<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended September 30, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from ___________ to ______________.
COMMISSION FILE NO. 1-10459
GENEVA STEEL COMPANY
(Exact name of Registrant as specified in charter)
UTAH 93-0942346
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 SOUTH GENEVA ROAD
VINEYARD, UTAH 84058
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 227-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
------------------- ------------------------
which registered
----------------
CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
NO PAR VALUE PACIFIC STOCK EXCHANGE
WARRANTS TO PURCHASE
CLASS A COMMON STOCK PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock held by
non-affiliates of the Registrant, based upon the closing sale price of the Class
A Common Stock on the New York Stock Exchange on November 29, 1996, was
approximately $47,201,998. Shares of Class A Common Stock held by each officer
and director and by each person who may be deemed to be an affiliate have been
excluded. As of November 29, 1996, the Registrant had 13,574,641 and 19,151,348
shares of Class A and Class B Common Stock, respectively, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts
II, III and IV of this Report: (1) Registrant's Annual Report to Shareholders
for the fiscal year ended September 30, 1996 (Parts II and IV), and (2)
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
on February 20, 1997 (Part III).
<PAGE> 2
PART I
ITEM 1. BUSINESS.
BACKGROUND
Geneva Steel Company (the "Company" or "Geneva") owns and operates the
only integrated steel mill operating west of the Mississippi River. The
Company's mill manufactures steel slabs and hot-rolled sheet, plate and pipe
products for sale primarily in the western and central United States.
The steel mill is located 45 miles south of Salt Lake City, Utah on
approximately 1,400 acres. The steel mill's facilities include four coke oven
batteries, three blast furnaces, a plasma-fired cupola ironmaking facility, two
Basic Oxygen Process ("Q-BOP") furnaces, a continuous casting facility, a
combination continuous rolling mill and various finishing facilities. The
Company's coke ovens produce coke from a blend of various grades of
metallurgical coal. Coke is used as the principal fuel for the Company's blast
furnaces, which convert iron ore into liquid iron. The liquid iron is then
blended with scrap metal and metallic alloys and further refined in the Q-BOP
furnaces to produce liquid steel. The liquid steel is then processed through the
continuous casting facility. Steel slabs are either direct rolled or allowed to
cool and then reheated prior to rolling. Slabs are rolled into hot-rolled steel
products (sheet, plate and pipe) in the Company's rolling and finishing mills.
The Company also sells a portion of its slabs to other steel processors.
The Company acquired the steel mill and related facilities from USX
Corporation ("USX") on August 31, 1987 at a price of approximately $44.1 million
plus the assumption of certain liabilities. USX had operated the mill from 1944
until 1986, when it placed the mill on hot-idle status. Pursuant to the
acquisition agreement between USX and the Company, USX retained liability for
retiree life insurance, health care and pension benefits relating to employee
service prior to the acquisition. USX also indemnified the Company for costs due
to any environmental condition existing on the Company's real property as of the
acquisition date that is determined to be in violation of environmental laws or
otherwise results in the imposition of environmental liability, subject to the
Company's sharing the first $20 million of certain clean-up costs on an equal
basis. See "Environmental Matters." Since the Company began operations, its
strategy has been to be a low-cost producer of steel products and to optimize
its product quality and mix.
CAPITAL PROJECTS
Overview
The Company has spent approximately $165 million, $68 million and $26
million on capital projects during the fiscal years ended September 30, 1994,
1995 and 1996, respectively. These expenditures were made primarily in
connection with the Company's ongoing modernization efforts. Management believes
that the modernization projects completed to date have resulted in production
efficiencies, increased throughput capacity and improved product quality and
yield.
The Company's capital projects are under continuous review, and
depending on market, operational, liquidity and other factors, the Company may
elect to adjust the design, timing and budgeted expenditures of its capital
plan. There can be no assurance that the projected benefits of the capital
projects will be fully achieved, sufficient product demand will exist for the
Company's additional throughput capacity, or that the planned capital projects
can be completed in a timely manner or for the amounts budgeted. Notwithstanding
the completion of many capital projects, management believes that additional,
capital projects will be critical to the Company's long-term ability to compete
and will require substantial expenditures.
Capital Projects
As a part of its capital plan, the Company has (i) completed a new
continuous casting facility and related improvements, (ii) installed two Q-BOP
furnaces, (iii) completed a direct rolling and large coil project, including
installation of a coilbox and a 42-megawatt induction slab heating furnace, (iv)
completed a wide coiled plate project, (v) installed a plasma-fired cupola
ironmaking facility, (vi) installed various environmental projects, and (vii)
completed various other projects. The following discussion highlights the major
projects completed during fiscal year 1996 or which remain to be completed.
1
<PAGE> 3
Plasma - Fired Cupola. The Company's new plasma-fired cupola ironmaking
facility became available for operation during the year ended September 30,
1996. The cupola functions similar to a blast furnace although it utilizes only
a fraction of the coke required by a blast furnace to produce liquid iron. The
cupola can melt scrap steel, directly reduced iron or other metallic inputs. The
cupola utilizes electric plasma technology as a secondary fuel source to further
reduce coke requirements and substantially increase its capacity. The technology
represents a means of meeting short-term ironmaking needs, providing a broader
flexibility of inputs and decreasing coke requirements. The cupola is being used
to supplement blast furnace iron production during the reline of one of the
Company's blast furnaces and may also be used during periods when scrap prices
are favorable or during other periods requiring supplementary ironmaking
capacity.
Rolling Mill Finishing Stand Improvements. The Company has a six-stand
132-inch combination continuous rolling mill, the widest of its type in the
world, which gives the Company the flexibility to alter its mix of sheet and
plate products in response to customer demands and changing market conditions.
The final phase of the rolling mill modernization includes hydraulic gauge
control, roll bending and automatic roll change. These improvements are designed
to enhance the shape and gauge of the Company's products and to increase
throughput capacity. Substantially all of the equipment for the rolling mill
finishing stand improvements was completed during fiscal year 1996. The Company
elected to defer installation of that equipment until fiscal year 1997 and 1998.
The Company anticipates that it may incur significant start-up and transition
cost as the finishing stand equipment is installed and implemented.
Induction Slab Heating Furnace. The Company has installed a 42-megawatt
induction slab heating furnace, which is located in-line with the Company's
caster and rolling mill. The induction furnace has enabled the Company to
increase production of large coils. The Company continues to evaluate its slab
heating requirements and may elect to install additional heating capacity to
increase production throughput rates.
Development Venture
The Company has formed a joint venture with Air Products and Chemicals,
Inc. and Centerior Energy Corporation, which in turn entered into a cooperative
agreement with the United States Department of Energy ("DOE") for the
demonstration of a COREX(R) direct ironmaking facility and associated power
generation and air separation facilities. This project, known as Clean Power
from Integrated Coal/Ore Reduction (CPICOR(TM)), was selected under the United
States Department of Energy's Clean Coal Technology Demonstration Program. The
project includes construction and operation of a 3,000 ton per day COREX(R)
cokeless ironmaking unit. Potential advantages of the project for the Company
include additional ironmaking capacity, decreased dependence on coke, increased
utilization of low-cost western raw materials and various environmental
benefits. As of September 30, 1996, the Company had spent approximately $0.8
million on the project. The project, which includes up to $150 million in cost
share funding from the Department of Energy, is anticipated to start-up no
sooner than 2000 and is still subject to a number of contingencies, including
obtaining private financing, continuing availability of the government funding
and completion of project definition activities relating to the economic
viability of the project. Under certain circumstances, the Company may be
required to repay some or all of the government cost share funds in the event
the project is terminated.
PRODUCTS
The Company's principal products are steel slabs and hot-rolled sheet,
plate and pipe products. The Company also sells non-steel materials that are
by-products of its steelmaking operations.
The Company has a 132-inch combination continuous rolling mill, the
widest of its type in the world, which gives the Company the flexibility to
alter its mix of sheet and plate products in response to customer demands and
changing market conditions and the opportunity to maximize utilization of the
facilities. Generally, the Company manufactures products in response to specific
customer orders. During fiscal year 1996, the Company increased its percentage
of plate and slab products sold. Consistent with the Company's strategic
objectives, plate shipments have increased as various upgrades to plate
processing and finishing equipment have been integrated into the production
process. The Company sells slabs to maximize production from the continuous
caster while efforts to increase rolling mill throughput continue. The Company
expects that slab shipments will gradually decrease as rolling mill throughput
improves. Product mix shifts are also
2
<PAGE> 4
determined by Geneva's product mix optimization efforts. These efforts generally
allow Geneva to focus on products with the highest margin contribution. The
Company's product sales mix for fiscal years 1992 through 1996 is shown below:
<TABLE>
<CAPTION>
---------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sheet ........ 45% 56% 65% 41% 30%
Plate ........ 41 31 24 35 45
Pipe ......... 11 10 7 6 6
Slab ......... -- -- 1 15 16
Non-steel .... 3 3 3 3 3
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Sheet. The mill produces hot-rolled sheet steel which is sold in sheet
or coil form in thicknesses of .96 to .230 of an inch and widths of 40 to 74
inches. Maximum widths vary according to thickness. Included in the sheet
products made by the Company are cut-to-length sheet, hot-rolled bands and
tempered coil. Sheet is used in a variety of applications such as storage tanks,
light structural components and supports and welded tubing.
Plate. The Company's plate products consist of hot rolled carbon and
high-strength low alloy steel plate in coil form, cut-to-length from coil and
flat rolled in widths varying from 48 to 126 inches and in thicknesses varying
from .1875 of an inch to 3 inches. Plate can be used for heavy steel structures
such as storage tanks, railroad cars, ships and bridges.
Pipe. The Company produces electric resistance welded pipe ("ERW pipe")
ranging from approximately 7 to 16 inches in diameter. ERW pipe is manufactured
by heating and fusing the edges of the steel coil to form the pipe. The
Company's ERW pipe is used primarily in pipelines, including water, natural gas
and oil transmission and distribution systems, and in standard and structural
pipe applications.
Slab and Non-Steel. The Company sells steel slabs when market
conditions are favorable and as a means of maximizing production through the
continuous caster. The Company also sells products produced by its foundry
operation and various by-products resulting from its steelmaking activities.
MARKETING; PRINCIPAL CUSTOMERS
The Company sells its sheet and plate products primarily to steel
service centers and distributors, which in recent years have become one of the
largest customer groups in the domestic steel industry. Service centers and
distributors accounted for approximately 62% of the Company's finished product
sales (excluding slabs) in fiscal year 1996. The Company also sells its products
to steel processors and various end-users, including manufacturers of welded
tubing, highway guardrail, storage tanks, railcars, ships and agricultural and
industrial equipment. The Company believes that sales of its products, either
directly or through service centers or distributors, to automotive or appliance
manufacturers have been immaterial. The Company has developed a broad customer
base. In fiscal year 1996, the Company sold its products domestically to
approximately 265 customers in 38 states and abroad through exporters to eight
customers in Canada, Mexico and Italy.
The Company sells its ERW pipe to end-users and through distributors
primarily in the western and central United States, where demand for pipe
fluctuates in partial response to oil and gas industry cycles. The Company also
occasionally sells products in the export market. Export sales, which generally
have lower margins than domestic sales, accounted for approximately 0.3%, 1.3%
and 0.7% of the Company's net sales during fiscal years 1994, 1995 and 1996,
respectively.
The Company's principal direct marketing efforts are in the western and
central United States. Six sales representatives are employed in the western
market, two of whom are located in the greater Los Angeles area, the largest
single market for steel in the western United States. The Company believes that
it holds a significant market share of the hot-rolled sheet, plate and pipe
sales in the eleven western states.
In the central United States, the Company currently has a small share
of the market. Management believes, however, that there are attractive
opportunities for revenue growth in this market. Substantially all of Geneva's
sales in the
3
<PAGE> 5
central United States are made through a sales arrangement with Mannesmann Pipe
and Steel Corporation ("Mannesmann"), the United States steel marketing
subsidiary of Mannesmann A.G., a major German industrial company. The sales
arrangement entitles Mannesmann to sell the Company's products in 15 central
states and to certain of the Company's customers in the eastern United States,
and to receive a variable commission on its sales. Mannesmann has an exclusive
right to sell the Company's products in these areas, subject to certain
exceptions. The payment terms provide that Mannesmann make a production
prepayment of up to $15 million. The prepayment arrangement is subject to
certain financial covenants and rights of termination. The prepayment is
recorded as a production prepayment until the product is shipped, at which time
the sale is recorded. Mannesmann accounted for approximately 36% and 31% of the
Company's net sales in fiscal years 1995 and 1996, respectively. Any termination
or disruption of the Company's arrangements with Mannesmann could have a
material adverse effect on the Company's results of operations and financial
condition.
The Company's strategy is to maintain its core market in the western
United States, where its market position is the strongest, and to increase
growth in the midwest and eastern regions, while focusing on profit
maximization. The Company believes that service centers and distributors account
for a substantially larger proportion of its sales than of sales for the
industry as a whole. Demand from this customer group historically has
experienced wide fluctuations due to substantial changes in the group's
inventory levels. In view of these factors, the Company intends to develop a
somewhat more diverse customer base, including selected steel processors and
various end-users, while retaining strong relationships with service center and
distributor customers. The Company expects its modernization efforts to play a
critical role in the implementation of these strategies by enabling the Company
to produce higher quality products and to gain access to a wider range of
customers.
The Company generally produces steel in response to specific orders. As
of November 30, 1996, the Company had estimated total orders on hand for
approximately 210,000 tons compared to approximately 274,000 tons as of November
30, 1995. The Company does not believe that its orders on hand are necessarily
indicative of future operating results.
EMPLOYEES; LABOR AGREEMENT
The Company has a workforce of approximately 2,655 full-time employees,
of whom approximately 520 are salaried and approximately 2,135 are hourly. The
Company's 165 operating management personnel generally have had considerable
experience in the steel industry. Almost half have more than 20 years of
industry experience, with most of the remaining managers ranging in experience
from 10 to 20 years. The Company's senior operating managers have an average of
over 25 years of industry experience.
Substantially all of the Company's hourly employees are represented by
the United Steelworkers of America under a collective bargaining agreement that
expires in March 1998. The Company believes that its labor agreement is an
important competitive advantage. Although the Company's wage rates under the
agreement are high by local standards and comparable to regional competitors,
its total hourly labor costs are substantially below recent industry averages
compiled by the American Iron and Steel Institute. Unlike labor agreements
negotiated by many other domestic integrated steel producers, the Company's
labor agreement does not contain traditional work rules, limits the Company's
financial pension obligations to a defined contribution plan and entitles the
Company to reduce its profit sharing obligations by an amount equal to a portion
of its capital expenditures. The Company did not assume any pension obligations
or retiree medical obligations related to workers' service while the plant was
owned by USX.
The Company's labor agreement also contains a performance dividend plan
designed to reward employees for increased shipments of steel products.
Compensation under the plan includes a monthly guarantee of $.33 per hour for
all union represented workers. The guaranteed payment is based on an annualized
shipment rate of 1.5 million tons. As shipments increase above this level,
compensation under the plan also increases.
The Company has also implemented a performance dividend plan for all
non-union employees that provides additional compensation as shipment levels
increase. Unlike the union plan, however, there are no guaranteed payments.
The Company's profit sharing obligations under the labor agreement are
based on earnings before taxes, extraordinary items and profit sharing. Unlike
the profit sharing arrangements of many major domestic integrated steel
producers, the Company's profit sharing obligations are reduced by an amount
equal to a portion of its capital expenditures. The Company is required to
contribute each year to the profit sharing pool 10% of earnings before taxes,
extraordinary items
4
<PAGE> 6
and profit sharing after deducting 25% of the first $50 million of capital
expenditures and 30% of all additional capital expenditures in such year
(including, in each case, capital maintenance). All payments made to workers
under the union performance dividend plan are deducted from any profit sharing
obligations otherwise required.
Effective March 1, 1995, the Company established a voluntary employee
beneficiary association trust ("VEBA Trust") to fund post retirement medical
benefits for future retirees covered by the collective bargaining agreement.
Company contributions to the VEBA Trust are ten cents for each hour of work
performed by employees covered by the collective bargaining agreement. In
addition, union employees provide a contribution to the VEBA Trust based on a
reduction from the performance dividend plan payment. No benefits will be paid
from the VEBA Trust prior to March 31, 1998. Eligibility requirements and
related matters will be determined at a later date.
RAW MATERIALS AND RELATED SERVICES
The Company is located near major deposits of several of the principal
raw materials used to make steel, including iron ore, high volatile coal,
limestone and natural gas. The Company believes that, in certain instances, this
proximity, together with the Company's importance as a customer to suppliers of
these materials, enhances its ability to obtain competitive terms for these raw
materials. As the Company evaluates emerging technologies for the production of
iron and steel, it focuses on those technologies that allow increased
utilization of resources available in the western United States.
Iron Ore. The Company's steelmaking process can use both iron ore and
iron ore pellets. In recent years, the Company has used a high percentage of
iron ore pellets in an effort to maximize the operating efficiencies of its
blast furnaces in response to increased production needs. Iron ore pellets are
generally purchased from USX, as discussed below, as well as on the spot market.
The Company has iron ore deposits at mines in Utah. The ore is mined by an
independent contractor under claims owned by the Company and transported by
railroad to the steel mill. The Company expects future costs of recovery of
this ore to increase gradually as the open reserves are depleted.
The Company has historically purchased iron ore pellets from USX.
Pursuant to a five year agreement entered into as of September 1, 1994, the
Company has commitments to purchase at least 2,160,000 net tons in the third
year of the agreement and 1,890,000 net tons in each of the fourth and fifth
years of the contract. The agreement also limits the maximum quantity of pellets
USX is obligated to supply. The remainder of the Company's pellet requirements
is generally purchased on the spot market. The Company may in the future elect
to purchase additional amounts of pellets on a longer-term basis.
Coal and Coke. The coke batteries operated by the Company require a
blend of various grades of metallurgical coal. The Company currently obtains
high volatile coal from a mine in western Colorado owned by Oxbow Carbon and
Minerals, Inc. under a contract that expires in March 2004. The Company also
purchases various grades of coal under short-term contracts from sources in the
eastern United States. Although the Company believes that such coal is available
from several alternative eastern suppliers, the Company is subject to price
volatility resulting from fluctuations in the spot market. There can be no
assurance that the Company's blend of coal will not change or that its overall
cost of coal will not increase.
The Company is currently purchasing imported coke as a result of its
increasing steel production and decreasing capacity to produce its own coke as
the Company's coke ovens deteriorate. The ability of other domestic integrated
steel mills to produce coke is also decreasing, thereby increasing the demand
for purchased coke in the United States. The Company purchases coke from sources
in Japan and China. As the Company's consumption of purchased coke increases,
the Company's average cost of coke used in the manufacturing process will be
higher.
Energy. The Company's steel operations consume large amounts of oxygen,
electricity and natural gas. The Company purchases oxygen, nitrogen and argon
from two facilities located on the Company's premises which were constructed by
Air Liquide America Corporation ("Air Liquide") and Praxair, Inc. ("Praxair"),
respectively. These facilities are capable of providing approximately 280 and
550 tons of oxygen per day under contracts which expire in 1998 and 2006,
respectively. Air Liquide has agreed to construct a new facility to accommodate
the Company's increased production levels. Under a new agreement expiring 15
years from the date of first delivery of product (presently estimated in March
1997), the Company will have the right to receive an average of 800 tons of
gaseous oxygen per day from the new facility. Praxair will also continue to
supply product to the Company from its facility. The Company pays a monthly
charge to Praxair for the
5
<PAGE> 7
right to receive 100% of Praxair's production and will pay a monthly charge to
Air Liquide to receive contract tonnages of oxygen when the new facility is
completed.
The Company generates a substantial portion of its electrical
requirements using a 50 megawatt rated generator located at the steel mill and
currently purchases most of its remaining electrical requirements from Utah
Power & Light Company ("UP&L") under a 90 megawatt interruptible power contract
expiring in 1999. The contract provides for price increases tied to the cost of
energy used by the utility to produce electricity. The Company has also entered
into a firm power contract expiring in 1999 with UP&L under which the Company
purchases additional electrical needs. The firm contract provides for energy
charges and price increases similar to the interruptible contract but also
includes a significantly higher capacity charge. The Company also has other
short-term contracts for additional power needs.
Natural gas is purchased at the wellhead in the Rocky Mountain region
and is transported to the steel mill by pipeline. The Rocky Mountain region has
substantial natural gas reserves.
Other. The Company's mill is served by both the Burlington Northern
Santa Fe Railroad ("BNSF") and the Union Pacific Railroad Company ("UP"). The
Company believes that it is one of the largest western customers of the UP
railroad. The Company's location in the western United States facilitates
backhauling, which reduces freight costs. In connection with the recent merger
of the UP and Southern Pacific Transportation Company, the Company negotiated a
long-term transportation contract with the UP intended to maintain a competitive
rate structure. The terms of the contract, together with certain merger
conditions, permit the Company to seek bids from the BNSF for a portion of its
transportation needs. The Company also owns mining claims in a limestone quarry
located approximately 30 miles from the Company's plant. The limestone is mined
by the Company and transported by railroad to the mill.
The Company uses scrap metal obtained from its own operations and
external sources in its steelmaking process. As the Company increases its
production volume, improves yield or implements steelmaking technologies that
utilize scrap, such as the plasma-fired cupola, management anticipates that
increased amounts of scrap will be purchased.
The cost of the Company's raw materials, including energy, has been
susceptible in the past to fluctuations in price and availability and is
expected to increase over time. Worldwide competition in the steel industry has
frequently limited the ability of steel producers to raise finished product
prices to recover higher raw material costs. The Company's future profitability
will be adversely affected to the extent it is unable to pass on higher raw
material costs to its customers.
COMPETITION AND OTHER MARKET FACTORS
The Company competes with domestic and foreign steel producers on the
basis of price, quality and service. Many of the Company's competitors are
larger companies, have greater capital resources and, in some cases, more modern
technology than the Company. Intense worldwide sales competition exists for all
the Company's products. Both the industry and the Company face increasing
competition from producers of certain materials such as aluminum, composites,
plastics and concrete.
The Company believes that certain of its raw material arrangements,
particularly with respect to energy, and its current labor contract are
favorable in relation to those of the domestic steel industry as a whole. The
Company currently purchases iron ore pellets and a significant portion of its
coal requirements from locations in the midwest and eastern United States, for
which it has a transportation cost disadvantage. The Company believes that its
geographic location enhances its ability to compete in the western United
States, although it has a transportation disadvantage in midwestern and eastern
markets.
Product quality has improved significantly as a result of the Company's
modernization efforts. The Company is presently at a competitive disadvantage
with respect to certain product quality factors particularly with respect to
sheet products. The Company believes, however, that its ongoing modernization
efforts have enhanced the competitiveness of its products, particularly with
respect to plate products. Standards of quality in the steel industry are,
nevertheless, rising as buyers continually expect higher quality products.
Foreign and domestic producers continue to invest heavily to achieve increased
production efficiencies and product quality.
The steel industry is cyclical in nature and highly competitive.
Moreover, overall throughput capacity and competition are increasing due
primarily to construction of mini-mills and improvements in production
efficiencies at
6
<PAGE> 8
existing mills. The Company, like other steel producers, is highly sensitive to
price and production volume changes. Consequently, downward movements have had
and will continue to have an adverse effect on the Company's results of
operations.
Integrated steel producers are facing increasing competitive pressures
from mini-mills. Mini-mills use ferrous scrap metal as their basic raw material
and serve regional markets. These operations traditionally produced lower
margin, commodity type steel goods such as bars, rods and structural products. A
number of mini-mills, however, produce plate, coil and pipe products that
compete directly with the Company's products. Three mini-mills have been
completed or are constructing facilities that will produce wide plate in coil
form, thereby competing with products produced by the Company. Of these
facilities, two have begun operations and the third will begin operations in the
spring of 1997. Recently developed thin slab/direct rolling techniques have also
allowed mini-mills to produce some of the types of sheet products that have
traditionally been supplied by integrated producers. Several competitors have
constructed or are constructing mini-mill facilities that are expected to
significantly increase domestic steel production and thereby further increase
competition.
Foreign competition is a significant factor in the steel industry and
has adversely affected product prices in the United States and tonnage sold by
domestic producers. The intensity of foreign competition is substantially
affected by fluctuations in the value of the United States dollar against
several other currencies as well as the strength of the United States economy
relative to foreign economies. In addition, many foreign steel producers are
controlled or subsidized by foreign governments whose decisions concerning
production and exports may be influenced in part by political and social policy
considerations as well as by prevailing market conditions and profit
opportunities. Domestic pricing for all of the Company's products has been
adversely affected by unfairly traded imports. In November 1996, the Company,
together with another domestic plate producer, filed anti-dumping petitions with
the Department of Commerce and the International Trade Commission ("ITC")
against imports of cut-to-length carbon plate from the Russian Federation,
Ukraine, the Peoples' Republic of China and the Republic of South Africa (the
"Plate Trade Cases"). The petitions allege large dumping margins and also set
forth the injury to the U.S. industry caused by these dumped imports. On
December 18, 1996 the ITC made an affirmative preliminary injury determination
with respect to all of the Plate Trade Cases. The Commerce Department will make
its preliminary dumping margin determinations in April 1997. The Company expects
that the ITC's preliminary determination will result in fewer plate imports from
the subject countries during calendar 1997. Cut-to-length plate products from
other countries not subject to the Plate Trade Cases, such as India, may,
however, increase. The final outcome of the Plate Trade Cases will likely be
decided by November 1997. Failure to win the Plate Trade Cases would have a
material adverse effect upon the Company. The Company continues to monitor the
levels of unfair imports of all types of products produced by the Company and
may file additional trade cases in the future. The Company has also filed a
civil lawsuit in Federal District Court against two defendants which the Company
believes have facilitated the importation of dumped plate products. Existing
trade laws and regulations may be inadequate to prevent unfair trade practices
whereby imports could pose increasing problems for the domestic steel industry
and the Company.
ENVIRONMENTAL MATTERS
Compliance with environmental laws and regulations is a significant
factor in the Company's business. The Company is subject to federal, state and
local environmental laws and regulations concerning, among other things, air
emissions, wastewater discharge, and solid and hazardous waste disposal. The
Company believes that it is in compliance in all material respects with all
currently applicable environmental regulations.
The Company has incurred substantial capital expenditures for
environmental control facilities, including the Q-BOP furnaces, the wastewater
treatment facility, the benzene mitigation equipment, the coke oven gas
desulfurization facility and other projects. The Company has budgeted a total of
approximately $200,000 for environmental capital improvements in fiscal years
1997 and 1998. Environmental legislation and regulations have changed rapidly in
recent years and it is likely that the Company will be subject to increasingly
stringent environmental standards in the future. Although the Company has
budgeted capital expenditures for environmental matters, it is not possible at
this time to predict the amount of capital expenditures that may ultimately be
required to comply with all environmental laws and regulations.
Under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), the U.S. Environmental Protection
Agency and the states have authority to impose liability on waste generators,
site owners and operators and others regardless of fault or the legality of the
original disposal activity. Other environmental laws and regulations may also
impose liability on the Company for conditions existing prior to the Company's
acquisition of the steel mill.
7
<PAGE> 9
At the time of the Company's acquisition of the steel mill, the Company
and USX identified certain hazardous and solid waste sites and other
environmental conditions which existed prior to the acquisition. USX has agreed
to indemnify the Company (subject to the sharing arrangements described below)
for any fines, penalties, costs (including costs of clean-up, required studies,
and reasonable attorneys' fees), or other liabilities for which the Company
becomes liable due to any environmental condition existing on the Company's real
property as of the acquisition date that is determined to be in violation of any
environmental law, is otherwise required by applicable judicial or
administrative action, or is determined to trigger civil liability (the
"Pre-existing Environmental Liabilities"). The Company has provided a similar
indemnity (but without any similar sharing arrangement) to USX for conditions
that may arise after the acquisition. Although the Company has not completed a
comprehensive analysis of the extent of the Pre-existing Environmental
Liabilities, such liabilities could be material.
Under the acquisition agreement between the two parties, the Company
and USX agreed to share on an equal basis the first $20 million of costs
incurred by either party to satisfy any government demand for studies, closure,
monitoring, or remediation at specified waste sites or facilities or for other
claims under CERCLA or the Resource Conservation and Recovery Act. The Company
is not obligated to contribute more than $10 million for the clean-up of wastes
generated prior to the acquisition. The Company believes that it has paid the
full $10 million necessary to satisfy its obligations under the cost-sharing
arrangement. USX has advised the Company, however, of its position that a
portion of the amount paid by the Company may not be properly credited against
Geneva's obligations. Although the Company believes that USX's position is
without merit, there can be no assurance that this matter will be resolved
without litigation. The Company believes that resolution of this matter will not
likely have a material adverse effect. The Company's ability to obtain
indemnification from USX in the future will depend on factors which may be
beyond the Company's control and may also be subject to dispute.
ITEM 2. PROPERTIES.
The Company's principal properties consist of the approximately
1,400-acre site on which the steel mill and related facilities are located, the
Company's iron ore mines in southern Utah and the limestone quarry near the
steel mill. The Company also leases from the State of Utah, under a lease
expiring in 2016, a 300-acre site which includes a retention pond. The retention
pond is a significant part of the Company's water pollution control facilities.
Although the Company's facilities are generally suitable to its needs, the
Company believes that such facilities will continue to require future
improvements and additional modernization projects in order to remain
competitive. See Item 1. "Business--Capital Projects" and "--Competition and
Other Market Factors."
ITEM 3. LEGAL PROCEEDINGS.
In addition to the matters described under Item 1.
"Business--Environmental Matters," the Company is a party to routine legal
proceedings incidental to its business. In the opinion of management, after
consultation with its legal counsel, none of the proceedings to which the
Company is currently a party to are expected to have a material adverse effect
on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Class A Common Stock is listed and traded on the New York
Stock Exchange ("NYSE") and the Pacific Stock Exchange under the symbol "GNV."
The following table sets forth, for the periods indicated, the high and low
sales prices for the Class A Common Stock as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, 1995 HIGH LOW
<S> <C> <C>
First Quarter ended December 31 $18 $12 1/4
Second Quarter ended March 31 16 9 3/4
Third Quarter ended June 30 12 7 1/8
Fourth Quarter ended September 30 9 3/4 7 3/4
Fiscal Year Ended September 30, 1996 HIGH LOW
First Quarter ended December 31 $ 8 $6 3/8
Second Quarter ended March 31 8 1/4 5 1/8
Third Quarter ended June 30 7 1/8 5 1/4
Fourth Quarter ended September 30 5 1/2 3 1/8
</TABLE>
As of November 29, 1996, the Company had 13,574,641 shares of Class A
Common Stock outstanding, held by 643 stockholders of record, and 19,151,348
shares of Class B Common Stock outstanding, held by five stockholders of record.
Shares of Class B Common Stock are convertible into shares of Class A Common
Stock at the rate of ten shares of Class B Common Stock for one share of Class A
Common Stock. There is no public market for the Class B Common Stock.
The Company currently anticipates that it will retain all available
funds to finance its capital expenditures and other business activities, and it
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. In addition, the Company's revolving credit facility and
senior notes restrict the amount of dividends that the Company may pay. See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 2 of Notes to
Consolidated Financial Statements included in this Report.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated by reference to
page 8 of the Company's Annual Report to Shareholders for the fiscal year ended
September 30, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated by reference to
pages 10 through 16 of the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1996.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated by reference to
pages 17 through 34 of the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors -- Nominees for Election as
Directors" and "Executive Officers" in the Company's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on February 20, 1997. The
definitive Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after September 30, 1996, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
the sections entitled "Election of Directors -- Director Compensation" and
"Executive Compensation" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on February 20, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
the section entitled "Principal Holders of Voting Securities" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
February 20, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 27, 1996, the Company entered into an agreement to loan up
to $500,000 to its Chief Executive Officer. On September 27, 1996 and October 4,
1996, the Company loaned $250,000 and $210,000, respectively. The loan is
evidenced by a promissory note which bears interest at the rate of 8.54% and is
payable at the earlier of September 27, 1997 or demand for repayment by the
Company. The loan is secured by interests in real and personal property owned by
the Chief Executive Officer and an affiliated entity.
10
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a) Documents Filed:
1. Consolidated Financial Statements. The following
Consolidated Financial Statements of the Company and
Report of Independent Public Accountants included in
the Company's Annual Report to Shareholders for the
fiscal year ended September 30, 1996 are incorporated
by reference in Item 8 of this Report:
- Report of Independent Public Accountants
- Consolidated Balance Sheets at September 30, 1996
and 1995
- Consolidated Statements of Operations for the
years ended September 30, 1996, 1995 and 1994
- Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1996, 1995 and
1994
- Consolidated Statements of Cash Flows for the
years ended September 30, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
2. Financial Statement Schedule. The following Financial
Statement Schedule of the Company for the years ended
September 30, 1996, 1995 and 1994 is filed as part of
this Report and should be read in conjunction with
the Company's Consolidated Financial Statements and
Notes thereto:
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
II - Valuation and Qualifying Accounts 17
</TABLE>
Financial statements and schedules other than those
listed are omitted for the reason that they are not
required or are not applicable, or the required
information is shown in the Consolidated Financial
Statements or Notes thereto, or contained in this
Report.
(b) Reports on Form 8-K
None.
11
<PAGE> 13
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED FILED
NO. EXHIBIT BY REFERENCE HEREWITH
- ----------- ------------------------------------------------------------------- ------------------- --------------
<S> <C> <C> <C>
3.1 Revised Articles of Incorporation of the Registrant (1)
3.2 Articles of Amendment dated February 17, 1993 to the Registrant's (2)
Revised Articles of Incorporation
3.3 Articles of Amendment dated March 12, 1993 to the Registrant's (3)
Revised Articles of Incorporation
3.4 Restated Bylaws of the Registrant dated March 12, 1993 (2)
4.1 Specimen Certificate of the Registrant's Class A Common Stock, (1)
no par value
4.2 Specimen Certificate of the Registrant's Series B Preferred Stock, (4)
no par value
10.1 Asset Sales Agreement between USX and the Registrant dated as (1)
of June 26, 1987, as Amended and Restated August 31, 1987
10.2 Registration Rights Agreement among the signatories listed on the (1)
signature pages thereof and the Registrant dated November 6, 1989
10.3 License Agreement between ENSR Corporation and the Registrant (1)
dated December 8, 1988
10.4 Second Amended and Restated Revolving Credit Agreement among (5)
the Registrant, the Lender Parties named therein, Citicorp U.S.A.,
Inc. and Heller Financial Inc., dated May 14, 1996.
10.5 Second Amended and Restated Security Agreement dated May 14, (5)
1996.
10.6 Amended and Restated Sales Representation Agreement between (5)
Mannesmann Pipe & Steel Corporation and the Registrant dated
April 1, 1996.
10.7 Geneva Steel Key Employee Plan* (6)
10.8 Amendment to Geneva Steel Key Employee Plan dated May 12, (7)
1991*
10.9 Form of Non-Statutory Stock Option Agreement* (1)
10.10 Management Employee Savings and Pension Plan, as Amended (8)
and Restated generally effective January 1, 1994, dated as of July
3, 1995*
10.11 Form of revised Executive Split Dollar Insurance Agreement* (9)
10.12 Form of revised Executive Supplemental Retirement Agreement* (9)
10.13 Union Employee Savings and Pension Plan, as Amended and (8)
Restated effective January 1, 1995, dated as of June 22, 1995*
10.14 Collective Bargaining Agreement between United Steelworkers of (10)
America and the Registrant ("Collective Bargaining Agreement")
dated March 1, 1995*
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
10.15 Agreement between Union Carbide Industrial Gases, Inc. and the (6)
Registrant dated July 12, 1990, as amended August 3, 1990 (the
"Union Carbide Agreement")
10.16 Amendment to the Union Carbide Agreement dated December 1, (9)
1992
10.17 Oxygen Supply Agreement between Big Three Industrial Gas, Inc. (6)
(successor in interest to Liquid Air Corporation) and the Registrant
dated September 27, 1988 and Amendment thereto dated June 8,
1990
10.18 Coilbox License Agreement between Stelco Technical Services (1)
Limited and the Registrant dated August 23, 1989
10.19 License Agreement for the K-OBM Process between (1)
Klockner Contracting and Technologies GmbH and the Registrant
dated November 25, 1989
10.20 Special Use Lease Agreement No. 897 between the State of Utah (9)
and the Registrant dated January 13, 1992 and Amendment thereto
dated June 19, 1992
10.21 Indenture dated as of January 15, 1994 between the Registrant and (11)
Bankers Trust Company, as Trustee, including a form of 9 1/2%
Senior Note due 2004
10.22 Indenture dated as of March 15, 1993 between the Registrant and (3)
The Bank of New York, as Trustee, including a form of 11 1/8%
Senior Note due 2001
10.23 License Agreement relating to the desulfurization process between (1)
BS&B Engineering Company, Inc. and the Registrant dated March
1, 1990
10.24 Lo-Cat(R)Licensing Agreement between ARI Technologies, Inc. (6)
and the Registrant dated April 16, 1990
10.25 Agreement relating to the closure of hazardous waste surface (6)
impoundments between USX Corporation, the Registrant and
Duncan Lagnese Associates, Incorporated dated October 22, 1990
10.26 Agreement for the Sale and Purchase of Coke between the (12)
Registrant and Mitsubishi International Corporation dated
November 9, 1993 (the "Mitsubishi Agreement")
10.27 First Amendment to the Mitsubishi Agreement dated as of (13)
December 28, 1993
10.28 Second Amendment to the Mitsubishi Agreement dated as of June X
1995
10.29 Third Amendment to the Mitsubishi Agreement dated as of May (5)
22, 1996.
10.30 Agreement for Sale and Purchase of Coke between the Registrant (14)
and Pacific Basin Resources (a division of Oxbow Carbon and
Minerals, Inc.) dated April 29, 1994 (the "Oxbow Coke
Agreement")
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.31 First Amendment to the Oxbow Coke Agreement dated April 11, X
1996
10.32 Agreement for the Sale and Purchase of Coal between the (15)
Registrant and Oxbow Carbon and Minerals, Inc. dated February
19, 1996, effective as of April 1, 1994
10.33 Warrant Agreement dated as of March 16, 1993 between the (2)
Registrant and The Bank of New York, as Warrant Agent
10.34 Form of Indenture between the Registrant and the Trustee (3)
thereunder related to the Exchange Debentures, including a form
of Exchange Debenture
10.35 Taconite Pellet Sales Agreement between USX Corporation and (10)
Geneva Steel dated May 31, 1995
10.36 Industrial Gas Supply Agreement between Air Liquide America (10)
Corporation and Geneva Steel dated June 8, 1995.
13 Selected portions of the Registrant's Annual Report to Shareholders X
for the year ended September 30, 1996 which are incorporated by
reference in Parts II and IV of this Report
23 Consent of Arthur Andersen LLP, independent public accountants X
27 Financial Data Schedule X
</TABLE>
- --------------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Registration Statement on Form
S-1 dated March 27, 1990, File No. 33-33319.
(2) Incorporated by reference to the Registration Statement on Form
S-3 dated June 16, 1993, File No. 33-64548.
(3) Incorporated by reference to the Registration Statement on Form
S-4 dated April 15, 1993, File No. 33-61072.
(4) Incorporated by reference to the Registration Statement on Form
S-4 dated August 9, 1993, File No. 33-61072.
(5) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1996.
(6) Incorporated by reference to the Registration Statement on Form
S-1 dated November 5, 1990, File No. 33-37238.
(7) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended September 30, 1991.
(8) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended September 30, 1995.
14
<PAGE> 16
(9) Incorporated by reference to the Annual Report on Form 10-K for
the fiscal year ended September 30, 1992.
(10) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1995.
(11) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1993.
(12) Incorporated by reference to the Current Report on Form 8-K dated
December 2, 1993.
(13) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1994.
(14) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1994.
(15) Incorporated by reference to the Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1996.
(d) Financial Statement Schedule
See page 17 herein.
15
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Geneva Steel Company:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements incorporated by reference in
Item 8 of this Form 10-K, and have issued our report thereon dated October 17,
1996. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14(a)2 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
October 17, 1996
16
<PAGE> 18
GENEVA STEEL COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30,
1996, 1995 AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions, Balance
Beginning Costs and Net of at End
Description of Year Expenses Recoveries of Year
- ----------- ------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended September 30, 1996
Allowance for doubtful accounts.......... $2,012 $8,616 $(6,597) $4,031
====== ====== ======= ======
Year Ended September 30, 1995
Allowance for doubtful accounts.......... $3,113 $5,138 $(6,239) $2,012
====== ====== ======= ======
Year Ended September 30, 1994
Allowance for doubtful accounts.......... $2,983 $4,826 $(4,696) $3,113
====== ====== ======= ======
</TABLE>
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on December 27, 1996.
GENEVA STEEL COMPANY
By: /s/ Joseph A. Cannon
---------------------------------------
Joseph A. Cannon, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph A. Cannon Chairman of the Board and Chief December 27, 1996
- -------------------------------------------- Executive Officer
Joseph A. Cannon (Principal executive officer)
/s/ Robert J. Grow President and Chief Operating December 27, 1996
- -------------------------------------------- Officer and Director
Robert J. Grow
/s/ Richard D. Clayton Executive Vice President, Vice December 27, 1996
- -------------------------------------------- President of Environment and
Richard D. Clayton Director
/s/ Dennis L. Wanlass Vice President, Treasurer and December 27, 1996
- -------------------------------------------- Chief Financial Officer
Dennis L. Wanlass (Principal financial and
accounting officer)
/s/ Alan C. Ashton Director December 27, 1996
- --------------------------------------------
Alan C. Ashton
/s/ Arch L. Madsen Director December 27, 1996
- --------------------------------------------
Arch L. Madsen
/s/ R. J. Shopf Director December 27, 1996
- --------------------------------------------
R. J. Shopf
</TABLE>
<PAGE> 1
EXHIBIT 10.28
SECOND AMENDMENT
TO
AGREEMENT OR THE SALE AND PURCHASE OF COKE
This Second Amendment to the Agreement for the Sale and Purchase of Coke (the
'Second Amendment') is entered into this ___ day of June 1995, between Geneva
Steel Company, a Utah corporation ('Buyer') and Mitsubishi International
Corporation, a New York corporation ('Seller').
Recitals:
A. On or about 9th November, 1993, Buyer and Seller entered into a certain
Agreement for Sale and Purchase of Coke effective 12th January, 1993, as amended
28th December, 1993 (the 'Agreement'), wherein Seller agreed to sell and Buyer
agreed to purchase certain Coke.
B. Buyer and Seller desire to further amend the Agreement as set forth herein.
Second Amendment:
NOW, THEREFORE, in consideration of the premises, 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 Second Amendment, including the Recitals hereto, shall have
the same meanings ascribed to such terms in this Agreement.
2. Price. The reference to Section 3.6 in Section 2.1 of the Agreement is hereby
changed to refer to 'Section 3.5' of the Agreement.
3. Quantity. The last sentence of Section 6.1.1 of the Agreement is hereby
amended by appending the following language to the end of such sentence;
provided, however, notwithstanding the foregoing, that with respect to
the Third Contract Year, Buyer shall only purchase three (3) shipments
as follows:
(i) First shipment to be effected, at a price equal to US$_______ per
MT ex-ship at the Destination Port, in June 1995 per M/V 'Neo
Cymbidium' which vessel will load a cargo of approximately ______ MT of
coke as an exception to the required approximately ______ MT per
Panamax ocean vessel; and
(ii) Second shipment to be affected at the Purchase Price for the Third
Contract Year in the second quarter (April to June ) of 1996; and
<PAGE> 2
(iii) Third shipment to be effected at the Purchase Price for the Third
Contract Year in the third quarter (July to September) of 1996.
4. Benefit. This Second 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.
5. Ratification. Except as specifically amended by this Second 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 Second Amendment to be executed
effective as of the date first above written.
'Buyer'
GENEVA STEEL COMPANY, a Utah corporation
by: /s/ Keith Hanks
-----------------------------------
'Seller'
MITSUBISHI INTERNATIONAL CORPORATION,
a New York corporation
by: /s/ Hiroshi Matsumoto
-----------------------------------
2
<PAGE> 1
EXHIBIT 10.31
FIRST AMENDMENT
TO
AGREEMENT FOR THE SALE AND PURCHASE OF COKE
This First Amendment to Agreement for the Sale and Purchase of Coke
(this "Amendment") is entered into as of the 11th day of April, 1996, effective
as of March 1, 1996 between GENEVA STEEL COMPANY, a Utah corporation ("Buyer")
and OXBOW CARBON AND MINERALS, INC., a Delaware corporation formerly doing
business as Pacific Basin Resources ("Seller").
Recitals:
A. Buyer and Seller entered into a certain Agreement for the Sale and
Purchase of Coke dated April 29, 1994, effective as of January 1, 1994 (the
"Agreement"), wherein Seller agreed to provide certain Coke, as defined in the
Agreement, for use in Buyer's blast furnaces located at the Geneva Steel Mill
located in Vineyard, Utah.
B. The parties desire to amend the Agreement to provide for the
consignment of such Coke on a vessel-by-vessel basis prior to any purchase by
Buyer.
Agreement:
NOW, THEREFORE, in consideration of the promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Seller and Buyer agree to amend
the Agreement as follows:
1. Definitions. The capitalized terms used in this Amendment shall
have the same meanings ascribed to such terms in the Agreement.
2. Price. The first paragraph of Section 3 of the Agreement is
hereby deleted and the following substituted in lieu thereof:
3. Price. Subject to Sections 15 and 31 hereof, during the
Term or any extension thereof, the purchase price (the
"Purchase Price") for Coke purchased by Buyer hereunder
_______________________. As used herein, the term "inventory
cost" means the sum of (a) the ________, as hereinafter
defined, of each ton of Coke removed by Buyer from any Pile,
determined on a first Vessel in - first Vessel out basis
(without regard to which Pile from which a particular ton is
removed), plus (b) the ________ per net ton applicable to such
purchased Coke, plus (c) a ___________ (the "__________"),
which _____________ shall be calculated as follows:
Consignment Fee = ___________________
<PAGE> 2
Where: ________________________________
________________________________
________________________________
As used herein, the term "Vessel Price" means the price, ex
ship at the Levin Richmond Terminal Corporation terminals in
Richmond, California, U.S.A. (or the terminal of such other
services company in the San Francisco, California area or such
other port as may be mutually agreed upon by Buyer and Seller)
(the "Destination Port"), as such price is applicable to a
Vessel on the date on which the Coke was shipped to the
Destination Port, for each ton of Coke sold pursuant to this
Agreement. The Vessel Price for each Vessel shall be
determined in accordance with the following provisions of this
Section 3. As used herein, the term (a) "LIBOR Rate" means the
three-month London Interbank Offered Rate as of the date of
adjustment, as published on the Adjustment Date, as
hereinafter defined, in the Money Rates section of the Wall
Street Journal, and (b) "Adjustment Date" means March 1, 1997
and the first day of the month occurring each six (6) months
thereafter.
3. Vessel Price. The term "Purchase Price" as used in Sections 3.1,
3.2, 3.4, 3.6, 6.1.1, and 15 of the Agreement is hereby changed to be
"Vessel Price" in each place it occurs.
4. Vessel Price for Third Contract Year. Section 3.3. of the
Agreement is hereby deleted and the following substituted in lieu thereof:
For the third Contract Year, effective as of the first day of
such third Contract Year, the Vessel Price shall be
___________ per ton of Coke.
5. Purchase Price All Inclusive. Section 3.5 of the Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof:
The Purchase Price for each Contract Year includes all costs
and expenses required for Seller to deliver the Coke to Buyer
at the Geneva Steel Mill except Buyer shall pay any
Destination Port off-loading charges as provided in Section 5
hereof, the railroad freight charges to transport Coke from
the Destination Port to the Geneva Steel Mill, and any
applicable sales and use taxes relating to each ton of Coke
purchased by Buyer hereunder. Subject to the foregoing, the
Purchase Price includes all other costs, insurance, freight,
costs of capital, fees, taxes, assessments, tariffs, excises,
special and general duties, custom brokerage charges, costs
incurred to comply with any applicable international, federal,
state and local laws and regulations
2
<PAGE> 3
applicable to the sale of Coke at the Piles, and all other
items that are the responsibility of Seller pursuant to this
Agreement.
6. Billing and Payment. Section 4 of the Agreement is hereby deleted
in its entirety and the following substituted in lieu thereof:
4. Billing and Payment. Seller shall invoice Buyer for each
ton of Coke sold hereunder as follows:
4.1 Summary of Coke Purchases. On each business day
during the Term, commencing on the date Buyer first removes
Coke from a Pile after March 1, 1996, Buyer shall provide to
Seller a written summary (the "Summary") of the quantity of
Coke that Buyer purchased for use during the period from and
including the prior business day. Each Summary shall specify
the quantity of Coke purchased, the dates of purchase, and a
detailed calculation of the Purchase Price. As used herein,
the term "business day" means Monday through Friday excluding
federal and state holidays observed in the State of Utah.
4.2 Payment based on Summary. Concurrently with the
delivery of such Summary to Seller, Buyer shall pay to Seller
by wire transfer remittance the Purchase Price applicable to
the Coke identified in such Summary, less any penalties
applicable thereto pursuant to Section 8.3 hereof. The parties
intend the transfer of Coke and the payment therefor, as
described herein, to be a contemporary exchange for new value
given. The parties believe that the payment arrangements
established herein provide for an exchange that is
substantially contemporaneous and that the time between
transfer and payment represents the shortest commercially
practicable time for the parties to establish the quantities
of Coke transferred. The parties believe that the sale and
purchase of Coke contemplated herein, and the payments
therefor, are being made in the ordinary course of business of
the parties hereto, according to ordinary business terms.
7. Shipment. The following is added at the end of Section 5.1 of the
Agreement:
Seller and Buyer shall mutually agree on the shipping schedule
for all Vessels hereunder.
8. Shipment Documentation. The following is added as new Section 5.4
to the Agreement:
3
<PAGE> 4
5.4 Shipment Documentation. Promptly after shipment from the
Loading Port, Seller shall provide to Buyer bills of lading,
the draft survey reports contemplated by Section 7 hereof and
the analyses of the Coke pursuant to Section 9 hereof. Seller
shall provide to Buyer by facsimile a legible copy of each
bill of lading as soon as practicable after a shipment is
loaded on a Vessel for delivery to the Destination Port.
9. Possession and Acceptance of Coke. The following is added as
new Section 5.5 of the Agreement:
5.5 Possession and Acceptance of Coke. Notwithstanding
anything in this Agreement to the contrary, the following
provisions shall apply to the shipment, delivery and purchase
of Coke pursuant to this Agreement commencing March 1, 1996:
5.5.1 Unloading and Transportation of Seller's Coke.
Except as provided in Section 5.5.8 hereof, Buyer shall
arrange for the off-loading of each Vessel at the Destination
Port and the transportation of such Coke to the Geneva Steel
Mill where Buyer shall hold, and use commercially reasonable
efforts to care for, the Coke as the property of Seller. At
all times prior to its sale to Buyer under this Agreement, the
Coke shall be subject to and under the direction and control
of Seller. In the event of a loss or other claim that is the
responsibility of the Destination Port or the railroad under
their respective contracts, Buyer, at the sole cost and
expense of Seller, shall use commercially reasonable efforts
to recover the amount of such loss or claim from such
companies; provided, however, that Buyer shall have the right
to assign to Seller any claim it may have against the
Destination Port and thereafter be relieved of any
responsibility to pursue such claim on Seller's behalf. Buyer
shall have no obligation to pursue any claim that it
determines in good faith is not likely of being recovered.
5.5.2 Inventory Piles; Point of Sale.
5.5.2.1 Subject to Section 18 hereof, Coke
belonging to Seller and delivered to the
Geneva Steel Mill shall be segregated into
and maintained by Buyer as separate piles
(each a "Pile") but each Pile may contain
Coke from one or more Vessels. Each Pile
shall be identified as containing Coke owned
by Seller by a sign to be installed and
maintained by Buyer. Unless otherwise agreed
in writing by Buyer and Seller, (a) subject
to the provisions of this Section 5.5.2.1,
Seller shall maintain at least ________ tons
of Coke in the Piles, and (b) Seller shall
use commercially reasonable efforts to
ensure that
4
<PAGE> 5
not more than _________ tons of Coke, in the
aggregate, are maintained in storage at the
Destination Port, in transit from the
Destination Port to the Geneva Steel Mill
and in the Piles.
5.5.2.2 The actual inventory amount
maintained by Seller pursuant to Section
5.5.2.1 hereof shall be subject to the
approval of Buyer, which consent shall not
be unreasonably withheld so long as such
inventory amount is consistent with the
shipping schedule approved pursuant to
Section 5.1 hereof. Seller shall immediately
notify Buyer in writing if such inventory
level is or may not be maintained for any
reason. Seller shall not be in default of
this Agreement if such inventory level is
not maintained due to (a) deviations in the
approved shipping schedule requested in
writing by Buyer, (b) Buyer's purchase of
Coke in excess of Buyer's forecasted
purchase of Coke on which the approved
shipping schedule was based, (c) breach by
the Destination Port of its contractual
obligations to unload, handle and load such
Coke, (d) breach by the railroad of its
contractual obligations to transport Coke
from the Destination Port to the Geneva
Steel Mill, or (e) an event of Force Majeure
under this Agreement.
5.5.2.3 For all Coke which Buyer purchases
from Seller pursuant to this Agreement, such
sale shall be deemed to occur at the time
when Buyer pays for such Coke as provided in
Section 4.2 hereof or removes such Coke from
a Pile, whichever first occurs, and shall be
accounted for on a first Vessel in - first
Vessel out basis. Buyer agrees to notify
Seller by facsimile on a daily basis in
arrears of the quantity of Coke removed by
Buyer from a Pile. Such notice shall contain
the Pile number, identification of the
Vessel(s) from which the Coke originated,
and the quantity of Coke removed from such
Pile. The quantity of Coke removed from a
Pile shall be determined by multiplying the
number of truckloads of Coke removed by
Buyer by twenty-eight (28) net tons if Cline
trucks are used for such removal. If Buyer
uses any other type of truck to remove Coke
from a Pile, the volume of Coke removed per
truck load shall be mutually agreed upon by
Buyer and Seller.
5.5.3 Pile Reconciliation. Once a month or when a
Pile is fully depleted, whichever first occurs, Buyer
and Seller shall reconcile (a) the quantity of Coke
sold to Buyer, as reflected in Buyer's daily
5
<PAGE> 6
notices, (b) the quantity of Coke initially stored in
such Pile, as reflected in the average of the draft
survey reports, (c) the quantity of Coke remaining in
a Pile based on a physical inspection of such Pile,
and (d) the quantity of Third Party Coke, as
hereinafter defined, sold by Seller pursuant to
Section 5.5.8 hereof. Any differences between (i) the
quantity of Coke initially stored in a Pile less
Third Party Coke and (ii) the amount of Coke
remaining in a Pile based on such physical survey of
such Pile, shall be deemed to be Coke sold by Seller
and purchased by Buyer hereunder and Buyer shall pay
the Purchase Price for such Coke, less the amounts of
previous payments applicable thereto and any
penalties applicable thereto pursuant to Section 8.3
hereof, in the manner provided for in Section 4
hereunder.
5.5.4 Handling Fee. Buyer shall be paid a handling,
transportation and storage fee (the "Handling Fee")
for each ton of Coke transported to the Geneva Steel
Mill to cover Buyer's services in unloading,
switching, handling and loading of Coke,
transportation charges and charges incurred by Buyer
at the Destination Port. Seller shall pay the amount
of the Handling Fee within forty-five (45) days after
the date of the bill of lading associated with a
Vessel to which the Handling Fee applies. The
Handling Fee from and after March 1, 1996 and for
Coke delivered prior to February 28, 1997 shall be
________ per ton of Coke delivered by Seller to the
Destination Port, as reflected on the draft survey
reports. The Handling Fee for subsequent Contract
Years, shall be mutually agreed upon by the parties
on or before March 1 of each such Contract Year. If
the parties are unable to agree upon such Handling
Fee, the Handling Fee shall be the actual cost to
Buyer, plus or minus _____ per net ton, of Buyer's
services in unloading, switching, handling and
loading of Coke, transportation charges and charges
incurred by Buyer at the Destination Port based on
Buyer's rail contract, contract with the Destination
Port and Buyer's standard cost accounting allocations
for costs incurred at the Geneva Steel Mill. There
shall be no other handling charge by Buyer to Seller
for removal of any Coke from a Pile at the Geneva
Steel Mill except as provided in Section 5.5.8
hereof. Upon Seller's reasonable request not more
than once per year, Buyer shall cause Arthur Anderson
& Company to certify in writing the amount of the
Handling Fee. Unless otherwise agreed in writing, any
shortfall or overage between the proper Handling Fee
and the billed Handling Fee shall be adjusted on the
next succeeding invoice for Handling Fees between the
parties hereto.
6
<PAGE> 7
5.5.5 Acceptance of Coke. All Coke is subject to
inspection and approval, as provided in Section 8.3
of this Agreement, after delivery to the Geneva Steel
Mill and before acceptance by Buyer. The transaction
between the parties to this Agreement is a
consignment sale on approval. Acceptance of Coke
shall occur only upon removal of such Coke from a
Pile and not by lapse of time or any other manner.
Acceptance of part of a Pile shall not constitute
acceptance of any other part of a Pile. In the event
such Coke is not accepted based on inspection and
analyses as provided for in this Agreement, Buyer
shall give written notice to Seller and thereafter
Seller and not Buyer shall be solely responsible for
the handling and disposition of such Coke at Seller's
sole risk and expense. Nothing in this Section 5.5.5
shall affect Buyer's rights or remedies in the event
of a breach by Seller of this Agreement.
5.5.6 Protective Filings. Seller shall have the right
to file a financing statement pursuant to Section
9-408 of the Utah Uniform Commercial Code, Utah Code
Ann. Section 70-9-408, to evidence of record that the
Coke in the Piles is owned by Seller and not by
Buyer.
5.5.7 Site License. Buyer hereby grants Seller a
non-exclusive license to store Coke obtained and
owned by Seller pursuant to this Agreement on that
parcel of real property located at the Geneva Steel
Mill and more specifically identified on Exhibit A
hereto (the "Site"). Such license is granted for
reasonable ingress and egress to the Site for the
purposes of inspection, testing, loading and
unloading of Seller's Coke. Seller shall not store at
or transport to the Geneva Steel Mill any coke which
is owned by any party other than Seller or which has
not been ordered by Buyer. The intent of this license
is to allow Coke consigned to Buyer under this
Agreement to be stored at the Site and to allow
Seller to make incidental sales of Third Party Coke.
Buyer shall pay all real property taxes on the Site
and Seller shall pay all other taxes, charges and
assessments arising out of Seller's ownership of its
Coke or the use of the Site for the storage of such
Coke. The license granted in this Section 5.5.7 shall
be coextensive with the Term of this Agreement;
provided that, subject to Buyer's rights, for a
period of _____ calendar days after the termination
or expiration of this Agreement, Seller shall have
the right to enter upon the Site for the purpose of
screening and removing any Coke to which it has
title. Subject to the immediately foregoing sentence,
upon the expiration or termination of this Agreement,
Seller's rights under this Section 5.5.7 shall cease
and be of no further force or effect. Inasmuch as
Buyer retains possession of the
7
<PAGE> 8
Site, it shall have the right to enter the Site at
all times for any purpose whatsoever, including, but
not limited to, removal of Coke from the Piles as
contemplated by this Agreement or the laying,
repairing, removal, modification, or expansion of any
utility, facility, system or improvement. Nothing
contained herein shall be, or be interpreted to be,
the creation of a real property interest in the Site
or the transfer of a license coupled with an
interest, and the license provided herein shall at
all times be revocable in accordance with the
provisions hereof. So long as this Agreement has not
expired or been terminated, unless otherwise agreed
in writing by Buyer, Seller shall not have the right
to bring any third party on the Site for the purpose
of handling, transporting or removing Coke. Buyer
shall have the right from time to time upon written
notice to Seller to change the location of the Site
to another location at the Geneva Steel Mill so long
as the cost of moving any Pile is borne by Buyer, at
all times the Piles are located on the Site as so
changed, and such alternative Site has reasonable
ingress and egress and adequate area for the Coke
inventory contemplated hereby. Buyer shall use
commercially reasonable efforts to maintain in force
any existing permits it has obtained for the Geneva
Steel Works relating to the use of the Site by Seller
contemplated hereby; provided, however, that Seller
shall be solely responsible to obtain all permits,
licenses and approvals required by any governmental
entity with jurisdiction for the conduct of Seller's
business at the Site or the storage of the Piles and
Buyer makes no representation or warranty concerning
the existence or adequacy of any of Buyer's permits
for such purpose.
5.5.8 Third Party Sales.
5.5.8.1 Subject to the terms and conditions of this
Section 5.5.8 Seller shall have the right to sell to
third parties all or any portion of the Coke which
has not been purchased by Buyer (the "Third Party
Coke"). Such sales of Third Party Coke from Piles at
Geneva Steel Mill shall be taken in approximately
equal increments and shall not exceed the greater of
_____ (___%) of the quantity of Coke from all Vessels
or ______ net tons in the aggregate during any twelve
(12) month period if Buyer is purchasing on average
more than one (1) Vessel of Coke each ninety (90)
days; provided, that in all events Seller shall
maintain the minimum inventory levels for sale to
Buyer as required by Section 5.5.2.1 hereof. If
Seller desires to sell Coke to any third party it
shall notify Buyer at least five (5) working days in
advance of such sale. Such notice shall include the
amount of Coke
8
<PAGE> 9
to be sold and the date of sale. All handling and
transportation of Third Party Coke shall be arranged
and paid for by Seller.
5.5.8.2 If such sale occurs while the Third Party
Coke is located at the Destination Port, Seller shall
be solely responsible to arrange and pay for all
unloading, switching, storage, handling, stevedoring,
loading, transportation and other charges related to
such Third Party Coke and Buyer shall have no
obligation to take possession of, care for or
transport any Third Party Coke. The quantity of Third
Party Coke sold by Seller to a third party shall be
determined by certified scale weights at the
Destination Port. Upon removal of such Third Party
Coke from storage at the Destination Port, Buyer
shall be paid a fee of $_____ per net ton for each
ton of Third Party Coke so removed to compensate
Buyer for the freight loss and administrative costs
incurred by Buyer associated with such Third Party
Coke.
5.5.8.3 If such sale occurs while the Third Party
Coke is located at the Geneva Steel Mill, upon
reasonable advance notice, Buyer shall load such
Third Party Coke for transport to such third parties
for a charge of $_____ per net ton, said charge to be
credited against the next invoice payable by Buyer to
Seller hereunder; provided, however, that such
loading activities shall be subject to the priority
of Buyer's operating requirements and labor and
equipment availability and Buyer shall not be liable
in anyway for such loading activities so long as
Buyer uses commercially reasonable efforts to meet
Seller's loading directions. The quantity of Coke
loaded for shipment shall be determined by certified
scale weights at the Geneva Steel Mill.
5.5.8.4 Seller shall not store at or transport to the
Geneva Steel Mill any coke, including any Third Party
Coke, which is owned by any party other than Seller.
5.5.8.5 Seller shall indemnify, defend and hold
harmless Buyer from and against any and all claims,
demands, damages, losses, costs and expenses
(including attorneys' fees) (each a "Claim") arising
out of or related in any way to Third Party Coke
except that the foregoing indemnity shall not apply
to any Claim to the extent caused by Buyer's
negligence. Buyer shall have no obligation, liability
or responsibility for any degradation of Third Party
Coke, and Seller expressly acknowledges that such
Third Party Coke shall be loaded by Buyer as run of
Pile, "as is" and "where is," without representation
or warranty whatsoever.
9
<PAGE> 10
10. Quantity of Coke. The following is added at the end of
Section 6.1.1 of the Agreement:
During the period from March 1, 1996 through August 1, 1997,
Buyer shall purchase from Seller at least _____ (___) Vessels
(the "Additional Vessels") of Coke in addition to any Vessels
that Buyer is otherwise obligated to purchase pursuant to this
Section 6.1.1. Notwithstanding the foregoing, Buyer shall
order _____ (___) of such Additional Vessels for delivery at
the Destination Port during the third Contract Year hereunder.
Such Additional
Vessels shall be subject to the other terms and conditions of
this Agreement and to the following terms and conditions:
6.1.1.1 Coke shall be obtained by Seller from a
source and ordered at a price, f.o.b. Loading Port
acceptable to Buyer. Seller shall use commercially
reasonable efforts to obtain the lowest available
price for such Coke. Such prices and sources shall be
presented to Buyer for its review and approval as
early as is practicable prior to Seller contracting
for the purchase of such Coke. Neither Seller nor
Buyer shall be obligated to obtain such Coke from
Antai. The price, f.o.b. Loading Port for the
additional Vessel to be ordered during the third
Contract Year shall not exceed the then current
competitive market price for coke of similar quality
and quantity from China.
6.1.1.2 In no event shall the Purchase Price to Buyer
exceed the purchase price, f.o.b. Loading Port, for
other coke available to Buyers, similar in quantity
and quality.
11. Independent Contractor. The first sentence of Section 16 of
the Agreement is hereby amended to add the words "on approval" after the word
"Coke" on the first line thereof.
12. Title. Section 18 of the Agreement is hereby deleted in its
entirety and the following substituted in lieu thereof:
18. Title. Title to all Coke shall be vested in Seller until
such time as such Coke is either paid for pursuant to Section
4.2 of this Agreement or it is removed by Buyer from a Pile
hereunder, whichever first occurs. Seller warrants title to
the Coke and quiet possession to Buyer of such Coke upon
payment or as such Coke is removed from a Pile pursuant to
Section 5.5.2 hereof, whichever first occurs. Title to the
Coke, as well as the risk of loss, shall transfer from Seller
to Buyer when such Coke is paid for or when such Coke is
removed from the Pile, whichever first occurs.
10
<PAGE> 11
13. Guaranteed Specifications. Section 8.2 of the Agreement is hereby
amended to change the Ash specification to be "11.75% Maximum."
14. Ash Penalty. Section 8.3.2 of the Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
If the ash content exceeds 11.75%, a penalty of $____ per net
ton for each one percent (1.0%) of ash in excess of 11.75%
shall be applied pro rata.
15. Notices. Section 22 of the Agreement is hereby amended to provide
that notices to Seller shall be sent in the manner provided in the Agreement
addressed as follows:
Oxbow Carbon and Minerals, Inc.
3478 Buskirk Avenue, Suite 346
Pleasant Hill, CA 94523-4342
Attn: Vice President of Sales and Marketing
Facsimile No. (510) 932-8920
With a copy to:
Oxbow Corporation
1601 Forum Place
West Palm Beach, Florida 33401
Attention: J. Michael Smith, Esq.
Facsimile No. (407) 640-8812
16. Termination of Amendment. Buyer shall have the right to terminate
the consignment arrangement provided for in this Amendment by giving written
notice of such termination at least three (3) months prior to the effective date
of such termination. Such notice shall specify the effective date of such
termination. Upon the effective date of such termination, Buyer shall pay to
Seller the Purchase Price for, and Seller shall transfer ownership of, all Coke
at the Destination Port, in transit from the Destination Port to the Geneva
Steel Mill, and in the Piles, and thereafter this Amendment shall be of no
further force or effect as to shipments made subsequent to the effective date of
such termination except that the provisions of Sections 7, 10, 13, 14, 15 and 16
of this Amendment shall survive such termination and remain binding upon the
parties hereto. The intent of this Section 16 is to return the relationship
between the parties hereto as of the termination
11
<PAGE> 12
date to the relationship provided for in the Agreement as if this Amendment had
not been entered into, except as provided in the immediately foregoing sentence.
Once such notice of termination is given, Buyer and Seller shall reasonably
cooperate to achieve such intent. After such termination, Buyer agrees to sell
to Seller Coke from the Piles, at a purchase price to be agreed upon by the
parties, f.o.b. Pile, in such quantities to enable Seller to meet its
pre-existing third-party contractual requirements (but excluding any provisions
for renewal or extension) for the sale of Third Party Coke provided that such
sale does not reduce purchased Coke inventories in the Piles at the Geneva Steel
Mill below 30,000 net tons.
17. Amber Coke; Benefit. This Amendment shall not apply to Coke
shipped to Buyer on a vessel known as the "Amber" which docked at the
Destination Port on or about January 20, 1996. This Amendment is for the sole
benefit of the parties hereto and shall not be for the benefit or enforceable by
any other person or entity.
18. Counterparts; Facsimile Signatures. This Amendment may be
executed in any number of counterparts each of which shall constitute but one
agreement. Each signed counterpart of this Amendment delivered by way of
facsimile transmission shall have the same force and effect and be treated as if
it is the delivery of the original signed counterpart.
19. Ratification. Except as specifically modified herein, the parties
hereby ratify and reaffirm the terms, conditions, warranties and guarantees set
forth in the Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the day and year first above written.
"Seller"
OXBOW CARBON AND MINERALS, INC.,
a Delaware corporation
By /s/ Brian L. Acton
--------------------
Brian L. Acton
President
"Buyer"
GENEVA STEEL COMPANY,
a Utah corporation
By /s/ Max E. Sorenson
----------------------
Max E. Sorenson
Senior Vice President
Engineering and Technology
13
<PAGE> 1
EXHIBIT 13
Selected Financial Data
(Dollars in thousands, except per share and per ton data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C>
OPERATING STATISTICS:
Net sales $ 712,657 $ 665,699 $ 486,062 $ 465,181 $ 420,026
Gross margin 50,350 71,508 15,514 21,723 13,735
Income (loss) from operations 25,729 47,713 (6,791) 1,102 (8,587)
Income (loss) before extraordinary item (7,238) 11,604 (16,696) (8,606) (13,092)
Net income (loss) (7,238) 11,604 (26,230) (8,606) (13,092)
Net income (loss) applicable to common shares (16,327) 3,606 (33,276) (12,072) (13,092)
Net income (loss) per common share before (1.07) .24 (1.57) (.80) (.87)
extraordinary item
Net income (loss) per common share (1.07) .24 (2.20) (.80) (.87)
BALANCE SHEET STATISTICS:
Cash and cash equivalents $ 597 $ 12,808 $ -- $ 64,267 $ 3,122
Working capital 83,315 33,045 46,797 89,167 75,654
Current ratio 1.76 1.29 1.49 2.04 2.33
Net property, plant and equipment 454,523 470,390 453,286 314,590 252,797
Total assets 657,386 628,797 606,815 498,384 390,462
Long-term debt 388,431 342,033 357,348 224,991 178,182
Redeemable preferred stock 55,437 51,031 43,032 35,986 --
Stockholders' equity 92,827 108,074 103,664 135,775 141,832
Long-term debt as a percentage of stockholders' 418% 316% 345% 166% 126%
equity
ADDITIONAL STATISTICS
Operating income (loss) per ton shipped $ 12.00 $ 24.99 $ (4.63) $ .73 $ (6.49)
Capital expenditures 26,378 68,025 164,918 82,534 66,617
Depreciation and amortization 44,415 39,308 29,870 23,150 21,136
Cash flows from operating activities (31,724) 84,130 (28,018) 64,394 8,200
Raw steel production (tons in thousands) 2,428 2,145 1,890 2,000 1,769
Steel products shipped (tons in thousands) 2,145 1,909 1,467 1,511 1,323
</TABLE>
8 Geneva Steel
<PAGE> 2
Selected Financial Data (Continued)
(Dollars in thousands, except per share and per ton data)
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
sales prices for the Class A common stock as reported on the NYSE Composite
Tape.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, HIGH LOW
<S> <C> <C>
Fiscal Year Ended September 30, 1995
First Quarter ended December 31 $18 $12 1/4
Second Quarter ended March 31 16 9 3/4
Third Quarter ended June 30 12 7 1/8
Fourth Quarter ended September 30 9 3/4 7 3/4
Fiscal Year Ended September 30, 1996
First Quarter ended December 31 $ 8 $ 6 3/8
Second Quarter ended March 31 8 1/4 5 1/8
Third Quarter ended June 30 7 1/8 5 1/4
Fourth Quarter ended September 30 5 1/2 3 1/8
</TABLE>
As of November 29, 1996, the Company had 13,574,641 shares of Class A common
stock outstanding, held by 643 stockholders of record, and 19,151,348 shares of
Class B common stock outstanding, held by five stockholders of record.
Geneva Steel 9
<PAGE> 3
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 years indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 92.9 89.3 96.8
---------------------------------
Gross margin 7.1 10.7 3.2
Selling, general and administrative expenses 3.5 3.5 4.6
---------------------------------
Income (loss) from operations 3.6 7.2 (1.4)
Other income (expense):
Interest and other income 0.1 0.1 0.3
Interest expense (5.1) (4.6) (4.4)
Other expense (0.2) (0.4) --
---------------------------------
Income (loss) before provision (benefit) for
income taxes and extraordinary item (1.6) 2.3 (5.5)
Provision (benefit) for income taxes (0.6) 0.6 (2.1)
---------------------------------
Income (loss) before extraordinary item (1.0)% 1.7% (3.4)%
---------------------------------
</TABLE>
The following table sets forth the sales product mix as a percentage of net
sales for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
<S> <C> <C> <C>
Sheet 29.7% 40.7% 65.3%
Plate 45.0 35.1 23.5
Pipe 6.6 6.4 6.9
Slab 15.9 15.0 1.0
Non-steel 2.8 2.8 3.3
--------------------------------------------------------------------
100.0% 100.0% 100.0%
--------------------------------------------------------------------
</TABLE>
10 Geneva Steel
<PAGE> 4
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED WITH
FISCAL YEAR ENDED SEPTEMBER 30, 1995
Net sales increased 7.1% due to increased shipments of approximately 235,600
tons, offset in large part by decreased overall average selling prices for the
year ended September 30, 1996 as compared to the previous fiscal year. The
weighted average sales price (net of transportation costs) per ton of sheet,
plate, pipe and slab products decreased by 8.5%, 2.0%, 0.9% and 11.8%,
respectively, in the year ended September 30, 1996, as compared to the previous
fiscal year. The decrease in prices was due to pricing pressure resulting from
unfairly traded imports and an increase in domestic hot-rolled capacity as well
as other market factors. Shipped tonnage of plate, pipe and slabs increased
approximately 239,300 tons or 40.1%, 11,900 tons or 11.9% and 106,500 tons or
28.8%, respectively, while shipped tonnage of sheet decreased approximately
122,100 tons or 14.5% between the two years. The overall average selling price
realization per ton was favorably affected by a shift in product mix to
higher-priced plate and pipe products from lower-priced sheet products, offset
in part by a shift in product mix to lower-priced slab products. Consistent with
the Company's strategic objectives, plate shipments have increased as various
upgrades to plate processing and finishing equipment have been integrated into
the production process. The Company sells slabs to maximize production from the
continuous caster while efforts to increase rolling mill throughput continue.
The Company expects that slab shipments will gradually decrease as rolling mill
throughput improves.
During the second and third fiscal quarters of 1996, the Company announced
several price increases. During the third and fourth fiscal quarters of the
year, the Company realized the benefit of those previously announced price
increases. As a result of an increase in steel supply, particularly unfairly
traded imports, order entry weakened during the final weeks of the fiscal year
ended September 30, 1996. As a result, the Company reduced prices for most of
its products. Prices for plate products in particular have continued to decline
since September 30, 1996. The Company expects that these price reductions will
adversely affect the results of operations beginning in the first quarter of
fiscal year 1997. The Company intends to react to price increases or decreases
in the market as justified by competitive conditions. Domestic competition
remains intense and imported steel continues to adversely affect the 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. Consequently, the Company may be affected by price increases or
decreases more quickly than many of its competitors. As of November 30, 1996,
the Company had estimated total orders on hand for approximately 210,000 tons
compared to approximately 274,000 tons as of November 30, 1995.
In November 1996, the Company, together with another domestic plate producer,
filed anti-dumping petitions with the Department of Commerce and the
International Trade Commission against imports of cut-to-length carbon plate
from the Russian Federation, Ukraine, the People's Republic of China and the
Republic of South Africa (the "Plate Trade Cases"). The petitions allege large
dumping margins and also set forth the injury to the U.S. industry caused by
these dumped imports. The International Trade Commission ("ITC") made an
affirmative preliminary injury determination in late December. The Commerce
Department will make its preliminary dumping margin determinations in April
1997. The Company expects that the ITC's preliminary determination will result
in fewer plate imports from the subject countries during calendar 1997. The
final outcome of the Plate Trade Cases will likely be decided by November 1997.
Failure to win the Plate Trade Cases would have a material adverse effect upon
the Company.
Cost of sales includes raw materials, labor costs, energy costs, depreciation
and other operating and support costs associated with the production process.
The Company's cost of sales, as a percentage of net sales, increased to 92.9%
for the year ended September 30, 1996 from 89.3% for the previous fiscal year
primarily as a result of lower average selling prices, offset in part by lower
average operating costs. The overall average cost of sales per ton shipped
decreased approximately $2 per ton between the years primarily as a result of
lower operating costs, offset in part by a shift in product mix to
Geneva Steel 11
<PAGE> 5
higher-cost plate and pipe products from lower-cost sheet products. Operating
costs decreased as a result of improved production yields and throughput rates,
offset in part by higher depreciation expense, the adverse impact of the
plant-wide power outage discussed below, increased raw materials costs, higher
wages and benefits, and other increased costs. The Company expects that
production yields and throughput will continue to improve in future periods as
completed capital projects continue to be integrated into the production
process.
A plant-wide power outage caused by unusual weather conditions in late January
1996 had a significant effect on operating results during the fiscal year. The
Company maintains insurance for both property damage and business interruption,
subject to a deductible of $1 million per occurrence. The Company is continuing
to assess the full financial impact of the outage and recorded a portion of the
expected loss recovery during the second and third quarters of the fiscal year.
The Company expects that the insurance claim will be settled within the next
year.
The Company's new plasma-fired cupola ironmaking facility became available for
operation during the year ended September 30, 1996. The cupola is being used to
supplement blast furnace iron production during the reline of one of the
Company's blast furnaces and may also be used during periods when scrap prices
are favorable or during other periods requiring supplementary ironmaking
capacity. The facility lease cost of the cupola adds approximately $2 per ton to
finished product cost, effective July 1, 1996. The impact of the cupola facility
on finished product cost is significantly dependent on raw material costs and
consumption rates, particularly with respect to scrap and coke, and the level of
use of the cupola.
Depreciation costs included in cost of sales increased approximately $5.1
million for the year ended September 30, 1996 as compared with the previous
fiscal year. This increase was due to increases in the asset base resulting from
capital expenditures. Depreciation expense will further increase due to
implementation of the Company's capital projects.
Selling, general and administrative expenses for the year ended September 30,
1996 increased approximately $0.8 million as compared to the previous fiscal
year. These higher expenses resulted primarily from increased outside services.
Interest expense increased approximately $5.6 million during the year ended
September 30, 1996, as compared to the previous fiscal year as a result of
significantly lower capitalized interest and higher levels of borrowing. The
higher levels of borrowing resulted from the termination of the Company's
receivables securitization facility discussed below.
In May 1996, the Company terminated its receivables securitization facility in
connection with an amendment to and restatement of the Company's revolving
credit facility. Deferred fees of approximately $550,000 associated with
establishing the receivables securitization facility were expensed to other
expense during the year ended September 30, 1996.
12 Geneva Steel
<PAGE> 6
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH
FISCAL YEAR ENDED SEPTEMBER 30, 1994
Net sales increased 37.0% due to increased shipments of approximately 441,700
tons and increased average selling prices for the year ended September 30, 1995,
as compared to the previous fiscal year. The weighted average sales price (net
of transportation costs) per ton of sheet, plate, pipe and slab products
increased by 5.4%, 9.9%, 11.5% and 6.2%, respectively, in the year ended
September 30, 1995, as compared to the previous fiscal year. The overall average
selling price realization per ton also increased between the years 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.
Consistent with the Company's strategic objectives, plate shipments have
increased as various upgrades to plate processing and finishing equipment have
been completed and implemented. 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 276,400 tons or
86.2%, 12,700 tons or 14.5% and 350,300 tons or 1,762.5%, respectively, while
shipped tonnage of sheet decreased approximately 197,700 tons or 19.0% between
the two years.
The Company's cost of sales, as a percentage of net sales, decreased to 89.3%
for the year ended September 30, 1995 from 96.8% for the previous fiscal year as
a result of higher average selling prices and lower operating costs. The average
cost of sales per ton shipped decreased approximately $9 per ton between the two
years. The decreased cost per ton resulted from lower operating costs and from
increased sales of lower-cost slab products, offset, in part, by a shift in
product mix to higher-cost plate products. Costs decreased primarily as a result
of increased production efficiencies associated with completed capital projects,
increased production throughput and other operating improvements, offset in part
by higher depreciation expense, increased raw materials costs and higher wages
and benefits.
Depreciation costs included in cost of sales increased approximately $11.2
million for the year ended September 30, 1995, as compared with 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 year ended September 30,
1995, increased approximately $1.5 million as compared to the previous fiscal
year. The higher expenses resulted primarily from increased salaries and wages
and outside services.
Interest and other income decreased approximately $1.1 million during the year
ended September 30, 1995, as compared to the previous fiscal year as a result of
a decrease in the amount of invested cash and cash equivalents.
Interest expense increased approximately $8.9 million during the year ended
September 30, 1995, as compared to the previous fiscal year. Interest expense
increased due to higher levels of borrowing and decreased capitalized interest
during the year ended September 30, 1995 offset, in part, by a reduction in
interest rates as a result of restructuring the Company's debt during fiscal
year 1994.
Other expense was $2.4 million for the year ended September 30, 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 provision for income taxes for the year ended September 30, 1995, was
reduced by utilization of a net operating loss carryforward and a $1.2 million
income tax benefit resulting from a reassessment of the Company's deferred
income tax liabilities. As a result, the Company's effective tax rate was 24%
for the year ended September 30, 1995.
Geneva Steel 13
<PAGE> 7
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 principally from the incurrence of additional long-term
indebtedness, including borrowings under the Company's credit facilities,
equipment lease financing and cash provided by operations.
In March 1993, the Company issued in a public offering $135 million principal
amount of 11 1/8% senior notes (the "11 1/8% Senior Notes" and, together with
the 9 1/2% Senior Notes discussed below, the "Senior Notes"). The 11 1/8% Senior
Notes mature in 2001, are unsecured and require interest payments semi-annually
on March 15 and September 15. After March 1998, the 11 1/8% Senior Notes are
redeemable, in whole or in part, at the option of the Company, subject to
certain redemption premiums. A portion of the proceeds from the 11 1/8% Senior
Notes offering was used to repurchase, at par value, approximately $70 million
aggregate principal amount of term debt.
In connection with the offering of the 11 1/8% Senior Notes, the Company issued
$40 million of 14% cumulative redeemable exchangeable preferred stock (the
"Redeemable Preferred Stock") at a price of $100 per share and warrants to
purchase an aggregate of 1,132,000 shares of Class A common stock. The
Redeemable Preferred Stock consists of 400,000 shares, no par value, with a
liquidation preference of approximately $151 per share as of September 30, 1996.
Dividends accrue at a rate equal to 14% per annum of the liquidation preference
and, except as provided below, are payable quarterly in cash from funds legally
available therefor. Prior to April 1996, the Company elected to add the
dividends to the liquidation preference. The Redeemable Preferred Stock is
exchangeable, at the Company's option, into subordinated debentures of the
Company due 2003 (the "Exchange Debentures"). The Company is obligated to redeem
all of the Redeemable Preferred Stock in March 2003 from funds legally available
therefor. The Company's ability to pay cash dividends on the Redeemable
Preferred Stock is subject to the covenants and tests contained in the
indentures governing the Senior Notes and in the Company's revolving credit
facility. Restricted payment limitations under the Company's 11 1/8% Senior
Notes precluded payment of the preferred stock dividends due on June 15, 1996,
September 15, 1996 and December 15, 1996. Unpaid dividends were approximately
$4.7 million at September 30, 1996. Unpaid dividends accumulate until paid and
accrue additional dividends at a rate of 14% per annum. In the event that the
Company fails to pay dividends on the Redeemable Preferred Stock in an amount
equal to four full quarterly dividends, then the holders of the Redeemable
Preferred Stock have the right to elect not less than 25 percent of the members
of the board of directors. The right of such holders to elect directors
continues until the Company has paid all dividends in arrears and has paid the
dividends due for two consecutive quarters thereafter. After March 1998, both
the Redeemable Preferred Stock and/or the Exchange Debentures are redeemable, at
the Company's option, subject to certain redemption premiums. While not
affecting net income/loss, dividends and the accretion required over time to
amortize the original issue discount associated with the Redeemable Preferred
Stock will negatively impact quarterly earnings per share by approximately $.15
per share. The warrants to purchase the Company's Class A common stock are
exercisable at $11 per share, subject to adjustment in certain circumstances,
and expire in March 2000.
In February 1994, the Company completed a public offering of $190 million
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. After January 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. A portion of the proceeds from the 9 1/2% Senior
Notes offering was used to repay the Company's remaining outstanding term debt
of approximately $90 million aggregate principal amount and to pay contractual
prepayment premiums of approximately $12.3 million.
14 Geneva Steel
<PAGE> 8
On May 14, 1996, the Company amended and restated its revolving credit facility
(the "Revolving Credit Facility") with a syndicate of banks led by Citicorp USA,
Inc., as agent, 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 $125 million, is secured by the Company's inventories, accounts
receivable, general intangibles, and proceeds thereof, and expires on May 14,
2000. Interest is payable monthly at the defined base rate (8.25% at September
30, 1996) plus 1.50% or the defined LIBOR rate (5.47% at September 30, 1996)
plus 2.75%. The Company pays a monthly commitment fee based on an annual rate of
.50% of the average unused portion of the borrowing limit under the Revolving
Credit Facility. The amount available to the Company under the Revolving Credit
Facility ranges between 50 to 60 percent, in the aggregate, of eligible
inventories plus 85 percent of eligible accounts receivable. Borrowing
availability under the Revolving Credit Facility is also subject to other
financial tests and covenants. The Company's receivables securitization facility
was terminated in connection with the amendment. As of September 30, 1996, the
Company's eligible inventories and accounts receivable supported access to
$113.0 million under the Revolving Credit Facility. As of September 30, 1996,
the Company had $63.4 million in borrowings and $8.4 million in letters of
credit outstanding under the Revolving Credit Facility, leaving $41.2 million in
additional borrowing availability. As a result of the amendment to the Revolving
Credit Facility, the Company significantly increased its borrowing availability.
The terms of the Revolving Credit Facility and the Company's Senior Notes
include cross default and other customary provisions. Financial covenants
contained in the Revolving Credit Facility and/or the Senior Notes also include,
among others, a limitation on dividends and distributions on capital stock of
the Company, a tangible net worth requirement, a cash interest coverage
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 limitations on liens. In the event of a change in control, the Company must
offer to purchase all Senior Notes then outstanding at a premium. Prior to the
most recent amendment to and restatement of the Revolving Credit Facility, the
Company entered into various amendments modifying or waiving the financial
covenants and tests contained in the revolving credit facility.
Besides these and other financing activities, the Company's major source of
liquidity has been cash provided by operating activities. Net cash used for
operating activities was $31.7 million for the year ended September 30, 1996, as
compared with net cash provided by operating activities of $84.1 million and net
cash used by operating activities of $28.0 million for the years ended September
30, 1995 and 1994, respectively. The uses of cash for operating activities
during the year ended September 30, 1996, resulted primarily from a $13.0
million increase in other current assets, a $31.7 million reduction in fundings
under the Company's receivables securitization facility when the facility was
terminated in May 1996, an increase in accounts receivable of $9.6 million as a
result of increased sales, a decrease in accounts payable of $8.4 million, a
decrease in the net deferred tax liability of $3.6 million, an increase in
inventories of $3.2 million and a net loss of $7.2 million. These uses of cash
flow were offset by depreciation and amortization of $44.4 million. Subsequent
to September 30, 1996, the Company received from its insurers a $5 million
advance in partial payment of the claim related to the power outage described
above.
Capital expenditures were $26.4 million, $68.0 million and $164.9 million for
fiscal years 1996, 1995 and 1994, respectively. Capital expenditures for 1996
were lower than expected as a result of the longer-than-anticipated performance
of one of its blast furnaces. Capital expenditures for fiscal year 1997 are
estimated at $35 to $40 million, which includes $8.0 million in capital spending
previously scheduled for fiscal year 1996 for the blast furnace reline. Capital
projects for fiscal year 1997 consist of a blast furnace reline, installation of
rolling mill finishing stand equipment and various other projects designed to
reduce costs and increase product quality and throughput. The Company
anticipates that it may incur significant start-up and transition costs when the
rolling mill finishing stand equipment is installed and implemented. Depending
on market, operational, liquidity and other factors, the Company
Geneva Steel 15
<PAGE> 9
may elect to adjust the design, timing and budgeted expenditures of its capital
plan. In addition, the Revolving Credit Facility contains certain limitations on
capital expenditures.
The Company formed a joint venture with certain unrelated parties, which in turn
entered into a cooperative agreement with the United States Department of Energy
("DOE") for the demonstration of a COREX(R) direct ironmaking facility and
associated power generation and air separation facilities. As of September 30,
1996, the Company had spent approximately $822,000 in connection with the
COREX(R)project, which was included in construction in progress in the
accompanying consolidated financial statements. Expenditures on the project are
subject to government cost share arrangements. Completion of the project remains
subject to several contingencies. Under certain circumstances, the Company may
be required to repay some or all of the government cost share funds in the
event the project is terminated.
The Company is required to make substantial interest and dividend payments on
the Senior Notes, its Redeemable Preferred Stock and outstanding balances under
the Revolving Credit Facility. Currently, the Company's annual cash interest
expense is approximately $37 million and its annual preferred stock dividends
are approximately $8.9 million.
FACTORS AFFECTING FUTURE RESULTS
The Company's future operations will be impacted by, among other factors,
pricing, product mix, throughput levels and production efficiencies. As stated
above, near term operating results will be adversely affected by weakened
pricing and volume due to, among other factors, a recent surge in unfairly
traded imports. The Company has efforts underway to increase throughput and
production efficiencies and to continue shifting its product mix to
higher-margin products. There can be no assurance that the Company's efforts
will be successful or that sufficient demand will exist to support the Company's
additional throughput capacity. Pricing in future periods is a key variable that
remains subject to significant uncertainty. Future pricing will be affected by
several factors, including the level of imports, the outcome of the Plate Trade
Cases, future capacity additions, and other market factors.
The short-term and long-term liquidity of the Company also is dependent upon
several factors, including 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.
Although the Company believes that the anticipated cash from future operations
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 current leverage situation, its financial flexibility
is limited.
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.
This annual report contains certain forward-looking statements with respect to
the Company that are subject to risks and uncertainties that include, but are
not limited to, those identified in this report, described from time to time in
the Company's other Securities and Exchange Commission filings or discussed in
the Company's press releases. Actual results may vary materially from
expectations.
16 Geneva Steel
<PAGE> 10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GENEVA STEEL COMPANY:
We have audited the accompanying consolidated balance sheets of Geneva Steel
Company (a Utah corporation) and subsidiaries as of September 30, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Geneva Steel Company
and subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
- --------------------------
Salt Lake City, Utah
October 17, 1996
Geneva Steel 17
<PAGE> 11
Consolidated Balance Sheets
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 597 $ 12,808
Accounts receivable, less allowance for doubtful
accounts of $4,031 and $2,012, respectively 76,527 35,178
Inventories 93,139 89,909
Deferred income taxes 7,637 6,885
Prepaid expenses and other 15,410 2,661
Related party receivable 250 --
-------------------------
Total current assets 193,560 147,441
-------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,990 1,941
Buildings 16,109 16,092
Machinery and equipment 600,290 576,066
Mineral property and development costs 8,425 8,425
-------------------------
626,814 602,524
Less accumulated depreciation (172,291) (132,134)
-------------------------
Net property, plant and equipment 454,523 470,390
-------------------------
OTHER ASSETS 9,303 10,966
-------------------------
$657,386 $ 628,797
-------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
18 Geneva Steel
<PAGE> 12
Consolidated Balance Sheets (Continued)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable 59,575 $ 67,939
Accrued liabilities 23,035 19,045
Accrued payroll and related taxes 10,867 10,667
Production prepayments 9,763 10,000
Accrued interest payable 4,746 4,610
Accrued pension and profit sharing costs 2,259 2,135
--------------------------
Total current liabilities 110,245 114,396
--------------------------
LONG-TERM DEBT 388,431 342,033
--------------------------
DEFERRED INCOME TAX LIABILITIES 10,446 13,263
--------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
REDEEMABLE PREFERRED STOCK, SERIES B, NO PAR VALUE;
400,000 shares authorized, issued and outstanding,
with a liquidation value of $60,443 and $56,753, respectively 55,437 51,031
--------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 3,600,000 shares authorized
for all series, excluding Series B, none issued -- --
Common stock-
Class A, no par value; 60,000,000 shares authorized, 14,705,265 and
14,695,265 shares issued, respectively 87,979 87,926
Class B, no par value; 50,000,000 shares authorized, 19,151,348
and 19,251,348 shares issued and outstanding, respectively 10,110 10,163
Warrants to purchase Class A common stock 5,360 5,360
Retained earnings 5,077 22,754
Less 1,194,897 and 1,379,863 Class A common stock treasury shares,
respectively, at cost (15,699) (18,129)
--------------------------
Total stockholders' equity 92,827 108,074
--------------------------
$ 657,386 $ 628,797
--------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Geneva Steel 19
<PAGE> 13
Consolidated Statements of Operations
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
<S> <C> <C> <C>
Net sales $ 712,657 $ 665,699 $ 486,062
Cost of sales 662,307 594,191 470,548
-------------------------------------------
Gross margin 50,350 71,508 15,514
Selling, general and administrative expenses 24,621 23,795 22,305
-------------------------------------------
Income (loss) from operations 25,729 47,713 (6,791)
-------------------------------------------
Other income (expense):
Interest and other income 552 520 1,583
Interest expense (36,199) (30,579) (21,722)
Other expense (1,749) (2,386) --
-------------------------------------------
(37,396) (32,445) (20,139)
-------------------------------------------
Income (loss) before provision (benefit) for income taxes
and extraordinary item (11,667) 15,268 (26,930)
Provision (benefit) for income taxes (4,429) 3,664 (10,234)
-------------------------------------------
Income (loss) before extraordinary item (7,238) 11,604 (16,696)
Loss on early extinguishment of debt (net of benefit for
income taxes of $4,429) -- -- (9,534)
-------------------------------------------
Net income (loss) (7,238) 11,604 (26,230)
Less redeemable preferred stock dividends and
accretion for original issue discount 9,089 7,998 7,046
-------------------------------------------
Net income (loss) applicable to common shares $ (16,327) $ 3,606 $ (33,276)
-------------------------------------------
Income (loss) per common share before extraordinary item $ (1.07) $ .24 $ (1.57)
Extraordinary item per common share -- -- (.63)
-------------------------------------------
Net income (loss) per common share $ (1.07) $ .24 $ (2.20)
-------------------------------------------
Weighted average common shares outstanding 15,309 15,330 15,129
-------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20 Geneva Steel
<PAGE> 14
Consolidated Statements of Stockholders' Equity
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES ISSUED AMOUNT WARRANT TO
COMMON COMMON COMMON COMMON PURCHASE
CLASS A CLASS B CLASS A CLASS B COMMON CLASS A
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 14,360,886 22,595,138 $ 86,094 $ 11,929 $ 5,360
Exercise of options to purchase
Class A common stock -- -- (76) -- --
Conversion of Class B common
stock into Class A common stock 195,545 (1,955,450) 1,033 (1,033) --
Issuance of Class A common stock
to employee savings plan -- -- 142 -- --
Redeemable preferred stock -- -- -- -- --
dividends
Redeemable preferred stock
accretion for original
issue discount -- -- -- -- --
Net loss -- -- -- -- --
------------------------------------------------------------------------------------------
Balance at September 30, 1994 14,556,431 20,639,688 87,193 10,896 5,360
Conversion of Class B common
stock into Class A common stock 138,834 (1,388,340) 733 (733) --
Issuance of Class A common stock
to employee savings plan -- -- -- -- --
Redeemable preferred stock -- -- -- -- --
dividends
Redeemable preferred stock
accretion for original
issue discount -- -- -- -- --
Net income -- -- -- -- --
------------------------------------------------------------------------------------------
Balance at September 30, 1995 14,695,265 19,251,348 87,926 10,163 5,360
Conversion of Class B common
stock into Class A common stock 10,000 (100,000) 53 (53) --
Issuance of Class A common stock
to employee savings plan -- -- -- -- --
Redeemable preferred stock -- -- -- -- --
dividends
Redeemable preferred stock
accretion for original
issue discount -- -- -- -- --
Net loss -- -- -- -- --
------------------------------------------------------------------------------------------
Balance at September 30, 1996 14,705,265 19,151,348 $ 87,979 $ 10,110 $ 5,360
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RETAINED TREASURY
EARNINGS STOCK TOTAL
<C> <C> <C>
Balance at September 30, 1993 $52,542 $(20,150) $135,775
Exercise of options to purchase
Class A common stock -- 449 373
Conversion of Class B common
stock into Class A common stock -- -- --
Issuance of Class A common stock
to employee savings plan -- 650 792
Redeemable preferred stock (6,358) -- (6,358)
dividends
Redeemable preferred stock
accretion for original
issue discount (688) -- (688)
Net loss (26,230) -- (26,230)
---------------------------------------------------
Balance at September 30, 1994 19,266 (19,051) 103,664
Conversion of Class B common
stock into Class A common stock -- -- --
Issuance of Class A common stock
to employee savings plan (118) 922 804
Redeemable preferred stock (7,296) -- (7,296)
dividends
Redeemable preferred stock
accretion for original
issue discount (702) -- (702)
Net income 11,604 -- 11,604
---------------------------------------------------
Balance at September 30, 1995 22,754 (18,129) 108,074
Conversion of Class B common
stock into Class A common stock -- -- --
Issuance of Class A common stock
to employee savings plan (1,350) 2,430 1,080
Redeemable preferred stock (8,372) -- (8,372)
dividends
Redeemable preferred stock
accretion for original
issue discount (717) -- (717)
Net loss (7,238) -- (7,238)
---------------------------------------------------
Balance at September 30, 1996 $ 5,077 $(15,699) $ 92,827
---------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Geneva Steel 21
<PAGE> 15
Consolidated Statements of Cash Flows
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH AND CASH EQUIVALENT
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (7,238) $ 11,604 $ (26,230)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 42,077 37,293 26,111
Amortization of loan fees 2,338 2,015 3,759
Deferred income tax provision (benefit) (3,569) 6,378 (15,619)
(Increase) decrease in current assets-
Accounts receivable, net (41,349) 12,729 (1,650)
Inventories (3,230) (3,900) (22,779)
Prepaid expenses and other (12,999) 177 (1,412)
Increase (decrease) in current liabilities-
Accounts payable (8,364) 10,918 4,039
Accrued liabilities (692) 3,572 1,320
Accrued payroll and related taxes 1,279 2,293 1,392
Production prepayments (237) -- --
Accrued interest payable 136 30 3,047
Accrued pension and profit sharing costs 124 1,021 4
------------------------------------------
Net cash provided by (used for) operating activities (31,724) 84,130 (28,018)
------------------------------------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (26,378) (68,025) (164,918)
Proceeds from sale of property, plant and equipment 213 15,966 --
Change in other assets 889 (889) --
------------------------------------------
Net cash used for investing activities $ (25,276) $ (52,948) $(164,918)
------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22 Geneva Steel
<PAGE> 16
Consolidated Statements of Cash Flows (Continued)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt $ 59,752 $ - $ 222,348
Payments on long-term debt (13,354) (15,315) (89,991)
Payments for deferred loan costs and other assets (1,563) (1,724) (5,513)
Proceeds from exercise of options to purchase
Class A common stock - - 373
Change in bank overdraft - (1,341) 1,341
Other (46) 6 111
-------------------------------------------
Net cash provided by (used for) financing activities 44,789 (18,374) 128,669
-------------------------------------------
Net increase (decrease) in cash and cash equivalents (12,211) 12,808 (64,267)
Cash and cash equivalents at beginning of year 12,808 - 64,267
-------------------------------------------
Cash and cash equivalents at end of year $ 597 $ 12,808 -
-------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 36,498 $ 34,357 $ 16,559
Income taxes 367 250 512
</TABLE>
Supplemental schedule of noncash financing activities:
For the years ended September 30, 1996, 1995 and 1994, the Company increased the
redeemable preferred stock liquidation preference by $3,690, $7,296 and $6,358,
respectively, in lieu of paying cash dividends. In addition, for the same years,
redeemable preferred stock was increased by $717, $702 and $688, 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 consolidated financial statements are an integral part
of these statements.
Geneva Steel 23
<PAGE> 17
Notes to Consolidated Financial Statements
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company's steel mill manufactures steel slabs and hot-rolled sheet, plate
and pipe products for sale to various distributors, steel processors or
end-users primarily in the western and central United States.
PRINCIPALS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Geneva Steel Company and its wholly-owned subsidiaries (collectively, the
"Company" ). Intercompany balances and transactions have been eliminated in
consolidation.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid income-earning securities with an initial maturity of ninety days or less
to be cash equivalents. Cash equivalents are stated at cost plus accrued
interest, which approximates fair market value. The Company's cash management
system utilizes a revolving credit facility with a syndicate of banks (see Note
2).
INVENTORIES
Inventories include costs of material, labor and manufacturing overhead.
Inventories are stated at the lower of cost (using a weighted-average method) or
market value. The composition of inventories as of September 30, 1996 and 1995
was as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $31,064 $27,784
Semi-finished and finished goods 53,604 54,191
Operating materials 8,471 7,934
------------------------
$93,139 $89,909
------------------------
</TABLE>
Operating materials consist primarily of production molds, platforms for the
production molds and furnace lining refractories.
INSURANCE CLAIM RECEIVABLE
A plant-wide power outage caused by unusual weather conditions in January 1996
had a significant effect on operating results during the fiscal year ended
September 30, 1996. The Company is continuing to assess the full financial
impact of the outage and has recorded a portion of the expected loss recovery in
the accompanying fiscal year 1996 consolidated financial statements. The Company
expects that the insurance claim will be settled within the next year.
24 Geneva Steel
<PAGE> 18
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives as follows:
Buildings 31.5 years
Machinery and Equipment 2-30 years
Interest related to the construction or major rebuild of facilities is
capitalized and amortized over the estimated life of the related asset.
Capitalization of interest ceases when the asset is placed in service. The
Company capitalized approximately $2,112, $5,674 and $12,053 of interest during
the years ended September 30, 1996, 1995 and 1994, respectively.
Maintenance and repairs are charged to expense as incurred and costs of
improvements and betterments are capitalized. Upon disposal, related costs and
accumulated depreciation are removed from the accounts and resulting gains or
losses are reflected in income.
Major spare parts and back-up facilities for machinery and equipment are
capitalized and included in machinery and equipment in the accompanying
consolidated financial statements. Major spare parts and back-up facilities are
depreciated using the straight-line method over the useful lives of the related
machinery and equipment.
Costs incurred in connection with the construction or major rebuild of
facilities are capitalized as construction in progress. No depreciation is
recognized on these assets until placed in service. As of September 30, 1996 and
1995, approximately $39,194 and $80,876, respectively, of construction in
progress was included in machinery and equipment in the accompanying
consolidated financial statements.
Mineral property and development costs are depleted using the units of
production method based upon estimated recoverable reserves. Accumulated
depletion is included in accumulated depreciation in the accompanying
consolidated financial statements.
OTHER ASSETS
Other assets consist primarily of deferred loan costs incurred in connection
with obtaining long-term financing. These costs are being amortized on a
straight-line basis over the term of the applicable financing agreement.
Accumulated amortization totaled $4,700 and $3,023 at September 30, 1996 and
1995, respectively.
PRODUCTION PREPAYMENTS
The Company has production prepayment terms with a major customer. The
arrangement previously provided for up to $10,000 in production prepayments upon
entry of new orders. During the year ended September 30, 1996, the Company
completed an amendment increasing the maximum amount of production prepayments
to $15,000. Prepayments are recorded as a production prepayment liability until
the product is shipped, at which time the sale is recorded. As of September 30,
1996 and 1995, production prepayments of $9,763 and $10,000 are included in the
accompanying consolidated financial statements.
REVENUE RECOGNITION
Sales are recognized when the product is shipped to the customer. Sales are
reduced by the amount of customer claims. As of September 30, 1996 and 1995,
reserves for estimated customer claims of $2,502 and $1,202, were included in
the allowance for doubtful accounts in the accompanying consolidated financial
statements.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax consequences of
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the consolidated financial statements that will result in
taxable or deductible amounts in future years when the reported amounts of the
assets and liabilities are recovered or settled.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses, which, when realized, have been within the range
of management's expectations.
Geneva Steel 25
<PAGE> 19
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". The Company is
required to adopt SFAS No. 121 in fiscal year 1997. This new accounting standard
is not expected to have a significant impact on the Company's financial position
or results of operations, when implemented.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based upon the weighted average number of
common and common equivalent shares outstanding during the periods presented.
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 can be converted into Class A common stock at this same
rate. Also, the Class B common stock is entitled to one-tenth of the dividends
and other distributions paid to Class A common stockholders. The holders of both
classes of common stock are entitled to one vote per share.
The net income (loss) for the years ended September 30, 1996, 1995 and 1994 was
adjusted for the 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.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform to the current year presentation.
2. LONG TERM DEBT
The aggregate amounts of principal maturities of long-term debt as of September
30, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Senior term notes issued publicly, interest payable January 15 and July 15
at 9.5%, principal due January 15, 2004, unsecured $190,000 $190,000
Senior term notes issued publicly, interest payable March 15 and
September 15 at 11.125 %, principal due March 15, 2001, unsecured 135,000 135,000
Revolving credit facility from a syndicate of banks, interest is payable monthly
at the defined base rate (8.25% at September 30, 1996) plus 1.50% or the defined
LIBOR rate (5.47% at September 30, 1996) plus 2.75%, due May 14, 2000
(see discussion below), secured by inventories and accounts receivable 63,431 17,033
--------------------------
$388,431 $342,033
==========================
</TABLE>
26 Geneva Steel
<PAGE> 20
The aggregate amounts of principal maturities of long-term debt as of September
30, 1996 were as follows:
YEAR ENDED SEPTEMBER 30,
<TABLE>
<S> <C>
1997 $ --
1998 --
1999 --
2000 63,431
2001 135,000
Thereafter 190,000
------------
$ 388,431
------------
</TABLE>
In May 1996, the Company amended and restated its revolving credit facility (the
"Revolving Credit Facility") with a syndicate of banks led by Citicorp USA,
Inc., as agent, 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 $125,000, is secured by the Company's inventories, accounts receivable,
general intangibles, and proceeds thereof, and expires on May 14, 2000. Interest
is payable monthly at the defined base rate (8.25% at September 30, 1996) plus
1.50%, or the defined LIBOR rate (5.47% at September 30, 1996) plus 2.75%. The
Company pays a monthly commitment fee based on an annual rate of .50% of the
average unused portion of the borrowing limit under the Revolving Credit
Facility. The amount available to the Company under the Revolving Credit
Facility currently ranges between 50 and 60 percent, in the aggregate, of
eligible inventories plus 85 percent of eligible accounts receivable. Borrowing
availability under the Revolving Credit Facility is also subject to other
financial tests and covenants. The Company's receivables securitization facility
was terminated in connection with the amendment. Certain deferred fees
associated with establishing the Company's receivables securitization facility
were expensed during the year ended September 30, 1996.
During the years ended September 30, 1995, and 1994, the Company retired certain
term loans and revolving credit facilities. Deferred loan costs applicable to
debt retired were expensed by the Company and are included in the accompanying
consolidated financial statements.
The terms of the Revolving Credit Facility and the Company's $190,000 9 1/2%
Senior Notes issued in January 1994 (the "9 1/2% Senior Notes") and $135,000 11
1/8% Senior Notes issued in March 1993 (the "11 1/8% Senior Notes" and together
with the 9 1/2% Senior Notes the "Senior Notes") include cross default and other
customary provisions. Financial covenants contained in the Revolving Credit
Facility and/or the Senior Notes also include, among others, a limitation on
dividends and distributions on capital stock of the Company, a tangible net
worth requirement, a cash interest coverage 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 limitations on liens.
Based on such covenants, as of September 30, 1996, all of the Company's retained
earnings balance was restricted from payment of cash dividends. In the event of
a change in control, the Company must offer to purchase all Senior Notes then
outstanding at a premium. The Company is in compliance with the covenants and
tests contained in the Revolving Credit Facility and the Senior Notes.
The Company estimates that the aggregate fair market value of its debt and
related obligations was approximately $323,531 as of September 30, 1996. These
estimates were based on quoted market prices or current rates offered for debt
with similar terms and maturities.
3. MAJOR CUSTOMER (DISTRIBUTOR) AND INTERNATIONAL SALES
During the years ended September 30, 1996, 1995, and 1994, the Company derived
approximately 31%, 36%, and 42%, respectively, of its net sales through one
customer, which is a distributor to other companies. International sales during
the years ended September 30, 1996, 1995 and 1994 did not exceed 10%.
Geneva Steel 27
<PAGE> 21
4. INCOME TAXES
The provision (benefit) for income taxes as of September 30, 1996, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income tax provision (benefit):
Federal $ (752) $ (2,375) $ 1,163
State (108) (339) (207)
----------------------------------------
(860) (2,714) 956
----------------------------------------
Deferred income tax provision (benefit):
Federal (3,123) 4,543 (9,080)
State (446) 649 (924)
Change in valuation allowance -- 1,186 (1,186)
----------------------------------------
(3,569) 6,378 (11,190)
----------------------------------------
Provision (benefit) for income taxes $ (4,429) $ 3,664 $(10,234)
----------------------------------------
</TABLE>
The provision (benefit) for income taxes as a percentage of income (loss) for
the years ended September 30, 1996, 1995 and 1994 differs from the statutory
federal income tax rate due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax rate (35.0)% 35.0% (35.0)%
State income taxes, net of federal income tax impact (3.3) 3.3 (3.3)
Change in valuation allowance -- (7.8) 4.4
Reassessment of deferred income tax liabilities -- (8.0) --
Other 0.3 1.5 (4.1)
------------------------------------
Effective income tax rate (38.0)% 24.0% (38.0)%
------------------------------------
</TABLE>
28 Geneva Steel
<PAGE> 22
INCOME TAXES (CONTINUED)
The components of the net deferred income tax assets and liabilities as of
September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 26,019 $ 16,346
Inventory costs capitalized 4,604 3,949
Alternative minimum tax credit carryforward 6,464 6,748
Accrued vacation 1,836 1,802
Allowance for doubtful accounts 1,248 956
General business credits 2,978 2,911
Other 188 306
-----------------------
Total deferred income tax assets 43,337 33,018
-----------------------
Deferred income tax liabilities:
Accelerated depreciation (41,323) (34,022)
Mineral property development costs (2,467) (2,335)
Operating supplies (2,356) (3,039)
-----------------------
Total deferred income tax liabilities (46,146) (39,396)
-----------------------
Net deferred income tax liabilities $ (2,809) $ (6,378)
-----------------------
</TABLE>
As of September 30, 1996, the Company had a net operating loss carryforward and
an alternative minimum tax credit carryforward for tax reporting purposes of
approximately $67,935 and $6,464, respectively. The net operating loss
carryforward begins expiring in 2009.
5. COMMITMENTS AND CONTINGENCIES
CAPITAL PROJECTS
The Company has incurred substantial capital expenditures to modernize its
steelmaking, casting, rolling and finishing facilities, thereby reducing overall
operating costs, broadening the Company's product line, improving product
quality and increasing throughput capacity. The Company spent $26,378 and
$68,025 on capital projects during the fiscal years ended September 30, 1996 and
1995, respectively. These expenditures were made primarily in connection with
the Company's ongoing modernization and capital maintenance efforts. Capital
expenditures for 1996 were lower than expected primarily as a result of the
longer-than-anticipated performance of one of its blast furnaces. Capital
expenditures for fiscal year 1997 are estimated at $35,000 to $40,000, which
includes $8,000 in capital spending previously scheduled for fiscal year 1996
for the blast furnace reline. In addition, capital projects for fiscal year 1997
consist of installation of the rolling mill finishing stand equipment and
various other projects designed to reduce costs and increase product quality and
throughput. Depending on market, operational, liquidity and other factors, the
Company may elect to adjust the design, timing and budgeted expenditures of its
capital plan.
The Company formed a joint venture with certain unrelated parties, which in turn
entered into a cooperative agreement with the United States Department of Energy
("DOE") for the demonstration of a COREX(R) direct ironmaking facility and
associated power generation and air separation facilities. As of September 30,
1996, the Company had spent approximately $822 in connection with the COREX(R)
project, which was included in construction in progress in the accompanying
consolidated financial statements. Expenditures on the project are subject to
government cost share arrangements. Completion of the project remains subject to
several contingencies. Under certain circumstances, the Company may be required
to repay some or all of the government cost share funds in the event the project
is terminated.
Geneva Steel 29
<PAGE> 23
LEGAL MATTERS
The Company is subject to various legal matters, which it considers normal for
its business activities. Management, after consultation with the Company's legal
counsel, believes that these matters will not have a material impact on the
financial condition or result of operations of the Company.
ENVIRONMENTAL MATTERS
Compliance with environmental laws and regulations is a significant factor in
the Company's business. The Company is subject to federal, state and local
environmental laws and regulations concerning, among other things, air
emissions, wastewater discharge, and solid and hazardous waste disposal. The
Company believes that it is in compliance in all material respects with all
currently applicable environmental regulations.
The Company has incurred substantial capital expenditures for environmental
control facilities, including the Q-BOP furnaces, the wastewater treatment
facility, the benzene mitigation equipment, the coke oven gas desulfurization
facility and other projects. The Company has budgeted a total of approximately
$200 for environmental capital improvements in fiscal years 1997 and 1998.
Environmental legislation and regulations have changed rapidly in recent years
and it is likely that the Company will be subject to increasingly stringent
environmental standards in the future. Although the Company has budgeted for
capital expenditures for environmental matters, it is not possible at this time
to predict the amount of capital expenditures that may ultimately be required to
comply with all environmental laws and regulations.
Under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), EPA and the states have authority to impose
liability on waste generators, site owners and operators and others regardless
of fault or the legality of the original disposal activity. Other environmental
laws and regulations may also impose liability on the Company for conditions
existing prior to the Company's acquisition of the steel mill.
At the time of the Company's acquisition of the steel mill, the Company and USX
Corporation ("USX") identified certain hazardous and solid waste sites and other
environmental conditions which existed prior to the acquisition. USX has agreed
to indemnify the Company (subject to the sharing arrangements described below)
for any fines, penalties, costs (including costs of clean-up, required studies
and reasonable attorneys fees), or other liabilities for which the Company
becomes liable due to any environmental condition existing on the Company's real
property as of the acquisition date that is determined to be in violation of any
environmental law, is otherwise required by applicable judicial or
administrative action, or is determined to trigger civil liability (the
"Pre-existing Environmental Liabilities"). The Company has provided a similar
indemnity (but without any similar sharing arrangement) to USX for conditions
that may arise after the acquisition. Although the Company has not completed a
comprehensive analysis of the extent of the Pre-existing Environmental
Liabilities, such liabilities could be material.
Under the acquisition agreement between the two parties, the Company and USX
agreed to share on an equal basis the first $20,000 of costs incurred by either
party to satisfy any government demand for studies, closure, monitoring, or
remediation at specified waste sites or facilities or for other claims under
CERCLA or the Resource Conservation and Recovery Act. The Company is not
obligated to contribute more than $10,000 for the clean-up of wastes generated
prior to the acquisition. The Company believes that it has paid the full $10,000
necessary to satisfy its obligations under the cost-sharing arrangement. USX has
advised the Company, however, of its position that a portion of the amount paid
by the Company may not be properly credited against the Company's obligations.
Although the Company believes that USX's position is without merit, there can be
no assurance that this matter will be resolved without litigation. The Company
believes that resolution of this matter will not likely have a material adverse
effect. The Company's ability to obtain indemnification from USX in the future
will depend on factors which may be beyond the Company's control and may also be
subject to dispute.
PURCHASE COMMITMENTS
Effective September 27, 1988, the Company entered into an agreement, which was
subsequently amended on June 8, 1990, to purchase a minimum of approximately 207
million standard cubic feet of oxygen each month. The contract expires on April
1, 1998. The contract price is adjusted semi-annually based on the change in the
Producer Price Index for Industrial Commodities ("PPI"). The Company has agreed
to pay all sales and excise taxes levied against the supplier.
Effective September 1, 1989, the Company entered into an agreement to purchase
interruptible and firm back-up power through January 31, 1999. For interruptible
power, the Company pays an energy charge adjusted annually to reflect changes in
the supplier's average energy costs and facilities charge, based on 90,000
kilowatts, adjusted annually to reflect changes in the supplier's per megawatt
fixed transmission investment. For firm back-up power, the Company pays a
monthly facilities charge based on 20,000 kilowatts that remains constant, and
demand and energy charges based on actual usage. On November 3, 1993, the
Company executed a firm power contract with the same supplier for additional
power needs. Under this contract, the Company will pay the same energy price as
under the interruptible contract and a power charge based on the supplier's
filed industrial tariff.
30 Geneva Steel
<PAGE> 24
Effective July 12, 1990, the Company entered into an agreement, which was
subsequently amended in April 1992, to purchase 100% of the oxygen, nitrogen and
argon produced at a facility located at the Company's steel mill which is owned
and operated by an independent party. The contract expires in September 2006 and
specifies that the Company will pay a base monthly charge that is adjusted
semi-annually each January 1 and July 1 based upon a percentage of the change in
the PPI.
Effective January 1, 1994, the Company entered into a ten-year agreement to
purchase metallurgical coke, which was subsequently amended on April 11, 1996.
The Company has a commitment to purchase a minimum of 274,800 net tons of coke
at a specified price in the third contract year. The quantity and price for
subsequent years will be as agreed by the parties.
Effective September 1, 1994, the Company entered into a five year agreement to
purchase taconite pellets. The Company has commitments to purchase 2,160,000 net
tons in the third year of the contract and 1,890,000 net tons in each of the
fourth and fifth years of the contract. Prices are adjusted each year based on
an index related to the "Cartier Pellets Price."
Effective June 6, 1995, the Company entered into an agreement to purchase 800
tons a day of oxygen from a new plant being constructed at the Company's steel
mill which will be owned and operated by an independent party. Upon completion
of the new oxygen plant, the Company will pay a monthly facility charge which
will be adjusted semi-annually each January 1 and July 1 based on an index. The
contract continues for fifteen years after the completion of the plant.
Effective July 1, 1995, the Company entered into an agreement, which was
subsequently amended in August 1996, to purchase 15,228 MMBTU per day of natural
gas. The contract expires on October 31, 1997. The price is adjusted monthly
based on the index price as reported by "Inside FERC Gas Market Report."
LEASE OBLIGATIONS
The Company leases certain facilities and equipment used in its operations.
Management expects that, in the normal course of business, leases that expire
will be renewed or replaced by other leases. The aggregate commitments under
non-cancelable operating leases at September 30, 1996, were as follows:
YEAR ENDED SEPTEMBER 30,
<TABLE>
<S> <C>
1997 $ 8,457
1998 7,763
1999 7,602
2000 7,431
2001 7,328
Thereafter 31,706
---------
$ 70,287
---------
</TABLE>
Total rental expense for non-cancelable operating leases was approximately
$5,964, $3,931 and $1,505 for the years ended September 30, 1996, 1995 and 1994,
respectively.
LETTERS OF CREDIT
As of September 30, 1995, the Company had outstanding letters of credit totaling
approximately $8,400.
6. REDEEMABLE PREFERRED STOCK
In March 1993, the Company issued $40,000 of 14% cumulative redeemable
exchangeable preferred stock (the "Redeemable Preferred Stock") and related
warrants to purchase an aggregate of 1,132,000 shares of Class A common stock.
The Redeemable Preferred Stock consists of 400,000 shares, no par value, with a
liquidation preference of approximately $151 per share as of September 30, 1996.
Dividends accrue at a rate equal to 14% per annum of the liquidation preference
and, except as provided below, are payable quarterly in cash from funds legally
available therefor. Prior to April 1996, the Company elected to add the
dividends to the liquidation preference. During the years ended September 30,
1996 and 1995, the Company increased the liquidation value of the Redeemable
Preferred Stock to $60,443 and $56,753, respectively, by adding dividends to the
liquidation preference. The Redeemable Preferred Stock is exchangeable, at the
Company's option, into subordinated debentures of the Company due 2003 (the
"Exchange Debentures"). The Company is obligated to redeem all of the Redeemable
Preferred Stock in March 2003 from funds legally available therefor. The
Company's ability to pay cash dividends on the Redeemable Preferred Stock is
subject to the covenants and tests contained in the indentures
Geneva Steel 31
<PAGE> 25
governing the Senior Notes and in the Revolving Credit Facility. Restricted
payment limitations under the Company's 11 1/8% Senior Notes precluded payment
of the preferred stock dividends due on June 15, 1996, September 15, 1996 and
December 15, 1996. Unpaid dividends of approximately $4,682 were included in
accrued liabilities in the accompanying financial statements at September 30,
1996. Unpaid dividends accumulate until paid and accrue additional dividends at
the rate of 14% per annum. In the event that the Company fails to pay dividends
on the Redeemable Preferred Stock in an amount equal to four full quarterly
dividends, then the holders of the Redeemable Preferred Stock have the right to
elect not less than 25 percent of the members of the board of directors. The
right of such holders to elect directors continues until the Company has paid
all dividends in arrears and has paid the dividends due for two consecutive
quarters thereafter. After March 1998, both the Redeemable Preferred Stock
and/or the Exchange Debentures are redeemable, at the Company's option, subject
to certain redemption premiums. The warrants to purchase Class A common stock
are exercisable at $11 per share, subject to adjustment in certain
circumstances, and expire in March 2000.
The Company estimates that the aggregate fair market value of its Redeemable
Preferred Stock was approximately $32,000 at September 30, 1996. The Company
estimates that the aggregate fair market value of its warrants to purchase Class
A common stock was approximately $1,274 at September 30, 1996. The Company's
estimates for the Redeemable Preferred Stock and warrants to purchase Class A
common stock were based on quoted market prices.
7. STOCK OPTIONS
Effective January 2, 1990, the Company granted options to purchase 330,000
shares of Class A common stock to key employees at an exercise price of $10.91
per share. The stock options became fully exercisable on January 2, 1995. The
stock options remain exercisable until the earlier of 90 days after the
employee's termination of employment or ten years from the date such stock
options were granted.
Effective July 20, 1990, the Company's Board of Directors adopted a Key Employee
Plan (the "Employee Plan") which was approved by the Company's stockholders in
January 1991. The Employee Plan provides that incentive and nonstatutory stock
options to purchase Class A common stock and corresponding stock appreciation
rights may be granted. The Employee Plan provides for issuance of up to
1,000,000 shares of Class A common stock, with no more than 750,000 shares of
Class A common stock cumulatively available upon exercise of incentive stock
options.
The Employee Plan Committee (the "Committee"), consisting of outside directors,
determines the time or times when each incentive or nonstatutory stock option
vests and becomes exercisable; provided no stock option shall be exercisable
within six months of the date of grant (except in the event of death or
disability) and no incentive stock option shall be exercisable after the
expiration of ten years from the date of grant. The exercise price of incentive
stock options to purchase Class A common stock shall be at least the fair market
value of the Class A common stock on the date of grant. The exercise price of
nonstatutory options to purchase Class A common stock is determined by the
Committee.
Stock option activity for the years ended September 30, 1996, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE RANGE
<S> <C> <C>
OUTSTANDING AT SEPTEMBER 30, 1993 531,035 $7.88 - 10.91
Granted 128,700 7.75 - 8.66
Exercised (34,200) 10.91
Cancelled (4,100) 7.75-7.88
----------------------------
OUTSTANDING AT SEPTEMBER 30, 1994 621,435 7.75-10.91
Granted 131,100 7.75-8.66
Cancelled (1,200) 7.75-7.88
----------------------------
OUTSTANDING AT SEPTEMBER 30, 1995 751,335 7.75-10.91
Granted 173,438 3.75 - 4.125
Cancelled (15,825) 7.75-7.88
----------------------------
OUTSTANDING AT SEPTEMBER 30, 1996 908,948 $3.75 - 10.91
</TABLE>
Options to purchase 459,320, 356,920 and 237,600 shares of Class A common stock
were exercisable on September 30, 1996, 1995 and 1994, respectively. As of
September 30, 1996, 284,827 shares are available for grant under the Employee
Plan.
32 Geneva Steel
<PAGE> 26
8. EMPLOYEE BENEFIT PLANS
UNION SAVINGS AND PENSION PLAN
The Company has a savings and pension plan which provides benefits for all
eligible employees covered by the collective bargaining agreement. This plan is
comprised of two qualified plans; (1) a union employee savings 401(k) plan with
a cash or deferred compensation arrangement and matching contributions and (2) a
noncontributory defined contribution pension plan.
Participants may direct the investment of funds related to their deferred
compensation in this plan. On March 1, 1996, the Company began to match
participants' contributions to the savings plan at 25% up to 4% of their
compensation. For the pension plan, the Company contributed 5% of each
participant's compensation to this plan from March 1, 1996 through September 30,
1996 and contributed 4 1/2% of each participant's compensation to this plan from
March 1, 1995 through February 29, 1996. For the period from October 1, 1994
through February 28, 1995 and for the year ended September 30, 1994, the Company
contributed 4% of each participant's compensation to this plan. Total
contributions by the Company for the years ended September 30, 1996, 1995 and
1994 were $4,480, $3,485 and $3,086, respectively. The participants vest in
these contributions at 20% for each year of service until fully vested after
five years.
VOLUNTARY EMPLOYEE BENEFICIARY ASSOCIATION TRUST
Effective March 1, 1995, the Company established a voluntary employee
beneficiary association trust ("VEBA Trust") to fund post-retirement medical
benefits for future retiree's covered by the collective bargaining agreement.
Company contributions to the VEBA Trust are ten cents for each hour of work
performed by employees covered by the collective bargaining agreement. In
addition, union employees provide a contribution to the VEBA Trust based on a
reduction from their performance dividend plan payment. No benefits will be paid
from the VEBA Trust prior to March 31, 1998. Eligibility requirements and
related matters will be determined at a later date.
MANAGEMENT EMPLOYEE SAVINGS AND PENSION PLAN
The Company has a savings and pension plan which provides benefits for all
eligible employees not covered by the collective bargaining agreement. This plan
is comprised of two qualified plans: (1) a management employee savings 401(k)
plan with a cash or deferred compensation arrangement and discretionary matching
contributions and (2) a noncontributory defined contribution pension plan.
Participants may direct the investment of funds related to their deferred
compensation in this plan. The employee savings plan provides for discretionary
matching contributions as determined each plan year by the Company's Board of
Directors. The Board of Directors elected to match participants' contributions
to the employee savings plan up to 4% of their compensation during fiscal years
1996, 1995 and 1994. For the pension plan, the Company contributed 5% of each
participant's compensation to this plan from March 1, 1996 through September 30,
1996 and contributed 4 1/2% of each participant's compensation to this plan from
March 1, 1995 through February 29, 1996. For the period from October 1, 1994
through February 28, 1995 and for the year ended September 30, 1994, the Company
contributed 4% of each participant's compensation to this plan. During the years
ended September 30, 1996, 1995 and 1994, total contributions by the Company were
$2,139, $1,981 and $1,780, respectively. The participants vest in the Company's
contributions at 20% for each year of service until fully vested after five
years.
PROFIT SHARING AND BONUS PROGRAMS
The Company has a profit sharing program for full-time union eligible employees.
Participants receive payments based upon operating income reduced by an amount
equal to a portion of the Company's capital expenditures. No profit sharing was
accrued in the years ended September 30, 1996, 1995 and 1994.
The Company also has implemented a performance dividend plan designed to reward
employees for increased shipments. As shipments increase above an annualized
rate of 1.5 million tons, compensation under this plan increases. Payments made
under the performance dividend plan are deducted from any profit sharing
obligations to the extent such obligations exceed the performance dividend plan
payments in any given fiscal year. During the years ended September 30, 1996,
1995 and 1994, performance dividend plan expenses were $9,177, $6,391 and
$1,885, respectively.
SUPPLEMENTAL EXECUTIVE PLANS
The Company maintains insurance and retirement agreements with certain of the
management employees and executive officers. Pursuant to the insurance
agreements, the Company pays the annual premiums and receives certain policy
proceeds upon the death of the retired management employee or executive officer.
Pursuant to the retirement agreements, the Company provides for the payment of
supplemental benefits to certain management employees and executive officers
upon retirement.
Geneva Steel 33
<PAGE> 27
9. RELATED PARTY TRANSACTIONS
On September 27, 1996, the Company entered into an agreement to loan up to $500
to its Chief Executive Officer. On September 27, 1996 and October 4, 1996, the
Company loaned $250 and $210, respectively. The loan is evidenced by a
promissory note which bears interest at the rate of 8.54% and is payable at the
earlier of September 27, 1997 or demand for repayment by the Company. The loan
is secured by interests in real and personal property owned by the Chief
Executive Officer and an affiliated entity.
10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly financial information for the years ended
September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 QUARTERS FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Net sales $ 167,090 $ 159,131 $ 183,105 $ 203,331
Gross margin 12,202 7,805 9,420 20,923
Net income (loss) (1,332) (4,685) (4,360) 3,139
Net income (loss) applicable to common shares (3,496) (6,920) (6,655) 744
Net income (loss) per common share (.23) (.45) (.43) .05
<CAPTION>
1995 QUARTERS FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Net sales $ 164,424 $ 157,213 $ 175,196 $ 168,866
Gross margin 15,944 15,812 23,059 16,693
Net income 1,008 1,131 5,696 3,769
Net income (loss) applicable to common shares (898) (837) 3,667 1,674
Net income (loss) per common share (.06) (.06) .24 .11
</TABLE>
34 Geneva Steel
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement on Form S-8, File No. 33-
40867 and the Company's previously filed Registration Statement on Form S-3,
File No. 33-64548.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Salt Lake City, Utah
December 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 597
<SECURITIES> 0
<RECEIVABLES> 76,527
<ALLOWANCES> 4,031
<INVENTORY> 93,139
<CURRENT-ASSETS> 193,560
<PP&E> 626,814
<DEPRECIATION> 172,291
<TOTAL-ASSETS> 657,386
<CURRENT-LIABILITIES> 110,245
<BONDS> 388,431
55,437
0
<COMMON> 82,390
<OTHER-SE> 10,437
<TOTAL-LIABILITY-AND-EQUITY> 657,386
<SALES> 712,657
<TOTAL-REVENUES> 712,657
<CGS> 662,307
<TOTAL-COSTS> 662,307
<OTHER-EXPENSES> 24,621
<LOSS-PROVISION> 8,616
<INTEREST-EXPENSE> 37,396
<INCOME-PRETAX> (11,667)
<INCOME-TAX> (4,429)
<INCOME-CONTINUING> (7,238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,238)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
