<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 December 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.
13,118,183 and 20,639,688 shares of Class A and Class B common stock,
respectively, outstanding as of January 27, 1995.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GENEVA STEEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,540 $ --
Accounts receivable, net 44,939 47,907
Inventories 75,506 86,009
Prepaid expenses and other 3,123 2,838
Deferred income taxes 6,719 6,407
-------- --------
Total current assets 132,827 143,161
-------- --------
Property, plant and equipment:
Land 1,931 1,931
Buildings 16,092 16,092
Machinery and equipment 522,527 521,729
Mineral property and development
costs 8,425 8,425
-------- --------
548,975 548,177
Less accumulated depreciation (103,607) (94,891)
-------- --------
Net property, plant and equipment 445,368 453,286
-------- --------
Other assets 11,155 10,368
-------- --------
$589,350 $606,815
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
Page 2 of 18
<PAGE> 3
GENEVA STEEL COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
--------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 53,694 $ 57,021
Accrued payroll and related taxes 12,112 9,178
Accrued liabilities 19,459 14,471
Production prepayments 10,000 10,000
Accrued interest payable 12,746 4,580
Accrued pension and profit
sharing costs 1,790 1,114
-------- --------
Total current liabilities 109,801 96,364
-------- --------
Long-term debt 325,000 357,348
-------- --------
Deferred income taxes 6,719 6,407
-------- --------
Redeemable preferred stock 44,938 43,032
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock:
Class A 87,226 87,193
Class B 10,896 10,896
Warrants to purchase Class A
common stock 5,360 5,360
Retained earnings 18,368 19,266
Class A common stock held in
treasury, at cost (18,958) (19,051)
-------- --------
Total stockholders' equity 102,892 103,664
-------- --------
$589,350 $606,815
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
Page 3 of 18
<PAGE> 4
GENEVA STEEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Net sales $164,424 $127,099
Cost of sales 148,480 115,626
-------- --------
Gross margin 15,944 11,473
Selling, general and administrative
expenses 5,832 5,682
-------- --------
Income from operations 10,112 5,791
-------- --------
Other income (expense):
Interest and other income 28 433
Interest expense (8,753) (3,472)
Other expense (379) --
-------- ---------
(9,104) (3,039)
-------- --------
Income before provision for income taxes 1,008 2,752
Provision for income taxes -- 1,042
--------- --------
Net income 1,008 1,710
Less redeemable preferred stock dividends and
accretion for original issue discount 1,906 1,679
-------- --------
Net income (loss) applicable to common shares $ (898) $ 31
======== ========
Net income (loss) per common share $ (.06) $ .002
======== ========
Weighted average common shares outstanding 15,174 15,095
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
Page 4 of 18
<PAGE> 5
GENEVA STEEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 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 income $ 1,008 $ 1,710
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 9,502 6,128
Deferred income taxes -- 86
(Increase) decrease in current assets--
Accounts receivable, net 2,968 (5,857)
Inventories 10,503 (2,116)
Prepaid expenses and other (285) (3,751)
Increase (decrease) in current liabilities--
Accounts payable (3,327) (7,926)
Accrued payroll and related taxes 2,934 2,549
Accrued liabilities 2,645 1,021
Accrued interest payable 8,166 6,283
Accrued pension and profit sharing costs 676 212
-------- --------
Net cash provided by (used for) operating activities 34,790 (1,661)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (12,628) (46,583)
Proceeds from sale of property, plant and equipment 14,135 --
-------- ---------
Net cash provided by (used for) investing activities $ 1,507 $(46,583)
-------- --------
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
Page 5 of 18
<PAGE> 6
GENEVA STEEL COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Payments on long-term debt $(32,348) $ --
Payments for deferred loan costs and
other assets (1,536) (88)
Issuance of Class A common stock to
employee savings plan 127 195
-------- --------
Net cash provided by (used for)
financing activities (33,757) 107
-------- --------
Net increase (decrease) in cash and cash
equivalents 2,540 (48,137)
Cash and cash equivalents at beginning
of period -- 64,267
--------- --------
Cash and cash equivalents at end
of period $ 2,540 $ 16,130
======== ========
</TABLE>
Supplemental schedule of noncash financing activities:
For the three months ended December 31, 1994 and 1993, the Company
increased the redeemable preferred stock liquidation preference by $1,731
and $1,508, respectively, in lieu of paying a cash dividend. In addition,
for the same periods, redeemable preferred stock was increased by $175 and
$171, 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 consolidated financial statements are
an integral part of these condensed consolidated statements.
Page 6 of 18
<PAGE> 7
GENEVA STEEL COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(1) INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of Geneva
Steel Company and Geneva Steel Funding Corporation, a wholly-owned subsidiary
of Geneva Steel Company (collectively, 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
accompanying unaudited condensed consolidated financial statements 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 of the Company.
It is suggested that these condensed consolidated 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 were comprised of the following components:
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
------- -------
<S> <C> <C>
Raw materials $27,043 $31,608
Semi-finished and finished goods 40,658 46,302
Operating materials 7,805 8,099
------- -------
$75,506 $86,009
======= =======
</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 income for the three-month periods ended December 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 7 of 18
<PAGE> 8
(4) INCOME TAXES
The components of and the changes in the net deferred income tax assets and
liabilities for the three months ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Deferred
September 30, (Expense) December 31,
1994 Benefit 1994
--------- --------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 24,986 $ 2,646 $ 27,632
Inventory costs capitalized 4,178 -- 4,178
Alternative minimum tax
credit carryforward 6,748 -- 6,748
Accrued vacation 1,696 23 1,719
Allowance for doubtful accounts 684 127 811
General business credits 2,271 131 2,402
Other 343 84 427
-------- ------- --------
Total deferred income tax assets 40,906 3,011 43,917
Valuation allowance (1,186) 267 (919)
-------- ------- --------
Total deferred income tax assets $ 39,720 $ 3,278 $ 42,998
-------- ------- --------
Deferred income tax liabilities:
Accelerated depreciation $(34,977) $(3,246) $(38,223)
Mineral property development costs (2,141) (18) (2,159)
Operating materials (2,559) (14) (2,573)
Other (43) -- (43)
-------- -------- --------
Total deferred income tax liabilities $(39,720) $(3,278) $(42,998)
======== ======== ========
</TABLE>
The Company did not recognize a provision for income taxes in the
accompanying condensed consolidated statement of income for the three
months ended December 31, 1994 as a result of utilizing net operating loss
carryforwards for financial reporting purposes. As of December 31, 1994, the
Company had, for financial reporting purposes, a net operating loss
carryforward of approximately $1,300.
(5) REVOLVING CREDIT FACILITY
In November 1994, the Company amended and restated its revolving credit
facility with a syndicate of banks led by Citicorp USA, Inc., as agent (the
"Revolving Credit Facility"), which is used primarily for the working capital
and capital expenditure needs of the Company. The Revolving Credit Facility in
the amount of up to $45,000 is secured by the Company's inventories, unsold
accounts receivable, and general intangibles, and proceeds thereof, and expires
on April 30, 1999. The amount available to the Company under the Revolving
Credit Facility generally ranges from 50 to 55%, in the aggregate, of eligible
inventories. At December 31, 1994, approximately $34,600 was available for
borrowing under the Revolving Credit Facility. Interest is payable monthly at
1.25% above the defined base rate (9.75% at December 31, 1994) or 2.5% above
the defined LIBOR rate (8.5% at December 31, 1994). The Company pays a monthly
Page 8 of 18
<PAGE> 9
commitment fee based on an annual rate of .50% of the average unused portion of
the borrowing limit under the Revolving Credit Facility.
(6) ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
In November 1994, the Company executed agreements to create and fund a
five-year accounts receivable securitization facility of up to $65,000 (the
"Receivables Facility"). Under the Receivables Facility, the Company sells
substantially all of its accounts receivable to a wholly-owned special purpose
subsidiary, Geneva Steel Funding Corporation ("GSFC"). GSFC transfers the
accounts receivable purchased from the Company to a trust in exchange for
certain trust certificates representing ownership interests in the assets of
the trust. One of the trust certificates was sold to an institutional investor
and the proceeds of such sale and of subsequent fundings by the investor are
used by GSFC to pay the Company for the receivables purchased by GSFC. During
the term of the Receivables Facility, the cash generated by collection of the
receivables will be used to purchase additional receivables (GSFC will purchase
substantially all receivables from the Company on an ongoing basis) or make
payments to the investor. Pursuant to the Receivables Facility, the Company
acts as servicer for the accounts receivable.
The yield on amounts funded by the institutional investor under the
Receivables Facility is the applicable commercial paper rate plus 0.5% (5.97%
at December 31, 1994). In addition, GSFC pays a 0.375% fee on unfunded
amounts. Funding availability under the Receivables Facility is based on
eligible receivables as defined in the applicable agreements. At December 31,
1994, $38,200 was available under the Receivables Facility, of which $29,700
had been funded. The Company is not subject to any financial ratio tests under
the Receivables Facility, but the agreements provide for early termination and
payment upon certain events, which include the incurrence of losses or
delinquencies on the receivables in excess of certain levels or the bankruptcy
or insolvency of the Company. In the event of a liquidation of GSFC, such
institutional investor would be entitled to receive proceeds from collections
of accounts receivable based on a formula which takes into account the
investor's pro rata share of funding to total trust assets.
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:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1994 1993
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 90.3 90.9
----- -----
Gross margin 9.7 9.1
Selling, general and administrative expenses 3.6 4.5
----- -----
Income from operations 6.1 4.6
----- -----
Other income (expense):
Interest and other income -- 0.3
Interest expense (5.4) (2.7)
Other expense (0.1) --
----- -----
(5.5) (2.4)
----- -----
Income before provision for income taxes 0.6 2.2
Provision for income taxes -- 0.8
----- -----
Net income 0.6% 1.4%
===== =====
</TABLE>
The following table sets forth the sales product mix as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1994 1993
---- ----
<S> <C> <C>
Sheet 53.3% 64.3%
Plate 31.7 25.5
Pipe 4.4 6.9
Slab 7.6 0.5
Non-Steel 3.0 2.8
----- -----
100.0% 100.0%
===== =====
</TABLE>
Page 10 of 18
<PAGE> 11
THREE MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1993
The steel industry is cyclical in nature. Since early calendar year
1993, the industry has experienced increasing steel prices resulting from
increased demand, and the Company has implemented several price increases for
certain steel products. Various producers have announced price increases which
the Company intends to follow as justified by market conditions. 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.
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. Moreover, the Company has significantly reduced its backlog of
orders. Consequently, the Company may be affected by price increases and
decreases more quickly than many of its competitors.
Net sales increased 29.4% due to increased shipments of approximately
87,400 tons and increased average selling prices for the three months ended
December 31, 1994 as compared to the same period in the previous fiscal year.
The weighted average sales price (net of transportation costs) per ton of sheet
and plate products increased by 6.1% and 11.0%, respectively, while the
weighted average sales price per ton of pipe products decreased 2.5% in the
three months ended December 31, 1994 compared to the same period in the
previous fiscal year. The overall average selling price realization per ton
also increased between the periods as a result of a shift in product mix to
higher priced plate products. This increase was offset, in part, by the
Company's increased sales of lower priced slab products. The increase in plate
shipments resulted from the completion of various upgrades to plate processing
and finishing equipment. The Company increased slab shipments to maximize
production from the continuous caster as the caster became fully integrated
into the production process. The Company anticipates that slab sales will
decline as plate and large coil production increases as discussed below.
Shipped tonnage of sheet, plate and slabs increased approximately 2,600 tons or
1.0%, 41,900 tons or 45.0% and 46,200 tons or 1,650.4%, respectively, while
shipped tonnage of pipe decreased approximately 3,300 tons or 14.5% between the
two periods.
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 to 90.3% for
the three months ended December 31, 1994 from 90.9% 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. The increased
cost per ton was due, in part, to a shift in product mix to higher cost plate
products, offset, in part, by increased sales of lower cost slab products.
Costs increased primarily as a result of higher depreciation expense,
production inefficiencies and transition costs associated with implementation
of certain modernization and capital projects, increased coke costs as a result
of purchasing coke to supplement internal coke production, higher wages and
benefits as required by the union labor agreement and increases in certain
other operating costs. These increased costs were offset, in part, by reduced
production costs as a result of
Page 11 of 18
<PAGE> 12
integrating the continuous caster, the first phase of the wide coiled plate
project and other completed capital projects into the production process. The
Company expects that additional operating cost savings will be achieved from
its modernization efforts as discussed below.
The Company expects that certain operating costs will increase in
future periods. The Company's consumption of purchased coke will be higher,
thereby increasing the Company's average cost of coke used in the manufacturing
process. The Company also anticipates higher iron ore pellet costs. The
Company has historically purchased iron ore pellets from USX, and believes that
USX has agreed to a new, long-term contract that includes higher pellet prices;
nevertheless, USX recently attempted to negotiate even more favorable pricing
and quantity terms. The Company is currently attempting to resolve the matter
with USX. In the interim, USX has agreed to supply the Company with iron ore
pellets through calendar year 1995.
As part of its modernization efforts, the Company modified its soaking
pit furnaces to hold hot slabs taken from the continuous caster and increase
the temperature of the slabs in preparation for rolling. As the continuous
caster and other related capital projects were implemented, the Company
encountered difficulties in achieving sufficient slab heating capacity from the
soaking pits. Consequently, the Company is using both the soaking pits and its
existing reheat furnaces to heat slabs. Utilization of both facilities has
prevented the Company from realizing a portion of the estimated operating costs
savings previously associated with the Company's modernization program.
Insufficient heating capacity limits the Company's ability to heat long slabs
and has, therefore, reduced the percentage of large coils produced. The
Company recently signed a contract for the installation of a 42-megawatt
induction slab heating facility, which will be located in-line with the
Company's caster and rolling mill. The new heating facility is designed to
increase slab temperature by approximately 300 degrees fahrenheit prior to
rolling. The Company estimates that the new furnace will be completed during
the third calendar quarter of 1995. The Company continues to evaluate its slab
heating requirements and may elect to install additional heating capacity.
Completion of the induction furnace is expected to allow the Company to
substantially increase large coil production.
The continuous caster is now fully integrated into the production
process and is providing important cost and quality benefits. By the end of
December 1994, the Company was producing substantially all of its slabs through
the continuous caster and had achieved a 1.9 million ton annualized production
rate. The final phase of the wide coiled plate project is expected to be
completed in the current quarter. In connection with the implementation of
this and other projects, the Company expects to realize additional operating
cost savings, increase its percentage of plate products sold and achieve other
operational benefits. The Company has implemented measures designed to
minimize transition costs and other start-up difficulties with respect to its
capital projects. There can be no assurance, however, that such conditions
will not be greater than currently expected or extend beyond the anticipated
start-up periods.
Depreciation costs included in cost of sales increased approximately
$3.1 million for the three months ended December 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. Depreciation expense will
increase substantially due to implementation of the Company's capital projects.
Page 12 of 18
<PAGE> 13
Selling, general and administrative expenses for the three months
ended December 31, 1994 increased approximately $0.2 million as compared to the
same period in the previous fiscal year. The higher expenses resulted
primarily from increased wages and salaries. The Company expects that wages
and salaries will further increase in future periods.
Interest and other income decreased approximately $0.4 million during
the three months ended December 31, 1994 as compared to the same period in the
previous fiscal year as a result of a decrease in the amount of invested cash
and cash equivalents.
Interest expense increased approximately $5.3 million during the three
months ended December 31, 1994 as compared to the same period in the previous
fiscal year. Interest expense increased due to higher levels of borrowing and
decreases in capitalized interest during the three months ended December 31,
1994 offset, in part, by a reduction in interest rates as a result of
restructuring the Company's debt. Interest expense is expected to increase in
future periods due to increased borrowings incurred in fiscal year 1994.
Other expense reflects the costs incurred in connection with the
receivables facility which commenced in November 1994 (see description of
receivables facility below). Although the receivables facility operates to
reduce the Company's cost of working capital, other expense is expected to
increase in future periods due to expected increases in funding under the
receivables facility and the effect of fundings under the receivables facility
being outstanding for the full three month period.
The Company did not recognize a provision for income taxes for the
three months ended December 31, 1994 as a result of utilizing net operating
loss carryforwards for financial reporting purposes. As of December 31, 1994,
the Company had, for financial reporting purposes, a net operating loss
carryforward of approximately $1.3 million.
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 past three years principally from the
incurrence of additional long-term indebtedness, including borrowings under the
Company's revolving credit facility, and cash provided by operations.
In November 1994, the Company amended and restated its revolving
credit facility with a syndicate of banks led by Citicorp USA, Inc., as agent
(the "Revolving Credit Facility"), which is used primarily for the working
capital and capital expenditure needs of the Company. The Revolving Credit
Facility in the amount of up to $45 million is secured by the Company's
inventories, unsold accounts receivable, and general intangibles, and proceeds
thereof, and expires on April 30, 1999. The amount available to the Company
under the Revolving Credit Facility currently ranges from 50 to 55%, in the
aggregate, of eligible inventories. At December 31, 1994, approximately $34.6
million was available for borrowing under the Revolving Credit Facility.
Interest is payable monthly at 1.25% above the defined base rate (9.75% at
December 31, 1994) or 2.5% above the defined LIBOR rate (8.5% at December 31,
1994). The Company's ability to borrow under the Revolving Credit Facility is
subject to compliance with various
Page 13 of 18
<PAGE> 14
financial covenants and tests contained therein. As of December 31, 1994, the
Company had no borrowings outstanding under the Revolving Credit Facility.
The debt instruments governing the Revolving Credit Facility and the
Company's 11 1/8% Senior Notes issued in March 1993 and 9 1/2% Senior Notes
issued in February 1994 (collectively, the "Senior Notes") contain cross
default 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 current ratio
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 modifying certain of
the covenants and tests contained in its previous revolving credit facility and
may be required to seek amendments of the Revolving Credit Facility in the
future based on actual operating results or capital spending. Covenants
amended in the past include the interest coverage requirement, the leverage
ratio maintenance requirement and the tangible net worth maintenance
requirement.
In November 1994, the Company also executed agreements to create and
fund a five-year accounts receivable securitization facility of up to $65
million (the "Receivables Facility"). Under the Receivables Facility, the
Company sells substantially all of its accounts receivable to a wholly-owned
special purpose subsidiary, Geneva Steel Funding Corporation ("GSFC"). GSFC
transfers the accounts receivable purchased from the Company to a trust in
exchange for certain trust certificates representing ownership interest in the
assets of the trust. One of the trust certificates was sold to an
institutional investor and the proceeds of such sale and of subsequent fundings
by the investor are used by GSFC to pay the Company for the receivables
purchased by GSFC. During the term of the Receivables Facility, the cash
generated by collection of the receivables will be used to purchase additional
receivables (GSFC will purchase substantially all receivables from the Company
on an ongoing basis) or make payments to the investor. Pursuant to the
Receivables Facility, the Company acts as servicer for the accounts receivable.
The yield on amounts funded by the institutional investor under the
Receivables Facility is the applicable commercial paper rate plus 0.5% (5.97%
at December 31, 1994). In addition, GSFC pays a 0.375% fee on unfunded
amounts. Funding availability under the Receivables Facility is based on
eligible receivables as defined in the applicable agreements. At December 31,
1994, $38.2 million was available under the Receivables Facility, of which
$29.7 million had been funded. The Company is not subject to any financial
ratio tests under the Receivables Facility, but the agreements provide for
early termination and payment upon certain events, which include the incurrence
of losses or delinquencies on the receivables in excess of certain levels or
the bankruptcy or insolvency of the Company. The principal benefit of the
Receivables Facility is to reduce the Company's cost of funding related to its
working capital needs.
Besides these and other financing activities, the Company's major
source of liquidity has been cash provided by operations. Net cash provided by
operating activities was $34.8 million for the three months ended December 31,
1994 compared with net cash used for operating activities of $1.7 million for
the same period
Page 14 of 18
<PAGE> 15
in the previous fiscal year. The $34.8 million provided by operating
activities during the three months ended December 31, 1994 was primarily a
result of fundings under the Receivables Facility of $29.7 million,
depreciation and amortization of $9.5 million, a reduction of inventories of
$10.5 million and an increase in accrued interest payable of $8.2 million.
These sources of cash flow were offset, in part, by a $26.8 million increase in
accounts receivable primarily associated with higher shipment levels. The
Company also increased its cash flow during the period through a sale-leaseback
transaction of approximately $14.1 million of manufacturing equipment.
The Company expects its capital expenditures to require significant
cash resources over the next several years. With respect to fiscal year 1995,
the Company previously identified approximately $117 million in potential
capital expenditures. These capital expenditures included estimates for
additional slab heating capacity at a cost of approximately $30 million
($25 million in fiscal year 1995), a plasma-fired cupola ironmaking facility
at a cost of approximately $29 million ($27 million in fiscal year 1995), and
the final phase of the wide coiled plate project at a cost of approximately
$14 million. At present, the Company has determined to spend approximately
$15 million for the induction slab heating facility discussed above but may not
spend additional amounts on slab heating capacity in fiscal year 1995.
Moreover, the Company is pursuing leasing alternatives for financing the
plasma-fired cupola ironmaking facility. The Company may elect to adjust the
design, timing and budgets of capital projects for operational, liquidity or
other reasons. The Company anticipates that, in any event, it may incur
significant start-up and transition costs as planned capital projects are
implemented. The Revolving Credit Facility contains certain limitations on
capital expenditures that are dependent, in part, on the Company's actual cash
flows. If the Company fails to achieve anticipated operating and cash flow
results, such limitations could preclude the Company from making capital
expenditures in the amounts that are currently anticipated.
The Company is required to make substantial interest and dividend
payments on the Senior Notes, its redeemable preferred stock or the exchange
debentures, and outstanding balances under the Revolving Credit Facility,
together with interest on any additional funding necessary for the additional
capital expenditures and other working capital needs. The Company's annual
interest expense is approximately $33 million and its annual preferred stock
dividends are approximately $7 million. Dividends not paid in cash before
April 1996 will be added to the liquidation preference of the redeemable
preferred stock. In addition, the Company will incur costs based on the yield
applicable to funded amounts under the Receivables Facility.
During the first quarter of fiscal year 1995, the Company's operations
improved significantly. The Company expects further improvement due to the
further decline of certain transition costs and production inefficiencies and
the realization of additional operating cost savings. There can be no
assurance, however, that the decline in transition costs and production
inefficiencies or the increase in operating cost savings will continue, that
sufficient product demand will exist for the Company's additional throughput
capacity, or that the projected benefits of the modernization and other capital
projects will be fully achieved.
The Company's ability to meet its anticipated cash needs, including
capital spending, is highly dependent on cash provided by operations, which
includes the effect of changes in working capital. To improve liquidity and
operating cash flow, the Company may contract with independent companies to
provided just-in-time
Page 15 of 18
<PAGE> 16
supplies or consigned inventories of certain raw materials. The Company may
also lease facilities and equipment related to certain capital projects. The
Company has previously entered into an arrangement with one of its major
customers whereby the customer makes a production prepayment of up to $10
million upon the entry of new orders. As an additional means of enhancing the
Company's liquidity, the Company may negotiate an increase in the maximum
amount of production prepayments to $20 million.
Although the Company believes that the anticipated cash from future
operations, fundings under the Receivables Facility and borrowings under the
Revolving Credit Facility will provide sufficient liquidity for the Company to
meet its debt service requirements and to fund ongoing operations, including
required capital expenditures, there can be no assurance that these or other
possible sources will be adequate. In such event, the Company may defer
certain capital expenditures or pursue alternative financing sources.
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,
capital expenditures and general economic conditions. Moreover, 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 capital projects or to satisfy other working capital and cash needs.
The Company is currently engaged in labor negotiations with the United
Steelworkers of America in light of the expiration of its union labor agreement
on February 28, 1995. The Company is currently unable to predict the effect
such negotiations may have on the Company's operations and financial condition.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------- ------- --------
<S> <C> <C>
27 Financial data schedule X
</TABLE>
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K with the Commission on
November 2, 1994. The Form 8-K, dated October 31, 1994, reported the
preliminary results of the Company's fiscal quarter and year ended September
30, 1994, as well as other developments.
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: February 14, 1995
Page 18 of 18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
27 Financial data schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrants balance sheet and statement of income as of and for the three months
ended December 31, 1994 and is qualified in its entirety by reference to such
financial statements, including the notes thereto.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-1-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 2,540,000
<SECURITIES> 0
<RECEIVABLES> 46,783,000
<ALLOWANCES> 1,844,000
<INVENTORY> 75,506,000
<CURRENT-ASSETS> 132,827,000
<PP&E> 548,975,000
<DEPRECIATION> 103,607,000
<TOTAL-ASSETS> 589,350,000
<CURRENT-LIABILITIES> 109,801,000
<BONDS> 325,000,000
<COMMON> 79,164,000
44,938,000
0
<OTHER-SE> 23,728,000
<TOTAL-LIABILITY-AND-EQUITY> 589,350,000
<SALES> 164,424,000
<TOTAL-REVENUES> 164,424,000
<CGS> 148,480,000
<TOTAL-COSTS> 148,480,000
<OTHER-EXPENSES> 5,832,000
<LOSS-PROVISION> 895,000
<INTEREST-EXPENSE> 8,753,000
<INCOME-PRETAX> 1,008,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,008,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008,000
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
