and Seller desire to amend the Agreement as set forth herein.
AMENDMENT:
NOW, THEREFORE, in consideration of the promises, terms and conditions set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. Definitions. Except as otherwise expressly indicated herein, the
capitalized terms used in this Amendment, including the Recitals hereto, shall
have the same meanings ascribed to such terms in the Agreement.
2. Purchase Price. Sections 3.2, 3.3 and 3.5 of the Agreement is hereby
deleted in their entirety and the following added in lieu thereof:
3.2 Second Contact Year. For the second Contract Year, effective as of
the first day of such second Contract Year, the Purchase Price shall be
____________________________________________ per ton of Coke.
3.3 Third Contract Year. For the third Contract Year, effective as of
the first day of such third Contract Year, the Purchase Price shall be
____________________________________________ per ton of Coke.
Section 3.6 of the Agreement is hereby renumbered to be Section 3.5 of the
Agreement and the reference to Section 3.5 in Section 2.1 of the Agreement is
hereby changed to refer to "Section 3.5" of the Agreement.
<PAGE> 2
3. Billing and Payment. Buyer and Seller agree that invoices by Seller to
Buyer during the second and third Contract Year of the Term shall be due and
payable sixty (60) days after the date of the bill of lading.
4. Quantity. The word "first" in the first sentence of Section 6.1.2 of the
Agreement is hereby deleted and the word "third" substituted in lieu thereof.
5. Benefit. This Amendment is for the sole benefit of the parties hereto and
shall not be for the benefit of or enforceable by any other person or entity.
6. Ratification. Except as specifically amended by this Amendment, Seller
and Buyer hereby ratify and reaffirm the terms, warranties and conditions set
forth in the Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
effective as of the date first above written.
"BUYER"
GENEVA STEEL COMPANY, a Utah corporation
By: Max E. Sorensen
Its: Senior V.P. Engineering & Technology
"SELLER"
MITSUBISHI INTERNATIONAL CORPORATION, a
New York corporation
By: Takayuki Kurachi
Its: S.V.P., COO, General Manager
2
