<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, 1995
/ / 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.
13,150,083 and 20,526,348 shares of Class A and Class B common
stock, respectively, outstanding as of April 28, 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>
March 31, September 30,
1995 1994
--------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,354 $ --
Accounts receivable, net 27,342 47,907
Inventories 82,938 86,009
Prepaid expenses and other 2,038 2,838
Deferred income taxes 7,114 6,407
--------- --------
Total current assets 123,786 143,161
--------- --------
Property, plant and equipment:
Land 1,931 1,931
Buildings 16,092 16,092
Machinery and equipment 540,000 521,729
Mineral property and development
costs 8,425 8,425
--------- --------
566,448 548,177
Less accumulated depreciation (112,586) (94,891)
--------- --------
Net property, plant and equipment 453,862 453,286
--------- --------
Other assets 15,317 10,368
--------- --------
$ 592,965 $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>
March 31, September 30,
1995 1994
--------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 53,951 $ 57,021
Accrued payroll and related taxes 10,059 9,178
Accrued liabilities 19,802 14,471
Production prepayments 10,000 10,000
Accrued interest payable 4,487 4,580
Accrued pension and profit
sharing costs 2,022 1,114
-------- --------
Total current liabilities 100,321 96,364
-------- --------
Long-term debt 336,305 357,348
-------- --------
Deferred income taxes 7,114 6,407
-------- --------
Redeemable preferred stock 46,905 43,032
-------- --------
Stockholders' equity:
Preferred stock -- --
Common stock:
Class A 87,294 87,193
Class B 10,836 10,896
Warrants to purchase Class A
common stock 5,360 5,360
Retained earnings 17,532 19,266
Class A common stock held in
treasury, at cost (18,702) (19,051)
-------- --------
Total stockholders' equity 102,320 103,664
-------- --------
$592,965 $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 OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 and 1994
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net sales $157,213 $121,115
Cost of sales 141,401 119,216
-------- --------
Gross margin 15,812 1,899
Selling, general and administrative
expenses 6,250 5,644
-------- --------
Income (loss) from operations 9,562 (3,745)
-------- --------
Other income (expense):
Interest and other income 160 707
Interest expense (7,962) (4,515)
Other expense (629) -
-------- --------
(8,431) (3,808)
-------- --------
Income (loss) before benefit for income
taxes and extraordinary item 1,131 (7,553)
Provision (benefit) for income taxes - (2,873)
-------- --------
Income (loss) before extraordinary item 1,131 (4,680)
Loss on early extinguishment of debt (net
of benefit for income taxes of $5,675) - 9,258
-------- --------
Net income (loss) 1,131 (13,938)
Less redeemable preferred stock dividends
and accretion for original issue discount 1,968 1,733
-------- --------
Net loss applicable to common shares $ (837) $(15,671)
======== ========
Loss per common share before
extraordinary item $ (.06) $ (.43)
Extraordinary item per common share - (.61)
-------- --------
Net loss per common share $ (.06) $ (1.04)
======== ========
Weighted average shares outstanding 15,188 15,121
======== ========
</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 OPERATIONS
SIX MONTHS ENDED MARCH 31, 1995 and 1994
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net sales $321,636 $248,214
Cost of sales 289,881 234,842
-------- --------
Gross margin 31,755 13,372
Selling, general and administrative
expenses 12,082 11,326
-------- --------
Income from operations 19,673 2,046
-------- --------
Other income (expense):
Interest and other income 189 1,140
Interest expense (16,716) (7,987)
Other expense (1,007) -
-------- --------
(17,534) (6,847)
-------- --------
Income (loss) before benefit for income
taxes and extraordinary item 2,139 (4,801)
Provision (benefit) for income taxes - (1,831)
-------- --------
Income (loss) before extraordinary item 2,139 (2,970)
Loss on early extinguishment of debt (net
of benefit for income taxes of $5,675) - 9,258
-------- --------
Net income (loss) 2,139 (12,228)
Less redeemable preferred stock dividends
and accretion for original issue discount 3,873 3,412
-------- --------
Net loss applicable to common shares $ (1,734) $(15,640)
======== ========
Loss per common share before
extraordinary item $ (.11) $ (.43)
Extraordinary item per common share - (.61)
-------- --------
Net loss per common share $ (.11) $ (1.04)
======== ========
Weighted average shares outstanding 15,181 15,108
======== ========
</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
SIX MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,139 $(12,228)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 18,911 13,978
Deferred income taxes - (8,462)
Loss on sale of Equipment 5 44
(Increase) decrease in current
assets--
Accounts receivable, net 20,565 7,490
Inventories 3,071 (5,187)
Prepaid expenses and other 800 (6,185)
Increase (decrease) in current
liabilities--
Accounts payable (3,070) (454)
Accrued payroll and related taxes 881 1,241
Accrued liabilities 2,988 1,653
Accrued interest payable (93) 2,135
Accrued pension and profit
sharing costs 908 153
-------- --------
Net cash provided by (used for)
operating activities 47,105 (5,822)
-------- --------
Cash flows from investing activities:
Purchases of property, plant
and equipment (30,118) (98,704)
Proceeds from sale of property, plant
and equipment 14,135 40
Increase in other assets (4,515) -
-------- --------
Net cash used for investing activities $(20,498) $(98,664)
-------- --------
</TABLE>
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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
SIX MONTHS ENDED MARCH 31,1995 AND 1994
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $ 11,305 $190,000
Payments on long-term debt (32,348) (89,991)
Payments for deferred loan costs and
other assets (1,599) (5,443)
Proceeds from exercise of options to
purchase Class A common stock - 274
Issuance of Class A common stock to
employee savings plan 389 392
-------- --------
Net cash provided by (used for)
financing activities (22,253) 95,232
-------- --------
Net increase (decrease) in cash and
cash equivalents 4,354 (9,254)
Cash and cash equivalents at beginning
of period - 64,267
-------- --------
Cash and cash equivalents at end
of period $ 4,354 $ 55,013
======== ========
</TABLE>
Supplemental schedule of noncash financing activities:
For the six months ended March 31, 1995 and 1994, the Company increased the
redeemable preferred stock liquidation preference by $3,523 and $3,070,
respectively, in lieu of paying a cash dividend. In addition, for the same
periods, redeemable preferred stock was increased by $350 and $342,
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 7 of 18
<PAGE> 8
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>
March 31, September 30,
1995 1994
--------- -------------
<S> <C> <C>
Raw materials $32,084 $31,608
Semi-finished and finished goods 43,055 46,302
Operating materials 7,799 8,099
------- -------
$82,938 $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 (loss) for the three and six-month periods ended March 31,
1995 and 1994 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) INCOME TAXES
The components of and the changes in the deferred income tax assets and
liabilities for the six months ended March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Deferred
September 30, (Expense) March 31,
1994 Benefit 1995
------------- --------- -----------
<S> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 24,986 $ 5,285 $ 30,271
Inventory costs capitalized 4,178 -- 4,178
Alternative minimum tax
credit carryforward 6,748 -- 6,748
Accrued vacation 1,696 189 1,885
Allowance for doubtful accounts 684 127 811
General business credits 2,271 188 2,459
Other 343 184 527
-------- -------- --------
Total deferred income tax assets 40,906 5,973 46,879
Valuation allowance (1,186) 458 (728)
-------- -------- --------
Total deferred income tax assets $ 39,720 $ 6,431 $ 46,151
======== ======== ========
Deferred income tax liabilities:
Accelerated depreciation $(34,977) $ (6,492) $(41,469)
Mineral property development costs (2,141) (36) (2,177)
Operating materials (2,559) 97 (2,462)
Other (43) -- (43)
-------- -------- --------
Total deferred income tax liabilities $(39,720) $ (6,431) $(46,151)
======== ======== ========
</TABLE>
The Company did not recognize a provision for income taxes in the
accompanying condensed consolidated statement of operation for the six months
ended March 31, 1995 as a result of utilizing net operating loss carryforwards
for financial reporting purposes. As of March 31, 1995, the Company had, for
financial reporting purposes, a net operating loss carryforward of
approximately $200.
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,
------------------ ----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 89.9 98.4 90.1 94.6
----- ----- ----- -----
Gross margin 10.1 1.6 9.9 5.4
Selling, general and administrative
expenses 4.0 4.7 3.8 4.6
----- ----- ----- -----
Income (loss) from operations 6.1 (3.1) 6.1 0.8
----- ----- ----- -----
Other income (expense):
Interest and other income 0.1 0.6 0.1 0.5
Interest expense (5.1) (3.7) (5.2) (3.2)
Other expense (0.4) - (0.3) -
----- ----- ----- -----
(5.4) (3.1) (5.4) (2.7)
----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes
and extraordinary item 0.7 (6.2) 0.7 (1.9)
Provision (benefit) for
income taxes - (2.4) - (0.7)
----- ----- ----- -----
Net income (loss) before
extraordinary item 0.7% (3.8)% 0.7% (1.2)%
===== ===== ===== =====
</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,
------------------ ----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sheet 44.0% 73.0% 48.7% 68.5%
Plate 36.8 16.9 34.2 21.3
Pipe 6.6 6.5 5.5 6.7
Slab 9.6 0.7 8.6 0.6
Non-Steel 3.0 2.9 3.0 2.9
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Page 10 of 18
<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1995 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1994
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. Recently, certain producers have announced price
decreases, while certain others have announced future price increases. The
Company intends to react to price increases or decreases in the market as
justified by competitive conditions. During the past year, the domestic market
has experienced high levels of imports of steel. The rate of such imports
appears to be declining, which may have a positive impact on the domestic
market. 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 29.8% due to increased shipments of approximately
62,900 tons and increased average selling prices for the three months ended
March 31, 1995 as compared to the same period in the previous fiscal year. The
weighted average sales price (net of transportation costs) per ton of sheet,
plate, pipe and slab products increased by 7.9%, 14.0%, 6.3% and 22.7%,
respectively, in the three months ended March 31, 1995 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 and pipe 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
intends to further increase plate sales. The Company has increased slab
shipments in response to favorable slab pricing in order to maximize production
from the continuous caster. The Company anticipates that slab sales will
continue as a means of maximizing throughput so long as slab pricing remains
attractive. Shipped tonnage of plate, pipe and slabs increased approximately
89,200 tons or 148.1%, 4,900 tons or 23.6% and 48,800 tons or 1,416.8%,
respectively, while shipped tonnage of sheet decreased approximately 80,000
tons or 27.5% 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 89.9% for
the three months ended March 31, 1995 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 $5 per ton between the two periods. The increased cost
per ton resulted from higher operating costs as well as from a shift in product
mix to higher cost plate and pipe products, offset, in part, by increased sales
of lower cost slab products. Costs increased primarily as a result of higher
depreciation expense, a temporary decline in productivity primarily associated
with negotiation of a new collective bargaining agreement, 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 associated with integrating the continuous caster and other
completed capital projects into
Page 11 of 18
<PAGE> 12
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 has 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.
At the beginning of April 1995, the Company began operating a third
blast furnace in order to increase throughput beyond 1.9 million tons. Subject
to market conditions, the Company intends to continue operating at a three
blast furnace production level, with the goal of further increasing production.
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 also limits the Company's ability to heat long
slabs and has, therefore, reduced the percentage of large coils produced. The
Company has contracted 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. The primary
benefit of the induction furnace will be to substantially increase the
Company's production of large coils.
The final phase of the wide coiled plate project has been completed
and is being integrated into the production process. 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. During the third fiscal quarter,
the Company expects to shift much of its production of heavier and wider plate
to the more efficient coiled plate production process.
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
$3.3 million for the three months ended March 31, 1995 compared with the same
period in the previous fiscal year. This increase was due to increases in the
asset base
Page 12 of 18
<PAGE> 13
resulting from capital expenditures. Depreciation expense will increase
substantially due to implementation of the Company's capital projects.
Selling, general and administrative expenses for the three months
ended March 31, 1995 increased approximately $0.6 million as compared to the
same period in the previous fiscal year. The higher expenses resulted
primarily from increased wages and salaries. The Company has efforts underway
to reduce overall selling, general and administrative expense and anticipates
that selling, general and administrative expense will decline in future
periods.
Interest and other income decreased approximately $0.5 million during
the three months ended March 31, 1995 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 $3.4 million during the three
months ended March 31, 1995 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 March 31, 1995
offset, in part, by a reduction in interest rates as a result of restructuring
the Company's debt.
Other expense was $0.6 million during the three months ended March 31,
1995. Other expense reflects the costs incurred in connection with the
Company's receivables securitization facility, which was established by the
Company in November 1994.
The Company did not recognize a provision for income taxes for the
three months ended March 31, 1995 as a result of utilizing net operating loss
carryforwards for financial reporting purposes. As of March 31, 1995, the
Company had, for financial reporting purposes, a net operating loss
carryforward of approximately $0.2 million.
SIX MONTHS ENDED MARCH 31, 1995 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1994
Net sales increased 29.6% due to increased shipments of approximately
150,300 tons and increased average selling prices for the six months ended
March 31, 1995 as compared to the same period in the previous fiscal year. The
weighted average sales price (net of transportation costs) per ton of sheet,
plate, pipe and slab products increased by 6.9%, 12.2%, 2.3% and 14.9%,
respectively, in the six months ended March 31, 1995 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
in response to favorable slab pricing and to maximize production from the
continuous caster. Shipped tonnage of plate, pipe and slabs increased
approximately 131,100 tons or 85.5%, 1,600 tons or 3.7% and 95,000 tons or
1,521.6%, respectively, while shipped tonnage of sheet decreased approximately
77,400 or 13.9% between the two periods.
The Company's cost of sales, as a percentage of net sales, decreased
to 90.1% for the six months ended March 31, 1995 from 94.6% for the same period
in the previous fiscal year as a result of higher average selling prices
offset, in
Page 13 of 18
<PAGE> 14
part, by higher operating costs. The average cost of sales per ton shipped
increased approximately $4 per ton between the two periods. The increased cost
per ton resulted from higher operating costs, as well as, 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, higher wages and benefits as required by the union labor
agreement, a temporary decline in productivity primarily associated with
negotiation of a new collective bargaining agreement and increases in certain
other operating costs. These increased costs were offset, in part, by reduced
production costs as a result of integrating the continuous caster and other
completed capital projects into the production process.
Depreciation costs included in cost of sales increased approximately
$6.4 million for the six months ended March 31, 1995 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, 1995 increased approximately $0.8 million as compared to the same
period in the previous fiscal year. The higher expenses resulted primarily
from increased wages and salaries and increased outside services.
Interest and other income decreased approximately $1.0 million during
the six months ended March 31, 1995 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 $8.7 million during the six
months ended March 31, 1995 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 six months ended March 31, 1995
offset, in part, by a reduction in interest rates as a result of restructuring
the Company's debt.
Other expense was $1.0 million for the six months ended March 31,
1995. Other expense reflects the costs incurred in connection with the
Company's receivables securitization facility.
The Company did not recognize a provision for income taxes for the six
months ended March 31, 1995 as a result of utilizing net operating loss
carryforwards for financial reporting purposes.
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 (the "Revolving Credit Facility"), fundings
under its accounts receivable securitization facility (the "Receivable
Facility") and cash provided by operations.
As of March 31, 1995, the Company had borrowings of approximately
$11.3 million outstanding under its Revolving Credit Facility and fundings
under its Receivables Facility of $34.7 million. The debt instruments
governing the
Page 14 of 18
<PAGE> 15
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 will likely 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. Currently, covenants under
the Senior Notes and Revolving Credit Facility limit the extent to which the
Company may incur additional indebtedness.
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 $47.1 million for the six months ended March 31, 1995
compared with net cash used for operating activities of $5.8 million for the
same period in the previous fiscal year. The $47.1 million provided by
operating activities during the six months ended March 31, 1995 was generated
primarily as a result of fundings under the Company's Receivable Facility of
$34.7 million, depreciation and amortization of $18.9 million, a reduction in
inventories of $3.1 million, an increase in accrued liabilities of $3.0 million
and net income of $2.1 million. These sources of cash flow were offset, in
part, by a $14.1 million increase in accounts receivable primarily associated
with higher shipment levels and a $3.1 million decrease in accounts payable.
The Company also increased its cash flow during the period through a
sale-leaseback transaction of manufacturing equipment in the amount of $14.1
million.
The Company expects its capital expenditures to require significant
cash resources over the next several years. The Company announced at the
beginning of the fiscal year that it had identified up to approximately $117
million in potential capital projects for fiscal year 1995. The Company
currently anticipates that capital spending for the fiscal year will total
approximately $90 million. The Company is, however, nearing completion of a
lease for the plasma-fired cupola which, if consummated, will further reduce
capital spending by approximately $20 million for the remainder of the fiscal
year and by approximately $5 million for the next year. 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
Page 15 of 18
<PAGE> 16
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
cash interest expense is approximately $34.2 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. The Company currently intends to continue to add the
dividends to the liquidation preference through March 1996. In addition, the
Company will incur costs based on the yield applicable to funded amounts under
the Receivables Facility.
During the first six months of fiscal year 1995, the Company's
operations improved significantly. The Company expects additional 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 has efforts underway to reduce administrative
and operating labor costs as well as other Company costs. 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. Moreover, because of the Company's leverage
situation, its financial flexibility is also limited.
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.
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 March 28,
1995. 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 LLP
as independent auditors for the fiscal year 1995 by a vote of 32,504,050 shares
for, 31,030 shares against and 39,877 shares abstained and there were no
broker-non votes.
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 has not filed any reports on Form 8-K during the three
months ended March 31, 1995.
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: May 15, 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 six months
ended March 31, 1995 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-1-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,354,000
<SECURITIES> 0
<RECEIVABLES> 27,342,000
<ALLOWANCES> 1,380,000
<INVENTORY> 82,938,000
<CURRENT-ASSETS> 123,786,000
<PP&E> 566,448,000
<DEPRECIATION> 112,586,000
<TOTAL-ASSETS> 592,965,000
<CURRENT-LIABILITIES> 100,321,000
<BONDS> 336,305,000
<COMMON> 79,428,000
46,905,000
0
<OTHER-SE> 22,892,000
<TOTAL-LIABILITY-AND-EQUITY> 592,965,000
<SALES> 321,636,000
<TOTAL-REVENUES> 321,636,000
<CGS> 289,881,000
<TOTAL-COSTS> 289,881,000
<OTHER-EXPENSES> 12,082,000
<LOSS-PROVISION> 3,157,000
<INTEREST-EXPENSE> 16,716,000
<INCOME-PRETAX> 2,139,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,139,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,139,000
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
